Domestic Tuna Industry Development in the Pacific Islands

The Currentt Siittuation and Consiiderattiions ffor Futture Devellopmentt Assiisttance

2 v 19 Jan

The Current Situation and Considerations for Future Development Assistance

FFA Report 03/01

Robert Gillett January 2003

GILLETT, PRESTON AND ASSOCIATES INC .

Cover photographs

Large-scale and small-scale tuna fishing in the Pacific Islands:

(top) The Nien Feioch, owned by the Chuuk Public Fisheries Corporation catches about 4,500 mt of tuna per year (photo: B. Kumar).

(bottom) Mosese Ciri (age 13) and Molitoni Taro (age 11) were using their father’s skiff for fishing at the FAD off Suva in October 2002 when they hooked three large yellowfin. With a bit of help from nearby boats, the fish were landed and sold to Fiji Fish Company for US$650 (photo: G. Southwick) 4 Table of Contents

EXECUTIVE SUMMARY ...... 7 1.0 INTRODUCTION ...... 11 1.1 BACKGROUND TO THE STUDY ...... 11 1.2 SUMMARY OF THE FIELD WORK...... 11 1.3 OTHER CONSIDERATIONS ...... 12 2.0 COUNTRY-SPECIFIC INFORMATION ...... 13 3.0 DOMESTIC TUNA DEVELOPMENT SUMMARY INFORMATION...... 15 4.0 CONSTRAINTS, OPPORTUNITIES, AND INTERVENTIONS ...... 17 4.1 CONSTRAINTS...... 17 4.2 OPPORTUNITIES...... 20 4.3 INTERVENTIONS ...... 21 5.0 OBSERVATIONS AND CONS IDERATIONS ON TUNA INDUSTRY DEVELOPMENT ...... 22 5.1 WHO IS SUCCESSFUL IN THE TUNA INDUSTRY ?...... 23 5.2 FOREIGN INVESTMENT...... 24 5.3 TUNA MANAGEMENT PLANS ...... 25 5.4 COMMERCIAL INVOLVEMENT OF GOVERNMENTS IN THE TUNA INDUSTRY ...... 26 5.5 SMALL-SCALE TUNA INDUSTRY DEVELOPMENT...... 28 5.6 APPLICABILITY OF SAMOA ALIA FISHING AND ECONOMICS OF SMALL-SCALE FISHERIES...... 29 5.8 AIR FREIGHT...... 32 5.9 DISSEMINATION OF REPORTS AND OTHER ASPECTS OF FISHERIES INFORMATION...... 33 5.10 FISHERIES ASSOCIATIONS ...... 34 5.11 RIGHTS-BASED MANAGEMENT...... 37 5.12 TAXATION...... 38 5.13 FUEL...... 40 5.14 FSM ARRANGEMENT...... 42 5.15 OTHER OBSERVATIONS RELEVANT TO FUTURE DEVELOPMENT ASSISTANCE ...... 43 6.0 CONSIDERATIONS ON FUTURE FFA INVOLVEMENT IN DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 45 6.1 SPECIFIC AREAS FOR FFA INVOLVEMENT ...... 45 6.2 INSTITUTIONAL CONSIDERATIONS ...... 47 7.0 REFERENCES ...... 50

APPENDIX 1 – COUNTRY INFORMATION...... 60 SOLOMON ISLANDS...... 60 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 60 OTHER INDICATORS OF DEVELOPMENT ...... 61 CHANGES FROM PREVIOUS STUDIES...... 62 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 63 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 63 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 64 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 65 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 65 5 PAPUA NEW GUINEA...... 69 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 69 OTHER INDICATORS OF DEVELOPMENT ...... 71 CHANGES FROM PREVIOUS STUDIES...... 72 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 73 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 74 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 75 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 77 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 77 FIJI ...... 81 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 81 OTHER INDICATORS OF DEVELOPMENT ...... 86 CHANGES FROM PREVIOUS STUDIES...... 87 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 88 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 89 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 91 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 92 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 93 FEDERATED STATES OF MICRONESIA...... 97 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 97 OTHER INDICATORS OF DEVELOPMENT ...... 101 CHANGES FROM PREVIOUS STUDIES...... 102 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 104 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 106 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 107 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 108 SAMOA...... 112 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 112 OTHER INDICATORS OF DEVELOPMENT ...... 114 CHANGES FROM PREVIOUS STUDIES...... 115 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 116 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 118 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 119 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 120 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 121 TONGA ...... 124 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 124 OTHER INDICATORS OF DEVELOPMENT ...... 126 CHANGES FROM PREVIOUS STUDIES...... 127 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 128 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 130 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 132 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 133 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 135 TUVALU...... 140 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 140 OTHER INDICATORS OF DEVELOPMENT ...... 142 CHANGES FROM PREVIOUS STUDIES...... 143 6 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 143 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 144 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 145 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 146 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 148 VANUATU...... 151 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 151 OTHER INDICATORS OF DEVELOPMENT ...... 152 CHANGES FROM PREVIOUS STUDIES...... 153 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 155 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 156 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 158 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 159 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 161 MARSHALL ISLANDS ...... 164 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 164 OTHER INDICATORS OF DEVELOPMENT ...... 165 CHANGES FROM PREVIOUS STUDIES...... 167 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 169 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 170 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 171 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 173 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 173 INFORMATION ON PALAU, NAURU, NIUE, KIRIBATI AND THE COOK ISLANDS ...... 176 INVENTORY OF DOMESTIC TUNA INDUSTRY DEVELOPMENT ...... 176 OTHER INDICATORS OF DEVELOPMENT ...... 179 CHANGES FROM PREVIOUS STUDIES...... 180 OTHER CONSIDERATIONS CONCERNING DOMESTIC TUNA INDUSTRY DEVELOPMENT...... 184 CONSTRAINTS IN DOMESTIC TUNA DEVELOPMENT ...... 184 OPPORTUNITIES IN DOMESTIC TUNA DEVELOPMENT ...... 187 INTERVENTIONS TO PROMOTE DOMESTIC INDUSTRY DEVELOPMENT ...... 188 SOME CONSIDERATIONS ON THE SUGGESTED INTERVENTIONS...... 190

APPENDIX 2: PERSONS CONTACTED DURING THE STUDY ...... 192

APPENDIX 3: THE 1995 FFA/ADB TUNA INDUSTRY DEVELOPMENT STUDY...... 196

7 Executive Summary

The study FFA commissioned a study to review the tuna industry situation in a selection of member countries. The specific objectives of the work are to determine the level of development currently in place, identify common constraints that hinder the efforts of the member countries in developing their domestic industries, and highlight the areas that would require additional analysis to further develop domestic tuna industries. A consultant was recruited for the study and began work on October 1, 2002. Between that date and the end of the year, nine countries were visited: Solomon Islands, Papua New Guinea, Fiji, Federated States of Micronesia, Samoa, Tonga, Tuvalu, Vanuatu, and the Marshall Islands. In these countries, contact was made with 37 government fishery officials, 16 other government officials, 79 re presentatives of enterprises in the tuna industry, and 19 individuals from regional organisations, development agencies, and private consulting firms.

Summary indicators 14 pole-and-line vessels, 40 purse seiners, and 495 longliners were based in Pacific Island of domestic tuna countries at the end of 2002. 2,959 citizens of Pacific Island countries were employed industry development aboard these locally-based vessels and 5,555 people worked at the shore facilities of tuna catching and processing firms. Locally-based offshore fishing vessels contribute about US$79.3 million to the GDP of the 14 Pacific Island countries in 1999. There is often a major difference in perception of constraints between the government Constraints to the fishery agency and the private sector within a particular country. In general, the difference is development of local greatest where there is a lack of dialogue between the two parties. Where the perceptions tuna industries are similar, it seems to be due to the personal ini tiative of a fisheries officer, to the presence of an effective fisheries association, or to consultative mechanisms established by recent tuna management plans. Constraints which were cited in several countries and which are amenable to mitigation relate to: · Stability of policies affecting the tuna industry · Credit availability · Fuel cost · Air freight availability · Fisheries taxation difficulties · Excessive government administrative charges and administrative blockages · Low level of entrepreneurial development · Low level of fisheries skill development · Poor government/industry dialogue · Low attractiveness to investors (foreign and local) · Inefficient harbour management · Lack of preparation for HACCP requirements Suggestions for Many of the ideas for interventions offered by the private sector are for studies of situations, development the results of which are already well known to the companies. The purpose these exercises assistance to is often to obtain results which the companies could use to make a point with government promote tuna regulators, claiming the results were impartial and objective. industry growth The items suggested by government fisheries agencies often concern assistance for small- scale commercial fishermen. Judging by the suggestions from government fisheries officials, there seems to be a growing and healthy interest in economic scrutiny of proposed tuna development schemes. Who is successful in In the Pacific Islands region, there are very few cases of small-scale commercial operators the tuna industry ? up-grading to become successful owners of medium-scale tuna vessels, with or without external assistance. The operators of almost all successful tuna fishing companies presently located in the region were originally (1) local (non-fishing) businessmen who identified an opportunity in tuna fishing, (2) managers of local non-tuna fishing businesses who moved laterally into tuna fishing, or (3) managers of overseas fishing companies who moved into the country. 8

There is much current interest in the region in attracting foreign investment to the tuna Investment industry. The findings of the present study suggest that attention should be focussed on improving these efforts. Government officials tend to focus on constraints associated with attracting investments and approving investments, whereas the private fisheries firms seem to emphasize such problems as security of the investment and stability of government policies in the fisheries sector.

Tuna management With respect to domestic tuna industry development, it appears that the tuna management plans plans have had a positive effect. Areas where the plans have been especially helpful in industry promotion are in: · Transparency in the process of government decision making affecting the tuna industry · Stability of policies affecting the tuna industry · Establishment of government/industry consultative mechanisms Government Learning from past difficulties, most of the fisheries officers encountered expressed the involvement in sentiment that the government should refrain from commercial involvement and focus on commercial aspects improving the policy environment. Some difficult issues associated with direct government of the tuna industry involvement in the tuna industry remain: · What should be done with government initiatives that have been set in motion years ago? · If it has been shown that development in the tuna industry should be private sector driven, what is to be done in countries where the private sector is virtually non-existent? · Although much has been learned about government commercial involvement by those who experienced first-hand the large failures, what about those people who were not exposed to those problems and who are presently in decision-making positions? Small-scale tuna The governments of all Pacific Island countries feel an obligation to help small-scale fishers industry development and there has been much enthusiasm in linking this with the large tuna resources of the region. In reviewing the history of development of small-scale tuna fisheries, one of the few initiatives that has been successful and continues to thrive is the FAD. Noting the relative success of the FAD, it is ironic that very few countries in the region have effective on-going FAD programmes. Samoa Alia Fishing In visiting countries of the region and studying the various documents on tuna industry development, a striking feature is how often the concept of promoting a Samoa alia -type longline tuna fishery is mentioned. Fisheries officers from at least seven Pacific Island countries have come to Samoa to investigate the applicability of alia tuna fishing to their countries. None of these investigations or trials has ever resulted in the establishment of an alia longline tuna fishery. A quick comparison of some economic features between Samoa and Fiji (where there have been past efforts at alia longlining) offers some insight, and stresses the need for basic economic and technical evaluation of a tuna industry development project before the stage that major costs are incurred. Credit Some points of interest concerning credit that have emerged during the present study: · The facilitation of credit for fisheries enterprises was the intervention that was cited most often as being important for promoting tuna industry development. · There is a common belief in the region that, once the financial institutions learn about the tuna industry, loan funds will flow more easily. At least in some countries, the opposite has occurred. · Credit has been a major factor in some of the tuna industry success stories in the region. Air freight Most interventions suggested to improve the airfreight situation seem to fall into two categories: · “Help with air freight situation”, usually meaning the provision of subsidies · Additional information about air freighting fish to determine either options for improving the national situation or company action to accommodate inevitable changes 9

Dissemination of If the private sector is to be the engine of tuna industry development in the region, then reports getting appropriate FFA reports (as well as other relevant information) to the private sector is crucially important in the tuna industry development process in the region. Fisheries There is a growing consensus in the region that fisheries associations are a very positive associations force in industry development and should be supported. Enhancement of fisheries associations could result in benefits which endure long past the period of assistance. How they should be supported is much less clear. Rights-based As there appears to be considerable potential for the use of rights-based management in management development, this has implications for donor support. To encourage progress, interventions are required for (1) continuing the process of sensitising government officials to the advantages of the rights-based system, and (2) improving the basic prerequisites of the system: policy stability and licensing integrity. Taxation During the country visits a surprising amount of interest in fisheries taxation was noted. This attention came from very different perspectives. On the government side, there seemed to be the perception in some countries of an opportunity to tax a newly profitable industry. In other countries, fisheries officers viewed the possibility of a change in tax regimes as a threat to recent progress in fisheries industry development. Many private sector participants were interested in the possibility of changing what they perceived to be unfair tax provisions. Fuel Fuel costs are critically important to tuna fishing operations. In all the countries of the region where there is a thriving locally-owned tuna industry, there are major fuel duty/tax concessions. Conversely, in the countries where fuel prices are highest, there is little tuna industry development. FFA involvement in Certain types of development assistance would be especially important in the tuna industry promotion of development process in the region. Many of these areas of assistance lie within FFA’s domestic industry mandate. These are: development · Rigorous technical and economic evaluations of planned or desired projects · Identifying opportunities for tuna-related development · Improvements to the fisheries credit situation · Reviewing investment conditions · Improvements to the fuel situation · Information on the future of foreign fleets that are important for servicing by Pacific Island countries · Additional support to tuna management plans · Enhancement of fishery associations · Assessment of infrastructure needs and in evaluation of the economic return of infrastructure · Improvements to the air freight situation · Improvements to the effectiveness of the FSM Arrangement · Promotion of rights-based management · Compilation of joint venture experiences · Privatization of government-owned fisheries enterprises Changes at FFA FFA’s recent emphasis on domestic tuna industry development represents a new dimension in Agency activities. As compared to past work, this role involves different objectives, clients, and ways of judging success. To be effective in tuna industry work, certain changes in established FFA procedures and attitudes will be required, including: · The degree of constructive criticism · Direct contact with private sector · Information dissemination

1.0 Introduction

1.1 Background to the Study

Forum Fisheries Agency member countries are determined to see an improvement in the level of economic benefits they receive from their tuna resources, and become less reliant on revenue from access rights sold to the distant water fishing fleets. It has been recognised that in order to achieve improvement in the level of economic benefits, Pacific Island Countries1 need to develop their domestic tuna industries.

This issue has been recognised in the FFA Corporate Plan 2002-2005. The Plan specifies that one of the six corporate objectives of FFA is “to help member countries develop their tuna resources by making available policy, technical, financial and legal advice, assisting in human resource development, and raising public understanding of the tuna industry”.

In support of this objective, FFA commissioned a study to review the tuna industry situation in a selection of member countries. The specific objectives of the work are to determine the leve l of development currently in place, identify common constraints that hinder the efforts of the member countries in developing their domestic industries, and highlight the areas that would require additional analysis to further develop domestic tuna industries.

Discussions between FFA and the study consultant clarified a number of issues. Staff of the Agency indicated that the target audience for the work is to be FFA and development agencies involved in the Pacific Islands region. The report should also be appropriate for FFA member countries. It was also clarified that the thrust of the report should be what FFA should do to promote tuna industry development in member countries, focussing on common themes that could be addressed by similar activities in several countries.

1.2 Summary of the Field Work

A consultant was recruited for the study and began work on October 1, 2002. Between that date and the end of the year, nine countries were visited: Solomon Islands, Papua New Guinea, Fiji, Federated States of Micronesia, Samoa, Tonga, Tuvalu, Vanuatu, and the Marshall Islands. In these countries, contact was made with 37 government fishery officials, 16 other government officials, 79 representatives of enterprises in the tuna industry, and 19 individuals from regional organisations, development agencies, and private consulting firms. In addition to the countries visited, telephone contact was made with 5 people in Palau, Nauru, Niue, and the Cook Islands. To take advantage of the results of other revi ews and previous work on domestic tuna industries, considerable time was spent studying relevant literature. Section 7.0 lists the 148 document used as background material for the present study.

Each country visit involved from two to four working days. Usually the government fishery agency was first visited, followed by meetings with private sector participants in the tuna industry. Where possible, government investment promotion agencies and associations relevant to the tuna industry were also contacted. The main outputs of

1 In this report the term “Pacific Island country” is synonymous with “FFA Pacific Island member country”. 12 each country visit were a snapshot of the domestic tuna industry in late 2002, an articulation of the factors that constrain development, and perceptions of desirable interventions to increase benefits from the domestic tuna industry.

1.3 Other Considerations

During the country visits and subsequent analysis, additional attention was focussed on four subjects: · Private sector concerns: As the development policies of most countries in the study indicate that the private sector is to be the primary engine for growth, considerable effort was made to gain insight into the thinking of commercial operators and to incorporate those perceptions into the study findings. · Historical reviews: Recognizing that in several countries there have been a large number of reviews and investigations of the domestic tuna industry situation, the results of previous studies were considered in order to profit from that work and to avoid repetition. Especially valuable in this respect were the FFA/ADB tuna industry study series of the mid-1990s and the more recent Chapman/SPC reports. · Learning lessons from the past: As there have been almost a half century of attempts to develop the tuna industry in Pacific Island countries, there are numerous successes and failures that could provide valuable information applicable to future endeavours. Attempts were therefore made at deriving important lessons-learned. · Challenging of development models: Countries and regional agencies have many decades of experience carrying out fisheries development projects. In some cases, they are quite comfortable with the mechanisms they have used for many years to encourage tuna industry development: government-led demonstration fishing, training the trainers, up -grading small-scale commercial fishermen, etc.. A critical look at the established models in light of the successful development which has occurred was thought timely and was undertaken to some extent. It is intended that treatment of this subject is provocative and stimulates constructive discussion.

One of the stated purposes of this study is to determine the level of tuna-related development. As this information could be important for gauging future progress, an attempt was made to develop simple quantitative indicators of the level of domestic activity related to the tuna industry. The indicators used are the numbers of: · Active locally-based tuna vessels in late 2002 · Canneries and dedicated loining facilities in late 2002 · Air export packing and value adding faciliti es in late 2002 · Local jobs on vessels in late 2002 · Local tuna company jobs on shore in late 2002 · Frozen tuna exports for year 2001 · Fresh tuna exports for year 2001 · Cases canned tuna produced for year 2001

The category “active locally-based tuna vessels” requires some explanation. Although the study focused on medium- and large-scale operations, in some countries such vessels do not exist. To gain an appreciation of the level of development in those countries and to provide one basis for gauging future progress, the number of small- scale commercial vessels was used as the indicator in three countries of the study. The vessel category in the industry development table (Section 3.0) thus becomes the number of “most industrial” vessels in each country.

The category “locally-based vessels” was used, rather than domestically-flagged vessels, for two main reasons: (1) During the short country visits it was not possible to verify the stated nationality of vessel registration (some discrepancies were noted), and (2) considerable benefits accrue to countries which host locally-based foreign vessels.

The study takes a broad view of domestic tuna industry development and includes most activities that produce domestic benefits. Employment of Pacific Islanders on foreign fishing vessels was, however, not included for several reasons. The subject has received considerable attention in the Pacific Islands in the late 1990s during the 1997 FFA study titled “The Employment of Pacific Islanders Aboard Foreign Fishing Vessels” and the situation has not changed substantially since then. The issues, constraints, opportunities, and required development assistance are considerably different for foreign -going crew than for domestic enterprise development. Finally, the time allotted for the present study would not allow sufficient coverage of these two distinct topics.

2.0 Country-Specific Information

To collect country-specific information, nine countries were visited by the study consultant. The FFA Project Economist, Josie Tamate, collected information in Kiribati in early December during a visit to Tarawa for work on that country’s tuna management plan. The dates of the country visits were:

Country Dates Visited in 2002 1. Solomon Islands October 4 to 10, December 6 to 12 2. Papua New Guinea October 12 to 18 3. Fiji October 28 to November 1 4. Federated States of Micronesia November 4 to 9 5. Samoa November 12 to 15 6. Tonga November 16 to 20 7. Tuvalu November 25 to 28 8. Vanuatu December 2 to 5 9. Marshall Islands December 17 to 20 10. Kiribati Visited by FFA Project Economist in early December 11. Palau, Nauru, Niue, Cook Islands Not visited

Ideally, a study of domestic tuna industry in the Pacific Islands would entail a visit to each country. Unfortunately, funding constraints dictated that not all FFA member countries could be visited. Although it was not possible to include Palau, Nauru, Niue, and the Cook Islands in the field visits, information on those areas was collected by a variety of means. This included telephone convers ations with key individuals, published reports, documents related to tuna management plans, and recent work in those countries by FFA staff, SPC staff, and consultants.

Appendix 1 of this report summarizes the information for each country. As the information collected and thoughts on aspects of tuna industry development evolved as the study proceeded, the reports on the country visits are in the order in which the countries were visited.

Section 3.0 gives a summary of indicators of tuna industry development for all countries.

During the course of the country visits, certain issues concerning domestic tuna industry development were identified, patterns emerged, and impressions were formed. These topics became the basis of the discussion in sections 5.1 to 5.15 of this report.

3.0 Domestic Tuna Development Summary information

Information on the level of domestic tuna industry development is given in Appendix 1 for each country. The table below uses simple quantitative indicators to summarize the activity in late 2002.

Active Canneries Air Local Local Frozen Fresh Cases Locally- and Export Jobs Jobs at Tuna Tuna Canned Based Dedicated Packing on Shore Exports Exports Tuna Tuna Loining & Value vessels Facilities 2001(MT) 2001(MT) Produced Vessels2 Facilities Adding 2001 Facilities Solomon 12 P/L 1 1 464 422 11,700 1,200 8,800 Islands 2 P/S 8 L/L PNG 40 L/L 1 7 460 2,707 59,532 2,010 1,464,158 24 P/S Fiji 96 L/L 2 6 893 1,496 12,582 3,630 360,000 1 P/L FSM 34 L/L 0 4 89 131 19,550 2,660 0 8 P/S Samoa 153 L/L 0 4 674 108 5,451 1,350 0 Tonga 26 L/L 0 4 161 85 2,677 2,634 0 Tuvalu 20 skiffs 0 1 59 36 0 0 0 Vanuatu 10 skiffs 0 0 54 30 0 0 0 Marshall 54 L/L 1 2 5 457 42,531 76 0 Islands 5 P/S Palau 71 L/L 0 2 1 11 234 1,893 0 1 P/L Nauru 1 L/L 0 0 5 10 0 6 0 Niue 100 0 0 5 0 0 0 0 skiffs Kiribati 2 L/L 0 2 39 47 0 2 0 1 P/S Cook 10 L/L 0 3 50 15 0 5 0 Islands Total3 14 P/L 5 36 2,959 5,555 154,257 15,466 1,832,958 40 P/S 495 L/L

In summary, 14 pole -and-line vessels, 40 purse seiners, and 495 longliners were based in Pacific Island countries at the end of 2002. In comparison, Doulman and Kearney (1987) indicated the status in 1985: 60 pole-and-line vessels, 29 purse seiners, and 161 longliners.

2 P/L = Pole-and line vessel; P/S = Purse seiner; L/L = Longliner 3 The total does not include skiffs - the number of skiffs was only noted in countries where industrial tuna vessels are absent. 16

Two of the most important indicators of domestic development are jobs and exports. These are shown on the graphs below.

Domestic Employment Late 2002

3500 3000

2500 Local Jobs at Shore 2000 Facilities 1500 Local Jobs on vessels

1000 Number of Jobs 500

0 Fiji Niue FSM PNG Cook Palau Nauru Kiribati Tonga Samoa Tuvalu Vanuatu Marshall Solomon

Tuna Exports 2001

70,000 60,000

50,000

40,000 Fresh Tuna Exports 2001 30,000 Frozen Tuna Exports 2001

Metric Tonnes 20,000 10,000

0 Fiji Niue FSM PNG Cook Palau Nauru Kiribati Tonga Samoa Tuvalu Vanuatu Marshall Solomon

Another indicator of domestic tuna industry development is the contribution of locally- based offshore tuna vessels to gross domestic product (GDP). This contribution is given for each country in Appendix 1 and summarized in the table below.

Contribution to GDP in 1999 (US$) Solomon Islands 27,706,000 PNG 17,735,000 Fiji 12,800,000 FSM 6,250,000 Samoa 4,920,000 Tonga 2,020,000 Tuvalu 0 Vanuatu 0 Marshall Islands 0 Palau 7,600,000 Nauru 125,000 Niue 0 Kiribati 0 Cook Islands 4 170,000 TOTAL US$79,326,000

4.0 Constraints, Opportunities, and Interventions

Information on perceived constraints, opportunities, and interventions for each Pacific Island country was collected during the country visits. This information is listed by country in the sections of Appendix 1. In sections 4.1, 4.2, and 4.3 below these perceptions are viewed across all the countries and observations are made on common issues, emerging patterns, and notable features.

4.1 Constraints

Within the 14 countries covered by the study there is a huge diversity in the types of constraints to the further development of the tuna industry. This is not surprising considering the differences in the various activities, ranging from tuna canning to small- scale commercial trolling.

An interesting feature is the difference in perception of constraints between the government fishery agency and the private sector. In general, the difference is greatest where there is a lack of dialogue between the two parties. Where the perceptions are similar, it seems to be due to the personal initiative of a fisheries officer, to the presence of an effective fisheries association, or to consultative mechanisms established by recent tuna management plans. It also appears that the differences of opinion on constraints could arise out of the different perspectives on what is being directly constrained: the

4 GDP data is for year 2000 18 government side may be focused on benefits to the wider economy, whereas the private sector is especially concerned with company profitability. It is relevant to note the differing views of government and industry in two particular areas: infrastructure and investment: · Infrastructure: quite often government officials cite the lack of fisheries infrastructure as a major constraint. In many of those same countries, the private sector is more sensitive to the need for improving the management of existing infrastructure. This is especially the case with harbours and adjacent dock space. · Investment: (1) Government officials tend to focus on constraints associated with attracting investments and approving investments, whereas the private firms seemed to emphasize the problems with the security of investment. (2) In a few countries government officials do not appear to be very sensitive to investor concerns, especially the concern over stability of government policies. On the other hand, key private sector players in those countries indicate that if certain government policy problems were addressed (taxation, investment security), many of the government-identified constraints could be rectified by the companies themselves (infrastructure, training).

Stated constraints in those countries where there is a substantial tuna industry (e.g. Fiji, Tonga, Samoa, Marshall Islands, PNG) are, as expected, very different from where little development has occurred. In the developed category, the existing participants in the tuna industry are particularly aware of problems related to crowded harbours and to perceived departures from national tuna management plans, especially the creeping increase in number of vessels. In countries where little tuna-related development has occurred, commonly cited constraints are often associated with lack of government policy stability, security of investment, cost of doing business, and lack of fisheries infrastructure. It is interesting to note that the lack of opportunities was not cited as a constraint. In some countries where there are few opportunities, there is the contention of an infrastructure solution to the scarcity of opportunities (e.g. the construction of an airport).

Other notable features of perceptions of constraints include: · The air freight situation (low capacity, high cost) was cited as a constraint in almost every country, including those that have the best freight service in the region. · Falling catch rates of the principal target tuna species (in some cases related to the present El Niño condition) were cited in several countries. · Constraints related to environmental issues appear to be increasingly important to the tuna industry: sharks, marine mammals, pollution, ship groundings · Many constraints may fall into the “chicken-or-egg” category; for example, large improvements in several constraints (skilled fishing crew, dedicated air freight) will not happen quickly without having a tuna industry but it is difficult for the industry to grow without the improvements. · In several countries the poor performance of former local longline ventures is cited as a major constraint to both investor interest and availability of credit. · A large number of cited constraints deal with the increased Chinese fishing presence. Concerns include creation of immigration problems for other tuna 19

firms, increased bribery, inability of local vessels to compete, “more IUU vessels”, and “no protection from large Asian influx”.

Conceptually, the constraints commonly cited in the present study may be placed in several categories: · Some constraints can be mitigated; others may be almost intractable · Addressing of some constraints can be assisted by outside intervention; others can only be addressed by increased domestic attention. · Some constraints are experienced by several countries; others are country- specific · Some constraints fall within the fisheries sector; others are much larger than the fisheries sector

Regional organisations and donors should obviously pay particular attention to those constraints which have been expressed by stakeholders in several countries and which can be mitigated with outside assistance. Although it may be tempting for fisheries- related agencies to focus on the constraints in the fisheries sector, the reality is that most of the regionally-common constraints to the development of tuna industries are broader than the fisheries sector.

Constraints which were both cited in several countries and which are amenable to mitigation are: · Stability of policies affecting the tuna industry · Credit availability · Fuel cost · Air freight availability · Fisheries taxation difficulties · Excessive government administrative charges and administrative blockages · Low level of entrepreneurial development · Low level of fisheries skill development · Poor government/industry dialogue · Low attractiveness to investors (foreign and local) · Inefficient harbour management · Lack of preparation for HACCP requirements

Some comment should be made on progress made on previously identified constraints. FFA implemented a project with ADB funding in 1994 and 1995 to identify the key issues affecting the development of locally based tuna industries in the Pacific island countries (Pollard 1995; summary given in Appendix 3). The key constraints identified were: (1) the excessive and direct involvement of government in domestic industry to the detriment of sustainable, locally-based industrialisation, and (2) The protective nature of domestic economies, resources, and business interests with economies oriented to serving government rather than government serving wealth -creating locally-based industry. Judging from the present study, it appears that in most countries substantial progress has been made in the period from 1995 to 2002 in addressing previously identified constraints. 20

4.2 Opportunities

During the study, questions on opportunities for the development of a tuna industry resulted in a wide variety of responses. In retrospect, this is likely to be due to the vague nature of the enquiry. “Opportunities” seem to have been interpreted by the various respondents in different ways, including: where resource potential lies, new sources of profits, what is interesting for the future, and where any comparative advantage lies. The responses also seemed to have been affected to some degree by commercial secrecy (“We have a few good ideas, but we won’t let it out”).

Despite the vagueness of the question, certain issues concerning opportunities were highlighted by the responses: · On the government side, there seems to be a growing recognition that in the era of globalisation, overseas opportunities arise from comparative advantages. As one individual stated it “in exporting, we are playing with the big boys”. · The fisheries officers of many countries feel that one of the most important opportunities is emulating what is perceived to be success in other countries of the region. The developments in Fiji, Samoa, and Marshalls islands were cited as models. · Often the newly formulated national tuna management plans cover opportunities for future development. In many cases substantial effort was focused on identifying opportunities and these were the subject of wide consultation. · Many commercial operators expressed the sentiment that perfecting their present operations was the major opportunity: “Doing what we are doing now but doing it better”. · Although most countries have moved on from the era of government involvement in commercial fishing, three countries of the region still perceive that this is an important opportunity, or at least the most appropriate mechanism for exploiting an opportunity. · Even though there has been much discussion at the regional level of the opportunities afforded by rights-based fisheries management regimes and associated creation of scarcity through restricted licensing, this was not specifically mentioned by government officials or the private sector during the study as an opportunity that should be pursued. · Although several countries will be receiving donated used longliners from Korea, only one country indicated that this was an important opportunity.

Specific opportunities that were mentioned in several countries were: · Medium-scale longlining · Servicing of foreign vessels · Value adding · Loining · Albacore fishing · Skipjack fishing 21

· “Piggy-backing” fishing operations on facilities intended for industrial-scale operations · Small-scale commercial tuna fishing · Deriving additional benefits from existing locally-based foreign fishing operations (“Screw-tightening”) · Penetration of the EU market; “Europe is the Japan of the next decade” · Establishment of a tuna cannery

4.3 Interventions

Important interventions to promote development of the tuna industry, as expressed by government officials and the private sector, are given in the country sections (Appendix 1).

In reviewing the list of interventions (over 150 suggestions were offered), certain patterns emerge: · Many of the ideas for interventions offered by the private sector are for studies of situations situations, the results of which are already well known to the companies. The purpose of these exercises is often to obtain results which the companies could use to make a point with government regulators, claiming the results were impartial and objective. Several suggested interventions fall into this category: assessments of vessel crew credential requirements, pilotage requirements, and government administrative procedures. · The items suggested by government fisheries agencies often concern assistance for small-scale commercial fishermen. Considering the fisheries extension background of many of the fisheries officials in senior positions, this is quite understandable. In the more extreme cases, fisheries officials’ definition of “tuna industry development” appears confined to indigenous nationals operating tuna boats. · Judging by the suggestions from government fisheries officials, there seems to be a growing and healthy interest in economic scrutiny of proposed tuna development schemes. · Some of the most common intervention topics concern studies on subjects that have received much attention in the past. The results, however, are not available to those who would make greatest use of them.

Some types of interventions were suggested only in one country. Others were either specifically cited, or alluded to, by individuals in several countries. The suggestions for interventions which fall into the latter category are for assistance dealing with: · Improvements to the fisheries credit situation · Improvements to the air freight situation · Improvements to the fuel price situation · Rigorous technical and economic evaluations of planned or desired projects · Identifying opportunities for tuna-related development · Information on the future of foreign fleets that are being serviced domestically 22

· Reviewing fisheries taxation, including identifying areas that are unfair for the private sector and, conversely, identifying opportunities for increased government revenue · Reviewing the foreign investment conditions, for increasing the attractiveness of a country’s fisheries sector for foreign investors · Evaluating the profitability of trolling for tuna around FADs and of other small- scale tuna fishing to assess whether a government should promote these types of activities · Evaluating what has been successful/unsuccessful in the development of small- scale tuna fisheries and in tuna fisheries in remote areas · Meeting HACCP requirements, including the legislative and institutional aspects · Tuna management plans, including assistance to facilitate adoption and to encourage adherence · Enhancing national fishery associations and to promote the concept of a regional association · Harbour management · Infrastructure, especially those aspects dealing with assessing required infrastructure and in evaluating the economic return of infrastructure · Human resource development, including practical shipboard skills and those skills required for land -based tuna industry activities · Identification of markets and demand for value-added tuna products · Privatization of government-owned fisheries enterprises · Measures to promote entrepreneurial spirit and the building of a business culture related to the tuna industry

5.0 Observations and Considerations on Tuna Industry Development

The country visits undertaken during this study afforded a valuable opportunity to observe tuna industry development in FFA member countries: successes/failures, new models of development, recent activities, concerns of the various stakeholders, and other features of the domestic industries. During this period it was possible to make numerous observations on topics that are relevant to future development efforts.

These observations, including some associated analysis, are given in the following sections. Also included are comments on items that are especially interesting, contrary to what was expected, or which challenge conventional thinking. Also given for each topic discussed are general implications for development assistance. In a later section (Section 6.0) considerations specific to the involvement of FFA in domestic tuna industry development are given.

5.1 Who is Successful in the Tuna Industry ?

In the Pacific Islands region, there are very few cases of small-scale commercial operators up-grading to become successful owners of medium -scale tuna vessels, with or without extern al assistance. The operators of almost all successful tuna fishing companies presently located in the region were originally (1) local (non -fishing) businessmen who identified an opportunity in tuna fishing, (2) managers of local non- tuna fishing businesses who moved laterally into tuna fishing, or (3) managers of overseas fishing companies who moved into the country. Clark (2002) also noticed this: “larger scale fishing has always been carried forward by entrepreneurs with a background in other sectors than fishing”.

In scrutinizing the situation, the upward progression from being a small-scale commercial fisherman to becoming a tuna vessel owner, actually represents a transition in which the major activity is less about catching fish and more about management of a complex international business in an environment where there is much tough competition. Some of the most spectacular bankruptcies in domestic tuna industries have involved good fishermen who made poor tuna vessel managers.

The above observations may have implications for development assistance: a fair amount of past development efforts has been based on the model of upgrading owners of small fishing vessels to become owners of semi-industrial tuna longliners. According to individuals involved with those efforts, this upgrading has rarely been successful. This historical experience may suggest that the contribution of development assistance to promoting a tuna industry would be more effective if some change in strategy were to occur: increased attention focussed on facilitating the transition of local entrepreneurs into tuna fishing, as opposed to the characteristically less successful upgrading of small- scale fishers.

The above should not be construed as a recommendation to halt assistance to small- scale commercial fishers, but rather increased emphasis on what will probably contribute more to starting a tuna fishing industry. Aspects of helping small-scale commercial operations are covered in Section 5.5.

An observation related to the above is the ethnic background of successful operators of the substantial tuna fishing enterprises. Few indigenous Pacific Islanders can be counted in this category; the heads of almost all medium/large local tuna companies who are citizens of the country concerned are presently European or Asian in heritage. In Fiji, which is often cited as a positive example of tuna industry development, the Fiji Tuna Development and Management Plan states “In tuna fishing and processing, indigenous Fijian and Rotuman business ownership is zero”. Low indigenous participation appears to be the situation in many areas of commerce in the region and not just the tuna industry and not just the present period. Crocombe (2001) writes about the broader economies of the Pacific Island region: “for over 100 years commerce was mostly European and to a lesser extent Chinese”. Clarke (2002) states “if anything, the usual constraints to indigenous business are even more severe in tuna fishing than in many other areas of business – boats are expensive, fishing is seen by financial institutions as risky, and there isn’t a lot of experience in the business.” This being the case, it would be unrealistic to expect greater progress in indigenous participation in tuna fishing than in other business activities.

The implications for development assistance are that it may suggest where indigenous participation is a major objective, the need to look outside the fisheries sector and use experience and expertise in the area of indigenous business devel opment (e.g. mentoring, umbrella services), rather than focusing more narrowly on fisheries technology issues. It also points to looking at what has succeeded in fisheries sector indigenous participation in other regions of the world. In this regard, the use of rights- based fisheries management (covered in Section 5.11) appears to offer a new dimension in promoting indigenous participation in the tuna industry.

5.2 Foreign Investment

During the study it was noticed that much of the discussion, issues, constraints and opportunities concerning foreign investment in the tuna industry are not all foreign. It may therefore be more appropriate to think in terms of “stimulating domestic investment and attracting foreign investment” as used by Proctor (1997). What is good for the foreign investor may be as good (or even better) for the domestic entrepreneur.

The governments of Pacific Island countries are expressing considerable interest in using foreign investment to promote the growth of their domestic tuna industries. This was quite evident during the country visits of this study. In places where tuna catching activities are fully developed, there remains a desire to have foreign investment in the post-harvest sector.

At a higher governmental level than the fisheries sector, there is also a general move to attract foreign investment to the wider economy. Most countries in the region have official policies which recognize the importance of foreign investment. According to FIAS (2002), since the Pacific Forum countries adopted the APEC investment principles at the Forum Leaders’ Meeting at Madang in 1994, a number of countries have adopted more transparent policies in relation to investment, particularly in the entry of foreign investment and the availability of investment incentives. Over 50% of Pacific Forum member countries have adopted, or are in the process of adopting, new foreign investment legislation or have reviewed, or are reviewing, their existing legislation.

With the above in mind, it is unders tandable that there is much current interest in the region in attracting foreign investment to the tuna industry. The findings of the present study suggest that attention should be focussed on improving these efforts. Some on- going attempts at attraction are time consuming and expensive, but appear to miss the mark. For example, overseas study tours by government officials to publicize opportunities for foreign investors have been undertaken, or are planned for the future, in several countries of the region. However, the important part does not seem to be advertising the opportunity (the “tuna world” is small and word travels quickly), but rather making improvements in those domestic features that worry prospective investors.

During the study it was noticed that government officials tend to focus on constraints associated with attracting investments and approving investments, whereas the private fisheries firms seemed to emphasize such problems as security of the investment and stability of government policies in the fisheries sector. This is similar to the observation made by World Bank (1993, cited in Pollard (1995)): “The Government spends far too much time on screening and evaluating individual foreign investment proposals, which it 25 is ill-equipped to do, and far less time on promoting an overall framework that facilitates investment within a general incentives framework.”

What can be done to promote an overall framework that facilitates foreign investment? Pollard (1995) in reviewing the Pacific Islands tuna industry, provides an important suggestion that is still applicable to most countries of the region. He stated that studies by numerous development agencies have repeatedly found that a stable, reliable set of policy measures and trading envi ronment is much more attractive to investors than financial concessions. In the present study it was noted that other important and fundamental concerns of foreign (and domestic) tuna industry investors vary considerably from country to country.

This has implications for development assistance. It appears that countries wishing to attract tuna-related foreign investment would benefit from a scrutiny of the attractiveness to foreign investors of their domestic tuna industries and associated business environments. Indeed, individuals in several countries have specifically stated that a service of this nature would be a priority for future development assistance.

The Foreign Investment Advisory Service (FIAS) is a joint facility of the World Bank and International Finance Corporation. FIAS provides advice to countries that wish to attract foreign investment. The FIAS regional office in Sydney has already done substantial work in the Pacific Islands and it appears that it has had positive impact on the inves tment situation. However, that work has been general in nature and has not focussed specifically on the fisheries sector. One possibility for improving the attractiveness of the tuna industry to foreign investors is to carry out a FIAS-type exercise specifically targeting the tuna industries of the various countries, using both investment and fisheries expertise.

5.3 Tuna Management Plans

National tuna management plans have been formulated in recent years for most Pacific Island countries. This has been done with funding from national sources, Canada, FFA, and ADB. The SPC and the Forum Secretariat have assisted in this work.

With respect to domestic tuna industry development, it appears that the tuna management plans have had a positive effect. Areas where the plans have been especially helpful in industry promotion are in: · Transparency in the process of government decision making affecting the tuna industry · Stability in policies affecting the tuna industry · Establishment of government/industry consultative mechanisms

In some respects, tuna management plans have fallen somewhat short of their full potential to promote domestic industry development. This is for several reasons, including: · Some countries have not yet formulated a tuna management plan, including countries where tuna is critically important. · In some countries where such plans have been formulated, they have not yet been adopted at a high government level. 26

· In some countries where such plans have been formulated and adopted, industry claims that there has been some deviation from what is specified in the plan, or even an abandoning of the plan.

As stated in Section 5.2 above, a stable/reliable set of policy measures is perhaps the most important single item for attracting investors that a government has power to control. Considering this importance and the positive impact on the situation that a functional tuna management plans can have, additional attention seems warranted.

The implications of this for development assistance are not entirely clear. Not in all cases would external assistance be welcome or effective. In some cases, outside agencies have taken the tuna management planning processes as far as appropriate. In other countries, some external help with the plans could make a very positive contribution to domestic industry development and other important related areas.

5.4 Commercial Involvement of Governments in the Tuna Industry

One of the major themes of the mid-1990s series of tuna industries studies was government involvement in commercial aspects of the tuna industry. The final report (summarized in Appendix 3) states: “Pacific island government investments have been planned and entered into with either government as sole owner and operator or in joint venture with foreign companies in pole-and-line tuna fishing vessels (Fiji, Kiribati, Solomon Islands) longline (FSM, Tonga), and purse seiners (FSM, Kiribati, Marshall Islands, Solomon Islands), transshipment bases (FSM), canneries (Fiji, PNG, Solomon Islands) and other tuna processing plants. Unfortunately, with very few exceptions, government tuna ventures that have operated for more than two years have been unprofitable and have required additional heavy injections of public funds to maintain operations.”

That era of government tuna enterprise failure is well documented, especially by the development agencies based outside of the region. The circumstance surrounding those failures is also vivid in the minds of those individuals who were active in fisheries development during that period.

A surprising feature is that during the present study, there appeared to be a remarkable change in attitude by fisheries officers towards government commercial involvement. Learning from past difficulties, most of the fisheries officers encountered expressed the sentiment that the government should refrain from commercial involvement and focus on improving the policy environment. With respect to actual commitment, it appears that in many countries, efforts have largely changed from promoting state enterprises to encouraging domestic private sector fishing and, secondarily, foreign involvement other aspects of the tuna industry. This evolution in attitudes appears quite healthy and may be one of the major factors responsible for the increasing national prominence of domestic tuna industries in the region.

With that positive background, some difficult issues associated with direct government involvement in the tuna industry remain: · What should be done with government initiatives that have been set in motion years ago? · If it has been shown that development in the tuna industry should be private sector driven, what is to be done in countries where the private sector is virtually non-existent? · Although much has been learned about government commercial involvement by those who experienced first-hand the large failures, what about those people who were not exposed to those problems and who are presently in decision-making positions?

Each of these three topics has implications for development assistance.

The subject of initiatives that have been set in motion years ago, introduces the topic of privatisation of government fishery enterprises which have been established in a former era. The need for assistance in privatisation was specifically cited by two countries in the present study and is an issue in several other Pacific Island countries. It is important to note that there has been a long heritage of attempts at privatisation of government fisheries enterprises in the Pacific and several lessons have been learned in the process. One of the most important of these is the need to generate political will in order to privatise. Although political will is crucially important to privatisation, it may not always be appropriate for an outside donor to become involved in this process. Another lesson is that most external projects targeted at fisheries privatisation have not been successful. Most cases where a government fisheries enterprise has been privatised have been due to a government’ s inability to continue a subsidy. This has implications for development assistance which may actually be propping up failing government enterprises.

There are several countries in the region in which the private sector is either virtually non-existent, weak, or averse to investing in the perceived risky tuna industry. In those countries, development assistance could be effective in exploring development models other than government ownership. These could include stand-alone foreign ownership, joint ven tures, rights-based approaches, and innovative strategies 5. Experience from other regions shows that it is critically important that those individuals providing the advice on these options are committed to understanding local conditions and have the resources to do so.

There are a few cases in which governments are now considering embarking on commercial involvement in the tuna industry. This may be because the relevant decisions makers may not have been exposed to the “wreckage of the past”. In those cases, development assistance could be quite effective if focused on the feasibility and practicality of the proposed endeavour, as well as lessons learned from similar past initiatives, rather than on direct support to establishing a government entity.

5 An example is the ADB experiment in FSM of a hybrid government and private enterprise arrangement for a tuna longline company. 28

5.5 Small-Scale Tuna Industry Development

Fisheries officers of the region have considerable interest in small-scale tuna industry development. In some cases this may be due to the perceived lack of opportunities for larger scale development. In addition, het fisheries extension background of many fisheries officials currently in senior positions could contribute to the preference for development of small-scale tuna fishing. In other situations, there may be the sentiment that the main beneficiaries of the more industrial operations are people other than indigenous Pacific Islanders. Finally, there is the thinking that by starting small and having low entry costs, there is an opportunity for a larger number of people. Overall, the governments of all Pacific Island countries feel an obligation to help small-scale fishers and there has been much enthusiasm in linking this with the large tuna resources of the region.

Over the last three decades a very large number of initiatives have been undertaken by Pacific Island countries to develop small-scale tuna fisheries. These have included deploying fish aggregating devices (FADs), governments constructing appropriate small tuna fishing vessels, providing subsidies and grants for vessel and gear, providing hire vessels for offshore fishing, encouraging production of tuna jerky and salted tuna, experimenting with novel tuna products, installing freezers on outer islands for holding tuna, collecting tuna caught by outer islands fishers, establishing schemes for purchasing tuna from artisanal fishers at subsidized prices, longlining from small-boats, promoting ika-shibi fishing, copying Maldivian tuna fishing, promoting small-scale pole/line fishing with live bait, sponsoring overseas study tours, upgrading fishers to medium-scale longlining, and many other schemes. It should also be pointed out that the government fishery agencies of the region are planning to implement additional types of small-scale tuna fishery development projects.

In reviewing the history of development of small-scale tuna fisheries, one of the few initiatives that has been successful and continues to contribute to the success of small- scale fisheries is the FAD. Despite decades of small-scale tuna development efforts throughout the Pacific Islands, FADs remain one of the few innovations that allow small- scale fishers to economically take advantage of the region’s large tuna resources. Other attempts may have had sporadic success or special applicability in one country6, but overall, nothing comes close to producing on-going benefits to small-scale tuna fishers as the FAD.

Noting the relative success of the FAD, it is ironic that very few countries in the region have an effective on-going FAD programme. By this, it is meant a FAD programme that is financed by national sources (rather than dependent volatile donor funding 7) and in which, as one individual stated, “a lost FAD gets replaced in 5 days, not 5 months or 5 years”. To this, three points are worthy of note: · Although a scarcity of funds is often cited as the reason for the lack of an effective FAD programme, the reality is that, given appropriate priority, such a FAD programme is not beyond the recurrent budgetary resources of most of the fisheries agencies of the countries of the region.

6 See Section 5.6 for comments on the Samoa alia 7 The head of the SPC fisheries programmes commented that “aid for FAD programmes wears out in a remarkably short time”. 29

· Some of the other schemes planned for helping small -scale tuna fishers (such as fish collection schemes, grants for vessel purchases, etc.) could be both more expensive than a FAD programme and less likely to be successful. · There is potential for a least some contribution to a FAD programme by those who use the FADs

The above suggests that any country that is serious about assisting small-scale fishers should have an active and well -managed FAD programme.

There are several implications of this for development assistance. Most of Pacific Island countries have received a significant amount of outside assistance related to FADs. Much of this has come from the highly professional SPC masterfishermen. In addition, SPC has undertaken substantial quality work on the design, rigging, deployment, and maintenance of FADs and the results are well-documented and readily available8 . The emphasis for countries should now be on maintaining an on-going FAD programme, rather than on research or experimental aspects (“just do it”).

Much of the SPC FAD assistance to specific countries has been oriented to training individuals in government fishery agencies to carry on with a FAD programme after the masterfishermen depart. Unfortunately, this is often not the case; in some countries the programme halts some period after the SPC staff leave. A fundamental problem is that FAD programmes have not been sufficiently institutionalised within the fisheries agency with respect to priority, funding, level of staff, accountability, and other features. New programmes aiming at assisting small-scale tuna fishers should focus additional attention on institutionalisation of FAD programmes.

5.6 Applicability of Samoa Alia Fishing and Economics of Small-Scale Fisheries

In visiting countries of the region and studying the various documents on tuna industry development, a striking feature is how often the concept of promoting a Samoa alia-type longline tuna fishery is mentioned. For example, the report of the 1997 Maui Pacific Center Meeting on Building a Sustainable Tuna Industry in the Pacific Islands (Zachary et al. 1997) suggests the possibility of alia fishing in Pacific Island countries outside of Samoa multiple times. At least four countries of the region have conducted alia longlining trials. In the present study, fisheries officers in several countries indicated they have plans for promoting, or at least investigating, alia fishing.

Upon further enquiry with Samoa officials familiar with the development of the alia fishery, it appears that fisheries officers from at least seven Pacific Island countries have come to Samoa to investigate the applicability of alia tuna fishing to their countries. Considering the success of the fishery in Samoa, the number of small vessels involved, and the economic activity generated, this enthusiasm is quite understandable.

The surprising part is that, with the possible exception of American Samoa, none of these investigations or trials have ever resulted in the establishment of an alia longline tuna fishery. Of major importance to efforts at promoting tuna industry development in

8 Much of the accumulated knowledge is contained in the three volume SPC FAD manual (e.g. Anderson and Gates, 1996). 30 the Pacific Islands is whether there are special conditions in Samoa which are conducive to alia fishing.

If alia fishing is not very profitable at present in Samoa as suggested by Watt and Imo (2002), any increases in costs and decreases in income for alia fishing in other countries could easily result in a non-viable situation. A quick comparison of some economic features between Samoa and Fiji (where there have been past efforts at alia longlining) offers some insight.

In January 2003, the cost for longline crew (person-days) was 3.2 times more expensive in Fiji than in Samoa. The price paid for fresh fish (fresh albacore, dockside price) was 13 per less in Fiji. Although it could be argued that catch rates could be better outside Samoa, this does not appear to be the case. Samoa Fisheries officials familiar with the resource situation and Polacheck (1987) suggest that a major difference in albacore catch rates between Samoa and neighboring South Pacific countries is not be to expected. In some of the more equatorial countries where alia longlining is being promoted (e.g. the Marshall Islands), the albacore catch rate would be much less than in Samoa (if not actually zero) while the labour costs would be much higher than in the Fiji situation cited above. A more careful study of economic factors than this simple comparison would likely provide considerably more insight into alia feasibility.

Asi de from questioning the universal applicability of the alia model, the implications of the above for development assistance are that it emphasizes the need for basic economic and technical evaluation of a tuna industry development project9 before the stage where major costs are incurred. The importance of this analysis is embodied in a statement by Tiller (1997) who noted “For more than 20 years flawed activities have undermined donor and recipient confidence in fisheries developments and consumed vast quantities of scarce development capital. Even the most tenacious donor is now nervous about fisheries development proposals.” The purpose of an economic and technical evaluation would not necessarily be to terminate a planned project but rather give decision makers more information on the possibility of success and whether scarce funds for tuna development could be used more effectively elsewhere.

It is especially difficult to obtain information on the economics of small -scale tuna fisheries. in the 1980s the assistance provided to the Pacific Island countries by the FFA included support for the analysis of the economics of small-scale fishing. In the early 1990s, when the FFA changed its focus of operations to concentrate almost entirely on the tuna fisher ies, the organization virtually ceased its involvement in the analysis of small-scale coastal fisheries. Despite the clear need for further work in the area, the task was not taken up by SPC or any other regional organization. One important consequence is that there is little information available on the economics of small-scale fisheries.

9 This is not to imply a lack of economic studies on the Samoan alia fishery itself, of which there have been several. Much rarer, or absent, are studies of the economics of alia fishing in other areas. 31

5.7 Credit

With respect to credit for tuna industry development, some points of interest that have emerged from discussions with government fisheries officials and the private sector in the present study are: · The facilitation of credit for fisheries enterprises was the intervention cited most often as being important for promoting tuna industry development. · The issue of credit features prominently in the tuna management plans of several Pacific Island countries. · There is a common belief in the region that, once the financial institutions learn about the tuna industry, loan funds will flow easier. At least in some countries, the opposite has occurred. · Industry participants feel that recent bankruptcies of tuna firms in several Pacific Island countries will have a negative effect on the availability of fisheries credit for a considerable period of time. · Credit has been a major factor in some of the tuna industry success stories in the region (e.g. Samoa).

From a non-financial perspective, some observations on the above are: · In discussions of tuna-related financing, there appears to be two very different types of credit issues involved. One is the facilitation of commercial credit to established tuna fishing companies. The other is more development-oriented (e.g. credit to an embryonic company owned by indigenous Pacific Islanders) which would probably not be eligible for commercial bank financing. · The financing conditions that many commercial operators would like to obtain (e.g. repayments indexed to fish market prices) appear to be often a departure from regular commercial practices, and therefore could represent a substantial subsidy. · The literature on fisheries credit in the region which is readily available to tuna industry stakeholders is surprisingly limited. Many of the documents on this subject specific to the Pacific Islands seem to be either advertising the services of various financial institutions, or showing favourable investment opportunities. Skapin and Pintz (1987) give much good information on financing a tuna project, but the information is general and from a previous era of tuna industry development. Although many institutions have provided or facili tated credit to tuna industry operations in Pacific Island countries (e.g. South Pacific Project Facility), there appears to be difficulty in obtaining information on their experience, problems, and opportunities related to tuna industry credit.

The above has major implications for development assistance. It may be difficult for fisheries-oriented donors in the region to effectively articulate assistance dealing with the important subject of credit without more information on recent experience, problems, and opportunities. The fact that the regional fisheries organizations have had limited exposure to this subject, suggests the need for a synthesis of information on this topic as a first step in identifying appropriate interventions.

5.8 Air freight

The subject of air freight is mentioned in most countries as an important constraint and as an area where development assistance would be welcome. Most interventions suggested to improve the situation seem to fall into two categories: · “Help with air freight situation” · Additional information about air freighting fish to determine either options for improving the national situation or company action to accommodate inevitable changes

The “help” referred to above seems to consist mainly of more frequent flights, new routes, and lower charges. As the suggestions were not associated with innovations which would result in longer-term sustainability, these interventions appear to be short- term subsidies which may distort the commercial environment to the detriment of longer - term solutions.

The suggestion concerning the need for more information on the subject seems reasonable from the perspective of the private sector. It should be noted, however, that FFA recently commissioned a major study on the subject (Center for Asia Pacific Aviation, 2001). The fact that only two individuals out of a total of 78 private sector representatives of enterprises contacted during the present study were aware of the report of the study, has implication for information dissemination to the private sector and is covered in sections 5.9 and 6.2 of this report. Because any further work dealing with air freighting should obviously pay close attention to the air freighting study, some description of the findings of the study is warranted.

The general conclusions from the air freighting study as summarized in Tamate (2002) are: · Freight rates are generally below fully allocated costs · Passenger traffic is the main determinant of aircraft equipment selection and of scheduling between island states and key destinations · Economic analysis indicates that current rates will be difficult to sustain · It appears that individual shippers have been successful in making arrangements to meet their particular needs · The most effective “tailored” delivery of services have involved dedicated freight connections onto long haul passenger wide-body aircraft via intermediate trans - shipment points · New generation twin jet operations may reduce freight space available on passenger services · The need for trans-shipment is a constant constraint · There is currently a very limited number of specialist freighter operations with aircraft suitable even for trans -shipment connecting services to hub airports · Regulatory impediments have not been a significant constraint to operation of suitable services · Despite the reliance on air freight to access the target markets, the industry has generally ignored availability when establishing their business 33

· As for the immediate future, the report concludes that in all of the nations studied, yield management by individual fishing operations is probably the most practical and immediate basis for expanding revenue in an environment where air freight capacity limits will remain. An example of this is exporting high quality bigeye by air whi le finding alternatives for the disposal of yellowfin and by-catch.

In response to the above conclusions, the study proposed a number of recommendations, including: · Improving co-operation, co-ordination and communication between exporters · Developing stable market conditions by having reliable, consistent and reasonably predictable loads of fish for export · Facilitating airfreight development, in recognition of the fragility of the airfreight services currently available in the region · Adding complementary traffic such as fresh produce other than fish to sustain viability of the dedicated freight services to cater for periods of poor catches · Implementing a consistent airfreight strategy to ensure that services can be integrated across the island countries to increase aircraft utilisation and loads · Avoiding one -off or series charter operations as these involve considerable cost and risk · Tendering for commercial air freight services · Developing mechanisms for supply chain supervision and to heighten awareness of the importance of quality control · Communicating to producers and shippers that in order to secure appropriate air freight capacity on a long term, reliable basis, several stable conditions must exist simultaneously, especially predictable loads

The results of the air freighting report in conjunction with the findings of the present study suggest that, prior to formulating development assistance in this area, the air freighting report should be widely circulated to industry and comments on appropriate follow-up activities should be requested.

Much of any future development assistance in the area of air freighting tuna is likely to be country-specific. In planning for such work, it should be recognized that private sector participants whose survival may be dependent on air freight, could be especially enthusiastic and very useful in the work. Attempts should therefore be made to maximize the participation of the private sector, through the fisheries associations if possible.

5.9 Dissemination of Reports and Other Aspects of Fisheries Information

Much of the future regional support to domestic industry development is likely to be in the form of analyses, studies, and reviews on important topics. The findings of this work as given in the associated reports represent the major, if not only, output for the clients in the FFA member countries. If the private sector is to be the engine of tuna industry development in the region (as the formal government policies of most countries state and as regional experience suggests), then getting appropriate reports to the private sector is crucially important in the regional tuna industry development process.

Although it could be argued that national report dissemination should be the responsibility of national authorities, there are important reasons for taking a different approach: · Experience from the air freighting study shows that, although FFA cannot be faulted for following established protocol in distributing the report, the system simply did not work. Only two individuals10 from the private sector, out of a total 78 tuna industry people contacted during the present study, were aware of the report of the study. 11 · Many countries do not have a system of fisheries information distribution to the private sector · The cooperation of the private sector will be essential for future regional studies and reviews associated with tuna industry development. Key private sector participants are likely to grow increasingly weary of dedicating their time free-of- charge to future regional studies if they do not get useful feedback from past inputs.

The above indicates a need for change in information dissemination strategy. Suggestions for improvements specific to FFA are given in Section 6.2.

5.10 Fisheries Associations

Some i nformation on associations relevant to the tuna industry was collected during the country visits. This is summarized in the table below.

Summary Information on National Fisheries Associations Solomon There is no association dedicated to the Solomon Islands tuna industry. Although a Fisheries Islands Advisory Council was established under the Fisheries Act 1998, according to Fisheries officials, it has met only once. Similarly, the Tuna Management Committee established under the tuna management plan has not been very active in recent years. On the other hand, both Soltai and NFD are active members of the Chamber of Commerce and have used that organization to put forward to government their views on numerous issues, especially the goods tax. PNG The Fishing Industry Association (FIA) of Papua New Guinea was formally established in 1991. The FIA is constituted as an incorporated association under PNG law. The FIA is also recognised under the Fisheries Act. There are presently 17 financial members and 44 people/firms on the mailing list. A review of fisheries associations in Pacific Island countries (Walton 1998) stated: “In many respects the FIA provides a model for other Pacific Islands to develop meaningful consultative processes with government”. The tuna industry is further able to influence government policies affecting its interests by having two representatives on the governing board of the National Fisheries Authority. Fiji The Fishery Offshore Council of Fiji was established in the late 1990s by a Fisheries Division initiative. This group meets occasionally and was represented at the September 2002 consultations on the Fisheries Bill. The view has been expressed that council works towards the development of a tuna fishery plan for Fiji and addresses issues as they arise. Alternatively, some of the key participants in the Fiji tuna industry feel that the Council is more oriented to objectives of the Fisheries Division than that of industry.

10 Both of these individuals received the report through channels not normally available to most private sector participants. 11 It appears that the Forum Secretariat has also experienced similar problems concerning government agencies passing on important information to the fishing industry; few of the fisheries associations seem to be aware of the Canadian funding to support fisheries associations. 35

FSM With respect to industry representation, the Pohnpei Commercial Tuna Longline Operator Association commenced in 1998. It presently has four members. The Chairman of the Association feels that its most successful initiative was the elimination of the planned tax on the export of fish. The association, using Canadian funding administered by the Forum Secretariat, is presently in the process of establishing a national offshore fishing association. Samoa The Commercial Fisheries Management Advisory Committee was formed in September 1999. According to Watt and Imo (2002) the committee is comprised of representatives from the private sector and relevant government departments, including two elected representatives from the Upolu Fishermen's Association, Savaii Fishermen's Association, Fish Exporters Association and Boat Builders Association. There are several associations which represent the interests of the tuna industry. At a level broader than the fisheries sector, many of the major tuna companies are members of the Chamber of Commerce and the Exporters and Manufacturers Association. Tonga The major fisheries association in Tonga relevant to the tuna industry is the Tonga Export Fisheries Association (TEFA). In October 2002 there were nine members. TEFA appears to be one of best organized fisheries associations in the Pacific Islands. The effectiveness of TEFA is considered to be one of the comparative advantages enjoyed by the tuna industry in Tonga over that in neighbouring countries. Tuvalu The Funafuti fishermen’s association has about 30 members, of whom about one-quarter regularly troll for tuna. According to the present Chairman, the association was started to discourage NAFICOT from lowering the buying price of fish. The Chairman feels the biggest success has been in collective bargaining over the price of fish. There are presently discussions in the association over limiting fish catches by members during periods of high supply to prevent a price collapse. According to the Chairman, little dialogue occurs between the TFF and the Fisheries Department. Vanuatu With respect to industry representation, there is no established association at the national level to represent the interests of tuna industry stakeholders. A Vanuatu Fishermen’s Association (VFA) exists but this body represents the crew of foreign fishing vessels. VFA’s main issue appears to be obtaining compensation related to past employment. There have been recent attempts by the Fisheries Department to organise participants in the various fisheries sub- sectors (sportfishers, exporters, and aquarium fish collectors) but these efforts have not yet resulted in the formation of associations. At the provincial level, there are fishers associations in SHEFA and TAFEA but their involvement in tuna issues is minimal. Marshall There is presently no organization in the Marshall Islands to represent the interests of Islands industrial-scale tuna operations. According to MIMRA officials, an attempt was made to establish an association in the mid-1990s when there were several locally owned and operated longliners. Due to a lack of enthusiasm the association did not flourish. Some of the larger firms in the tuna industry such as PM&O Processing and MIFV belong to the Chamber of Commerce and indicate this organization could be used to discuss with government any major issues affecting their businesses. Niue Cartwright et al. (2002) indicates that a Chamber of Commerce exists with membership open to all the business people on the island. The report states “The Niue Fishermen’s Association and the Canoe Fishermen’s Association are both members of the Chamber of Commerce. Given the small private sector, the Chamber of Commerce is somewhat limited, although it is relatively active in terms of meetings and communication with members.” Nauru An SPC report (Tuara 1997) indicates that the Nauru Fishermen’s Association was set up by fishermen to address issues of interest and concern to them. The association is actively involved in a number of areas, including the lobbying of government for assistance in providing training and equipment to fishermen, acting as technical advisors to government fisheries issues, and coordinating local fishermen in search and rescue operations”. Cook ADB (2001) indicates that a national Fishermen’s Association was establi shed in the Cook Islands Islands in 1998, which was active for a period in working with MMR to re -establish the FAD program, but has subsequently done little. The report states “Fisheries organization varies between islands but is generally weak. Fishing clubs operate on all southern group islands. A strong industry association is necessary to develop the local longline fishery in Rarotonga, to protect the interests of local fishers and ensure balanced development. A representative industry association should be able to contribute to policy development and form an equal partner with MMR in the establishment of the nece ssary regulatory framework.”

During the country visits a number of observations were made on fisheries associations: · In countries where government and industry have similar views on tuna industry development with respect to constraints and required assistance, it can often be seen that an effective association is responsible. · Many of the remarkable improvements to governance in the fisheries sector could be at least partially attributed to effective associations. · Almost all effective associations in the region have one principal “driver” behind the process. · Much of the recent progress in tuna industry development in Tonga and PNG has been due to effective associations. The associations have been able to generate political will, effectively point out deficiencies in government policies, disseminate information, facilitate interaction between government and industry, and encourage work programmes relevant to industry needs. · There appears to be considerable interest in having some form of regional association of fisheries associations. The main objective of such a group seems to be creating a mechanism for industry to influence regional fisheries issues, as well as to facilitate the flow of information to members.

There is a growing consensus in the region that fisheries associations are a very positive force in industry development and should be supported. Enhancement of fisheries associations could result in benefits which endure long past the period of assistance. How they should be supported is much less clear. A study undertaken four years ago offers some insight into the situation.

FFA and the Forum Secretariat undertook a study of fisheries associations in the Pacific Islands in 1998. The report of that study (Walton 1998) stated that fisheries groups should be more organised and that key steps in this process are: · Securing the services of committed association “drivers” · Empowering association groups and organisations in relation to planning, resourcing and organisation · Formally establishing these bodies in legislation · Ensuring that consultative bodies and input groups are adequately resourced to carry out their functions · Ensuring that decisions and strategies put forward by the bodies are acknowledged by government.

The Walton report indicated that the principle conclusion in relation to external interventions is the need to establish a regional capacity for support to fisheries organisations.

The Forum Secretariat is presently providing some support to fisheries associations using Canadian funding. According to the officer responsible, about US$8,000 is available for fisheries association work in each Pacific Island country. About US$78,000 may be available to support regional association work. To date only FSM and the Solomon Islands have taken advantage of the opportunity.

In considering external development assistance related to associations, the following points should be noted: 37

· There appear to be no easy solutions to helping embryonic fisheries associations become more effective. Fisheries officers in several countries of the region have indicated they have made many attempts to establish and/or enhance associations without much success (“we have done all we can”). · There is no guarantee that regional assistance would be more effective than the above national interventions. · The main need in the “disorganized” associations appears to be for somebody to take an active interest in taking charge of the administrative work, information dissemination, identification of opportunities, and providing suggestions for strategies for dealing with important issues · Creation of will among association members to collaborate is important in the process of improving the effectiveness of an association. In this regard, Shotton (2002) states: “One of the desirable features of a rights-based management system from a bureaucrat’s perspective is that they encourage, and may even force, the industry to organize and develop their own consensus on policy issues. Instead of a multitude of operators moaning to the minister every time they perceive some potential benefit from so doing, the Minister and his staff can insist that all representation goes through a single -quota owners committee or some other form of operator’s organization.” · There appear to be only one attempt in the past to use a person with professional experience in successful overseas fisheries associations to assist an association in the Pacific Islands – and that proved reasonably effective. · Attempts at helping associations will have little impact if the need for the assistance is not recognized and actively sought by the target association.

The above suggests that one way of assisting national associations on a regional basis is to have professional association expertise available to provide advisory services on a request basis, communicate the existence of this service to the fisheries associations of the region (and people interested in forming an association), and respond to requests. Other features to be considered are (1) linking up to the Canadian fisheries association funding, and (2) using relevant fisheries associations as much as appropriate to implement other aspects of future tuna industry development assistance.

The concept of a regional fisheries association deserves some consideration for donor support. Although there have been hundreds of regional meetings of government fisheries officers, there has never been a regional meeting of private sector tuna companies. Such a meeting could result in the establishment of networks, identification of common problems, and allow a dialogue with donors. As national fisheries associations can often have more effect than single companies on government policies, a regional association could have more impact on international issues than individual national associations.

5.11 Rights -Based Management

In Section 4.2 it was mentioned that there has been much discussion at the regional level of the industry development opportunities afforded by rights -based fisheries management. The basic concept is to use limited entry into a fishery to create scarcity. This scarcity together with some form of government guarantee for future participation in 38 fishing, creates something valuable which the government can use for various objectives, including leverage for industry development.

In support of using rights-based management for development purposes, Clark (2002) notes: “States with less progress towards full utilisation of their resources by national vessels might be attracted towards “kick-starting” or boosting domestic development by using an entry limit-type right. Under this system, a limited number of enterprises are given the right to license vessels (either all vessels or just foreign vessels, leaving any other nationals eligible for licences to operate vessels that they own). The rightholders are expected to make money by on-selling the licences to foreign operators, leaving them with a profit after paying fees that they can be required to invest in a vessel.”

In order to effectively use rights-based management as a tool for domestic tuna industry development, certain conditions are important: · As the licensing of a limited number of vessels is the basic mechanism for creating the required scarcity, countries need to pay increased attention to the integrity of licensing systems. · Because the system depends on investor confidence that the scheme will be in place for the long-term future, positi ve perceptions of stability and continuity of government policies are essential.

In the medium term, the opportunities for using rights-based management to promote industry development appear to be greatest in those areas of limited industry development adjacent to countries that are presently saturated with vessels. In the longer term, rights are likely to become more important for both development and management purposes as limits become a feature of the tuna fisheries of the region.

Although rights -based management has been promoted in various regional fisheries meetings/workshops, it was not specifically identified by government officials or the private sector during the present study as an opportunity for industry development that should be pursued.

As there appears to be considerable potential for the use of rights-based management in development, this has implications for donor support. To encourage progress, interventions are required for (1) continuing the process of sensitising government officials of the advantages of the rights -based system, and (2) improving the basic prerequisites of the system: policy stability and licensing integrity.

5.12 Taxation

During the country visits a surprising amount of interest in fisheries taxation was noted. This attention came from very different perspectives. On the government side, there seemed to be the perception in some countries of an opportunity to tax a newly profitable industry. In other countries, fisheries officers viewed the possibility of a change in tax regimes as a threat to recent progress in fisheries industry development. Finally, many private sector participants were interested in the possibility of changing what they perceived to be unfair tax provisions.

Many fisheries specialists are unfamiliar with taxation issues. The various tax regimes can have a very large and different effect on tuna industry development, as pointed out 39 in an example by Hand (1999). He shows the taxes attributable to the operation of a single purse seiner of the type operated in the Solomon Islands in 1998:

Taxation attributable to a single purse seiner in 1998 (US$) Solomons Vanuatu Fiji PNG Kiribati FSM Fuel duty 74,454 33,843 33,843 0 81,222 6,769 Fuel goods tax 60,267 50,222 40,178 40,178 0 0 Exp ort duty 113,227 0 0 0 0 0 Import duty 30,567 17,140 18,569 21,425 42,851 5,713 Withholding 12 taxes 101,929 101,929 101,929 101,929 101,929 101,929 Total 380,443 203,134 194,518 163,532 226,002 114,411

Reviews of fisheries taxation have been carried out in recent years by ADB in both the Solomon Islands and Samoa. That work (Hand 1999, Hand 2000) was guided by several principles, including the following that appear especially relevant for tuna industry development: · The most basic and reliable principle is that there should be no taxes or duties on raw materials, intermediate inputs, capital goods and business service inputs into the productive process; · There should be no taxation holidays; · Income, profits and consumption taxes are all justifiable but het principle of broadening the base and generally keeping rates uniformly at low to modest levels should apply; · These principles should apply to all business and economic activity and not just particular sectors. The key distinction should be between production and consumption. · If there are special reasons for giving extra assistance to business, then it is important to do so in a transparent manner that is open to public scrutiny and accountability; · Because some goods are used for both production and consumption (e.g. cars and buildings) taxes may have to be levied on such goods to avoid abuse.

The first item above, low taxation inputs into the productive sector, was repeatedly stressed by private sector participants during the present study as being valid, logical, and important for tuna industry development.

Most Pacific Islands countries have not had their fisheries taxation specifically scrutinised. For those that have, (with the exception of Samoa and Solomon Islands) the analysis was probably done during the era when the emphasis was on artisanal inshore fisheries development. The fisheries taxation may therefore not be suitable for the very different characteristics of emerging or fully developed domestic tuna industries.

12 As these were difficult to estimate, they were assumed to be the same in all countries. 40

It is clear that both the government and the private sector are interested in fisheries taxation and that features of a taxation regime can have a large effect on the development opportunities for, and competitiveness of, a national tuna industry, fisheries. The implications of hist to development assistance are, however, uncertain. Specialized expertise in taxation may be required to further articulate what fisheries- oriented interventions, if any, would be appropriate. On the other hand, there is the possibility that improvements in taxation should be taken up at a level broader than the fisheries sector to assure consistency across all sectors of a national economy.

5.13 Fuel

The high cost of fuel for tuna fishing operations is one of the frequently discussed problems of the tuna industry in many Pacific Island countries. This difficulty is not uniform. The table below (adapted from Forum Secretariat, 2002) shows the variation in retail cost of diesel fuel (with and without taxes) in July/August 2002.

90 80 70 60 Including duties and sales 50 tax 40 Excluding duties and sales 30 tax

US cents per litre 20 10 0 Fiji Niue FSM PNG Palau Tonga Tuvalu Samoa Cook Is Solomon Vanuatu

Note: The above information is for diesel fuel in general, and not specific to fishing fuel. In many countries some or all of the duties/taxes shown on the graph have been removed as an incentive to the tuna industry.

With respect to the availability of regional fuel information, the Forum Secretariat has a Petroleum Advisory Service for general fuel issues. There have been two regional studies specifically focused on fisheries fuel · Pintz, W. (1989). Fuel use in tuna fishing, Report 89/52, Forum Fisheries Agency, Honiara. · FFA (1997). Fuel Prices in the Pacific Islands: Some Implications for the Fishing Industry. Report 97/22, Forum Fisheries Agency and Forum Secretariat, Honiara.

Information in these studies show that the price of fuel to consumers, such as fishing vessels, is composed of several components. These are: · The price at the refinery port · The cost of freight · Other offshore costs, such as insurance 41

· Onshore costs related to operating the fuel terminal · Government charges · Profit margin to the fuel distributor

With respect to the objective of obtaining fuel at lower prices for tuna fishing activities: · Fuel will be inherently more expensive in the smaller countries due to transhipment logistics, involving handling at a regional fuel storage facility and subsequent onward shipment in smaller vessels. · Fuel studies show that the government charges and profit margins are the only price components where it is likely that negotiation will result in lower fishery fuel prices.

Although there may be some success in negotiating with fuel distributors (e.g. Samoa recently (Forum Secretariat 2002)), any reduction of fuel prices is more likely to arise out of reducing government charges. Pintz (1998) gives some implication of fisheries fuel taxes: “The fuel tax burden has three effects; firstly, it substantially reduces the profitability (and income tax liability) of locally based vessels; secondly, it discourages foreign involvement and investment; and thirdly, it encourages local vessels to refuel outside the country. Since overseas refueling is usually accompanied by overseas purchase of supplies, there is a resultant transfer of some sales tax base to other countries.” A case is made that decreasing the fishing fuel taxes could actually result in an increase in government revenue from taxing items related to a successful fishing industry.

Fuel costs are critically important to tuna fishing operations. In all the countries of the region where there is a thriving locally-owned tuna industry, there are major fuel duty/tax concessions. Conversely, in the countries where fuel prices are highest, there is little tuna industry development. Another observation is that in countries which have made the decision in principle to give concessions to fuel for tu na fishing, there are often problems in implementing and administering the schemes.

Considering the importance of fisheries fuel, development assistance in this area could be extremely valuable, especially for: · Case studies from those countries that reduced government charges on fisheries fuel and subsequently experienced substantial tuna industry development (and perhaps even increased government revenue). This may be quite important for those countries contemplating fuel tax changes. · Updating the dated regional fisheries fuel studies · Reviews of the most effective procedures (e.g. rebate, licensing) for obtaining fuel tax concessions taking into account administrative efficiency, abuse prevention, and regional experience.

5.14 FSM Arrangement

No discussion of domestic tuna industry development in the Pacific Islands would be complete without some mention of the Federated States of Micronesia Arrangement for Regional Fisheries Access (FSM Arrangement). The Arrangement is limited to tuna purse seine vessels, and has its roots in the desire of several FFA countries to provide a “more level playing field” for their domestically-owned vessels.

According to the actual text, the objectives of this arrangement are: · To cooperate to secure, for the mutual benefit of the Parties, the maximum sustainable economic benefits from the exploitation of the tuna resources of the Central and Western Pacific; · To promote greater participation by nationals of the Parties in fisheries and assist in the development of national fisheries industries of the Parties; · To establish a licensing regime under which fishing vessels of the Parties may gain access to the waters within the Arrangement Area on terms and conditions no less favourable than those granted by the Parties to foreign fishing vessels under bilateral and multilateral access arrangements; · To establish and enforce agreed criteria to ensure that only those fishing operations which are capable of providing genuine and quantifiable economic benefits to the Parties are eligible for licences pursuant to this Arrangement; · To allow access to the exclusive economic and fisheries zones of the Parties by purse seine fishing vessels on terms and conditions which are consistent with the provisions of the Palau Arrangement for the Management of the Western Pacific Purse Seine Fishery; and · To further the objectives of the Nauru Agreement Concerning Cooperation in the Management of Fisheries of Common Interest, 1982.

According to FFA (2002), the Arrangement came into force in September 1995 following signature by FSM, Kiribati, Nauru, Palau and finally Papua New Guinea. Solomon Islands subsequently acceded to the Arrangement by its signature on 6 October 1995 and Marshall Islands on 4 June 2000. The one remaining PNA country, Tuvalu, has agreed in principle to the Arrangement but has yet to accede.

To be eligible for the FSM arrangement, vessels must meet certain regionally-agreed criteria which give special weighting to those vessels that are fully owned by the FFA member countries, provide high employment opportunities, and have an excess of US$ 5 million onshore investment. At the end of 2003, there were 23 purse seine vessels licensed under the FSM arrangement. Vessels so licensed undergo periodic audit to determine their continued eligibility under the agreed criteria.

With respect to effectiveness in promoting domestic industry development, some sentiment was expressed that the Arrangement has had some success in increasing employment and some onshore infrastructure could at least be partially attributed to the Arrangement. On the other hand, there is the contention that the Arrangement has been used to circumvent regionally agreed restrictions on numbers of certain categories of purse seine vessels.

There are two aspects of the FSM Arrangement that make it somewhat unique in a developmental sense. First, its basic purpose is to provide wider access to the fishery zones of other countries rather than solely develop a particular country’s tuna resources. Second, it applies only to purse seine vessels and as such greatly limits the number and kind of potential investors from within most FFA member countries. Although the criteria established for licensing are uniformly applicable to eligible countries acceding to the Arrangement, the degree to which vessels might become eligible in any particular country depends on that country’s laws and regulations, including those related to flagging, investment, employment, and taxation.

In seeking to enhance the positive impacts of the Arrangement, one area in which development assistance could be quite useful is in a study to quantify the benefits and costs of the FSM Arrangement, including its impact on domestic development and potential lost revenue from license fees. Such a study would be an important prerequisite for improving the effectiveness of the Arrangement.

5.15 Other Observations Relevant to Future Development Assistance

In several countries there was considerable interest in obtaining assistance for infrastructure related to the tuna industry. More precisely, there was the feeling that future aid should include the construction of docks and harbours. While this type of activity may be beyond the scope of the assistance provided by many donors, some work on related subjects may be both appropriate for the funding agency and important for the tuna industry in the recipient country. · Improved management of existing fisheries docks and harbours may relieve some of the need for new facilities. Furthermore, in most countries even if new facilities are constructed, improvements in management over the present situation will still be important. Various reviews (including the 1995 FFA/ADB series) have commented on the need for better management of fisheries harbours in about half of the countries of the region. Although there is currently no regional source of advice on the topic, the need is likely to grow as the tuna industries develop. · In some countries there is a difference in opinion over the need for new or expanded fishery harbours. In other places an issue is the extent that profitable tuna firms should contribute to harbour improvements. In at least one country, the private sector is contemplating investing in infrastructure with the idea of generating a profit by char ging fishing companies for the use of such facilities. In many of these cases, the economics of fishery harbours and other fisheries infrastructure are important but not well understood. Accordingly, it would be valuable to have information from case stud ies that provide insight into such topics as the cost/benefit of infrastructure improvements and feasibility of commercial fisheries infrastructure investments.

Another observation is the growing presence of China in the tuna industry of the region. Chinese longline fishing companies now dominate tuna fishing in Palau, FSM, and the Marshall Islands. Recently they have become major participants in longlining in Fiji and Tonga. A major issue in Fiji is that there are numerous Chinese longliners which, although not licensed in Fiji, offload catch in the country and utilized scarce dock and air cargo capacity. Selling out to “the hordes of Chinese investors” was perceived by a 44

Tongan fishing company owner as a major opportunity. Although China’s involvement in tuna fishing has historically been confined to longlining, there are now several Chinese purse seiners operating in the region. There may be some implications of this increased Chinese presence for development assistance. At least one country in the region is anticipating a new longline base to be funded by the government-owned China National Fisheries Corporation. The increased Chinese fisheries presence may also result in some expansion in Taiwanese development funding related to fisheries. Greater Chinese influence in general could be related to news about the possibility of renewed U.S. development assistance to the region.

Several countries were interested in assistance dealing with the Hazard Analysis and Critical Control Point (HACCP) system of assessment and management of risks in seafood processing plants. This perceived need seems well -founded; satisfying the HACCP requirements of both the U.S. and E.U. is critically important for the ability of the tuna industry to export to those countries. With respect to future development assistance dealing with HACCP, three important points are: · Some assistance in meeting HACCP requirements is presently available from regional programmes of both EU and FAO. Some of the countries which mentioned the need for HACCP assistance in the present study are eligible for the EU/FAO programmes but did not respond to the opportunity. · Countries should be well-aware that the HACCP situation may require long-term commitments, including changes to organizational aspects and work programmes of government agencies. A visit by a consultant or a series of such visits will not resolve the important issues related to HACCP requirements. · Future donor interventions should be formulated with careful attention of the on- going EU and FAO HACCP work.

The subject of joint venture arrangements did not feature prominently in discussions during the country visits. This is somewhat ironic, as in most countries there was considerable concern over credit availability and joint venture arrangements could be one means of circumventing the lack of local capital. In various reports it is often mentioned that there is a growing body of information on joint venture arrangements in the fisheries sector worldwide. Reviews of tuna industry development in the region often advise that, when considering joint venture arrangements, careful attention be paid to past success and failures. Information on this subject, however, does not appear to be readily available. With the exception of several reports on the Solomon Taiyo joint venture arrangement (e.g. “High Speed on an Unmade Road” and “Costly Connections”) there are few reviews of tuna industry joint venture arrangements in the Pacific Islands that available to development planners. Bringing together past regional experience in joint venture arrangements, especially that dealing with medium-scale development (e.g. sashimi-type longline fishing) could be quite beneficial for tuna industry development in several countries.

6.0 Considerations on Future FFA Involvement in Domestic Tuna Industry Development

Section 5.0 above contains some comments on general development assistance for the tuna industry in a variety of areas (fuel, taxation, etc.). The purpose of this section below is to examine the specific role of FFA in promoting development.

The intention is not to draw up a detailed programme of assistance, but rather (as indicated in the consultant’s terms of reference and in discussions with FFA staff) to highlight the areas that would require additional analysis to further develop the domestic tuna industries. The aim is to identify common themes that FFA could address by similar activities in several countries. Below this is divided into (a) specific tuna industry topics to be addres sed by FFA, and (b) institutional considerations related to improving the effectiveness of FFA in industry development.

The discussion below avoids the details of implementation arrangements (which FFA staff would know best) and focuses on general topics where FFA should concentrate. Also put forward are ideas on changes which would make FFA’s work with the private sector more successful. Many of these issues are well-known to FFA staff – the major contribution of the present report is that it provides an alternative perspective from outside the agency and highlights subjects to which FFA may be is less sensitive.

6.1 Specific Areas for FFA Involvement

A large number of interventions to promote industry development were suggested during the study. Those suggestions which were mentioned in several countries and which are generally appropriate for donor support are given in Section 4.3. Due to institutional mandate, understandings with other regional organizations, and technical realities, not all of the often-cited development assistance needs are appropriate for FFA involvement. Based on the results of the study, certain topics are considered to be especially important in the tuna industry development process in the region. Many of these areas of assistance lie within FFA’s mandate.

In considering the expressed assistance needs of government and private sector together with observations/analysis during the study, a number of assistance topics appear to be especially important for inclusion in FFA’s future domestic tuna industry development workplan. These are: · Rigorous technical and economic evaluations of planned or desired projects – Emphasis should be placed on including technical aspects, the importance of being critical, and use of lessons-learned from similar initiatives. · Identifying opportunities for tuna-related development - a technically accurate and realistic roadmap of the way ahead is especially important for those countries without a sizeable private sector or substantial tuna development. · Improvements to the fisheries credit situation · Reviewing investment conditions - to increase the attractiveness of a country’s fisheries sector for investors, both local and foreign · Improvements to the fuel situation 46

· Information on the future of foreign fleets that are important for servicing by Pacific Island countries · Additional support to tuna management plans, including assistance to facilitate adoption and to encourage adherence · Enhancement of fishery associations · Assessment of infrastructure needs and evaluation of the economic return of infrastructure · Improvements to the air freight situation – country studies as a follow up to the regional review · Improvements to the effectiveness of the FSM Arrangement – starting with an assessment of the benefits to date · Promotion of rights -based management – for domestic industry development and other purposes · Compilation of joint venture experiences - especially for medium-scale joint ventures · Privatization of government-owned fisheries enterprises

Obviously, it will not be possible for FFA to carry out thorough work in all of the above areas in all member countries. Accordingly, the above list has been arranged in roughly descending order or priority.

Considerations concerning the details of this work is given in Section 5.0 above. With respect to how the activity is approached, the topics above can be placed in three categories: · It would be appropriate that work on several of the above topics be undertaken in a similar two -phase manner: a regional overview followed by country specific studies. The regional overview could highlight important issues, general principles, differences/similarities across countries, and successes/failures. The regional study enables building up appropriate expertise which can improve the quality and relevance of the subsequent country studies. This two-phase scheme could be applied to assistance dealing with several of the above topics, including credit, attracting investment, fuel, fisheries associations, infrastructure needs, and privatisation. With respect to FFA assistance dealing with air freight, the first phase could be considered complete, with the focus to become country-specific air freight studies. · FFA should undertake some of the work above on a country request basis. This includes the topics of technical/economic evaluations, identifying opportunities for tuna-related development, and additional assistance with tuna management plans. · FFA should work on its own initiative (after FFC approval, without specific country request) in a few of the above areas: information on the future of important foreign fleets, improvements to the FSM Arrangement, promoting rights -based management, and compilation of joint venture experiences.

The categorization of future FFA tuna industry development work can be summarized as: Approach Specific Topic Country request · technical/economic evaluations · identifying opportunities for tuna-related development · additional assistance with tuna management plans Regional review follo wed · credit by country studies · attracting investment · fuel · fisheries associations · infrastructure needs · privatization FFA initiative · future of important foreign fleets · improvements to the FSM Arrangement · promoting rights-based management · compilation of JV experiences

Some of the often-cited development assistance needs given in Section 4.3 may not be appropriate for FFA involvement: · Although reforming fisheries taxation is an important topic, it appears that any reform should be taken up at a level broader than the fisheries sector to assure consistency across all sectors of a national economy. Any FFA efforts in this important topic would be best placed at providing the fisheries perspective on a general tax reform package, rather than work on a fisheries-specific tax initiative. · The SPC has more experience and/or relevant skills for several of the topics: evaluating the practicality and profitability of small -scale tuna development efforts, meeting HACCP requirements 13, harbour management, development of tuna industry skills, identification of markets and demand for value-added tuna products · With respect to measures to promote entrepreneurial spirit and the building of a business culture related to the tuna industry, FFA can certainly make contributions in this area (e.g by use of a more appropriate development model, Section 5.1), but the topic itself is much greater than the fisheries sector.

6.2 Institutional Considerations

FFA’s recent emphasis on domestic tuna industry development represents a new dimension in Agency activities. As compared to past work, this role involves different objectives, clients, and ways of judging success. To be effective in tuna industry work, certain changes in established FFA procedures and attitudes will be required. Because FFA has enjoyed considerable historical success, it is understandable that there may be some reluctance to move away from established procedures. Nevertheless, it should be recognized that industry development work and its private sector orientation requires some different approaches.

The main areas in which some modification of FFA procedures or approaches should be considered are: · The degree of constructive criticism

13 HACCP legislation is one area where FFA assistance may be appropriate. 48

· Direct contact with private sector · Information dissemination

FFA has always been sensitive to the various government policies of member countries and has characteristically endeavoured to work within the framework of those policies. Because industry development and promotion of private sector activities do not have a long heritage in many countries of the region, it is normal and expected that some government policies and attitudes are inadvertently constraining industry development and private sector growth. Many observers of the fisheries situation in the Pacific Islands are of the opinion that, in FFA’s new era of involvement with domestic tuna industry, the Agency should be more active in offering constructive criticism of government policies and procedures should they negatively impact domestic industry development. The results of the present study support this contention.

As the development policies of most of countries in the study indicate that the private sector is to be the primary engine of growth, FFA contact with the private sector will be critically important for the Agency’s effective involvement in industry promotion. Many of the 79 individuals from private sector firms interviewed in the present study (Appendix 2) had strong views on FFA. As mentioned in Section 5.9, key private sector participants are likely to grow increasingly weary of dedicating their time free-of-charge to future FFA studies if they do not get useful feedback from past inputs. It would be mutually beneficial if FFA could focus additional attention on culturing relationships with key firms, periodically providing appropriate information to the private sector, and supporting industry associations (Section 5.10). Another concept is for FFA to initiate an industry advisory panel which could meet periodically and provide input into FFA’s industry development efforts.

Section 5.9 suggests a need for change dealing with how FFA disseminates reports. This appears to be consistent with the sentiments expressed in the latest FFA corporate plan: “Responding to stakeholder observations that its info rmation output is inadequate, FFA will substantially improve the effort devoted to this activity.” The statement in the plan points to the fact that dissemination of FFA reports is a component of the larger issue of information distribution; much of the non-confidential information that FFA generates or has access to (e.g. market reports), would be of value to the tuna industry and could be an important contribution to the tuna industry development process. In Section 5.9 justification was given for allowing FFA to distribute appropriate reports directly to the private sector.

Another aspect of fisheries information is that for FFA to be fully effective in providing tuna industry development advice to their clients, there is a need to enhance the reference material available to FFA staff. This is illustrated by the fact that many of the 148 references listed in Section 7.0 and used in the present report are probably not available at FFA headquarters.

Resources will be required to enhance FFA’s ability in disseminating reports and other information. This includes compiling an industry mailing list14 and constructing a website with various levels of confidentiality, and possibly a regional meeting of the private sector. It should be noted, however, that not all improvements in the fisheries information

14 Copies of 66 business cards collected during the present study were furnished to FFA and could form the basis of an industry mailing list. 49 situation at FFA require extra funding. Activities that could improve the situation without major cost include greater participation in the Pacific Islands Marine Resource Information System (PIMRIS), greate r attention by FFA staff in acquiring documents, cooperation with SPC in sharing acquired documents, and taking advantage of existing regional services to maintain some order in the FFA library.

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Appendix 1 – Country Information Solomon Islands

Inventory of Domestic Tuna Industry Development

The major firms of the tuna industry in the Solomon Islands are Soltai, NFD, and Solco. Other companies with involvement include Global Investment, Mako, and Tradco.

Soltai, formally known as Solomon Fishing and Processing Company Limited, is the transformed Solomon Taiyo after the Japanese partner pulled out. It is now owned 51% by the national government through its investment arm (the Investment Corporation of the Solomon Islands) and 49% by Western Province. Its assets at the Noro base include 12 operational pole-and-line vessels15, a cannery, tuna smoking (arabushi) facility, a 1600 mt freezer16, and office/engineering facilities. The cannery in October 2002 had a daily throughput of about 12 to 15 mt of tuna per day, operating five days per week. According to company officials, this is about 25% of capacity. About 31 mt of tuna is smoked per day (five days per week) for arabushi production, resulting in about 160 mt of finished product per month. Since the arabushi processing began in October 2001, 144 containers (10.8 mt net) have been shipped. In addition, the Soltai facility is now experimentally producing tuna loins for arabushi production in Japan, reportedly about 10 mt per month. In 2001 Soltai exports consisted of 563 mt of arabushi, 8,800 cartons of canned tuna, and 50.4 mt of fish meal. Each of the 12 Soltai pole -and-line vessels employs from 30 to 35 crew, or about 380 total. The canning and arabushi production employs about 270 people. Including office personnel (Noro and Honiara) and engineering staff, the total staff of Soltai was about 750 people in October 2002, of which two are non-Solomon Islanders.

NFD, formally known as National Fisheries Developments Limited, operates two purse seine vessels. Formerly the company operated from a facility at Tulagi, but as a cost- reduction measure, moved to Noro in mid-2001. Besides the purse seiners, other assets include the fish aggregating devices used in conjuction with tuna fishing, reportedly about 80 to 200 FADs in 2002. NFD exported 10,400 mt of tuna in 2000 and 11,700 in 2001. The two seiners use 50 crew, of which 39 are Solomon Islanders. The shore - based staff was about 40 to 50 people, but this was reduced to eight (including two expatriates) after the move to Tulagi.

Solco Company Limited, formerly as Solgreen, presently operates eight longline vessels targeting the sashimi tuna market. These vessel, mostly 49 gross registered tonnes (Japan measurement system), are registered in Taiwan and in Honduras. The company has office, wharf, and fish packing facilities in Honiara. In 2001 the firm landed about 1500 mt of tuna, about 80% of which was freighted by chartered aircraft17 to Brisbane for forwarding to Japan18. The company vessels employ 130 people, of which 45 are

15 Another Soltai source indicates 11 operational and 8 non-operational pole-and-line vessels 16 An earlier FFA report gives the freezer capacity as 2000 mt 17 The chartered aircraft had a crash landing on the Honiara airport in October 2001 and again during October 2002. 18 FFA (2002) using Japanese trade data indicates that 1006 mt of fresh yellowfin and bigeye were imported into Japan in 2001. Fisheries Department data (supposedly originating from companies) states that 816 mt of “chilled tuna” was exported in 2001. 61

Solomon Islanders. The other crew are from Japan, Korea, Indonesia, and China. There are also 49 shore-based employees, of which 40 are Solomon Islanders.

Other tuna companies based in the Solomon Islands are Global Investment and Mako. These companies appear to presently operate similarly, managing vessels and acting as vessel agents, with Honiara activities reduced/eliminated after the civil disturbances of 2001. According to Fisheries Department officials, Global has licenses for operating 15 to 20 foreign-flagged freezer longliners and employs only a few local staff. Mako reportedly has two foreign-flagged freezer longliners and is asscociated with four bunker vessels. Mako only employs a few local staff. Little, if any, fish has been offloaded or transshipped through Honiara in the past year.

Tradco Shipping Limited provides services to vessels, including assisting with transshipments and providing crew. According to the Managing Director, the last purse seine transshipment was in 2000 and the last longline transshipment was from a vessel associated with Global in 2001. Besides supplying 5 crew to an overseas purse seiner, “there have been zero benefits from tuna fishing in 2002”.

Summary of Some Indicators of Domestic Development Active Canneries Air Local Local Frozen Fresh Cases Locally- and Export Jobs Jobs at Tuna Tuna Canned Based Dedicated Packing on Shore Exports Exports Tuna Tuna Loining & Value vessels Facilities 2001(MT) 2001(MT) Produced Vessels Facilities Adding 2001 Facilities Soltai 12 P/L 1 0 380 368 0 0 8,800 NFD 2 P/S 0 0 39 6 11,700 0 0 Solco 8 L/L 0 1 45 40 0 1,200 0 Other 0 0 0 0 8 0 0 0 Total 12 P/L 1 1 464 422 11,700 1,200 8,800 2 P/S 8 L/L October 2002, unless otherwise noted

Other Indicators of Development

According to the 1999 Solomon Islands Tuna Management Plan (Solomon Islands Government, 1999), domestic catches have risen from 4,711 mt in 1971 to a record 94129 mt in 1998. Oreikaka (2002) gives the recent catches for “domestic vessels”19: Pole/Line Purse Seine Longline Total 1999 18,606 14,697 1,212 36,514 2000 2,778 3,405 1,197 9,380 2001 6,534 20,725 407 29,667

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economy of the Solomon Islands. The study estimated that (a) 73,328 mt of tuna was caught by locally-based vessels in 1999, (b) the value of this

19 Information in this table is inconsistent with that from other sources. 62 catch was S$4,570 per mt, (c) the value added ratio was .4, and (d) the value added from the locally-based offshore fishing ( = contribution to GDP) was S$134,044,000 or US$27,706,000.

The Solomon Islands Trade Directory (Ministry of Commerce 2002) indicates that tuna represented about 12% of all commodity exports from the country in 2001.

Small-scale commercial landings of tuna are estimated to be about 300 mt per year (D.Russell, per.com., October 2002).

Changes from Previous Studies

The October 2002 situation noted above was substantially different from that given in previous reviews of the Solomon Islands tuna industry. The 1995 FFA/ADB Solomon Islands Tuna Industry Development Study stated that Solomon Taiyo employed 1500 people and NFD employed 500, and that tuna represented 22.4% of exports20. This is about twice the October 2002 employment for Soltai and eleven times the employment for NFD. The tuna exports in the 1995 study are almost twice that noted for 2002.

Hughes and Thaanum (1995) indicate: · In 1995 Solomn Taiyo Ltd. ( STL) employed about 2200 Solomon Islanders (some 9% of all formal jobs in the country), including 650 women, and about 65 foreigners, of whom about 50 are Okinawan fishermen, three each on 15 out of 19 boats. All but 42 of STL’s personnel are based on or working at Noro in the Western Province. STL normally catches 25 - 30,000 tons of skipjack and yello wfin tuna annually of which about 20,000 tons is processed and the balance exported frozen. STL produces about one million cases of canned tuna and two thousand tons of smoked fish and fish meal. Annual sales are around SI$155 million, of which SI$135 million comes from exports. STL purchases goods and services in the S.I. economy worth $40 -45 million a year and payments to national and provincial governments and NPF of $6 million annually. · Processing and related facilities at the Noro cannery include: Cannery Deleted: processing 65 tons/day raw material, Fishmeal plant with 40 tons/day Deleted: ¶ capacity, Smoked fish (arabushi) processing 1,200 mt./yr., Brine freezing tanks, <#>¶ 100 mt./day, Cold storage, 2000 mt. frozen fish capacity, Ice production capacity • - 30 mt./day, Ice storage capacity - 80 metric tons Deleted: ¶ • Other reports contain information on the past levels of domestic tuna industry Deleted: ¶ • development: Deleted: ¶ · Barclay and Yoshikazu (2000) report that as of June 1999 Solomon Taiyo had • 2,400 permanent employees and up to 700 casuals. Deleted: ¶ · Gillett et al. (2002) report the late 1999 domestic tuna fleet in the Solomon • Islands as consisting of 20 longliners, 30 pole/line vessels, and 5 purse seiners. Deleted: ¶ • · Forau (1995) calculated that seiners spent US$299,658 in Honiara during Deleted: ¶ transshipping in 1994. •

20 In 1993 63

· Tuna consistently contributes between 20 to 46 percent of the total value of exports (Solomon Islands Government 1999).

Other Considerations Concerning Domestic Tuna Industry Development

Additional factors which could exert an influence on domestic tuna fisheries development include the presence of associations which represent the interests of the tuna industry, the level of government participation in the tuna business, and quality of the business environment: · There is no association dedicated to the Solomon Islands tuna industry. Although a Fisheries Advisory Council was established under the Fisheries Act 1998, according to Fisheries officials, it has met only once. Similarly, the Tuna Management Committee established under the tuna management plan has not been very active in recent years. On the other hand, both Soltai and NFD are active members of the Chamber of Commerce and have used that organization to put forward to government their views on numerous issues, especially the goods tax. Solco indicated that it is “too busy with business” to get involved with such groups. · Government involvement in the commercial aspects of the tuna industry decreased with the sale of NFD to a foreign company in 1990. With the termination of the Solomon Taiyo joint venture in 2001, that company became 100% government-owned, and the present degree of commercial involvement by the government in the tuna industry is again substantial. · The business environment is negatively affected by security problems cause by the civil unrest, government investment policies, and taxation in the fisheries sector. The security problems affect almost all aspects of operating a business in the country. In addition, potential investors are concerned that the security of their investment is limited to the duration of the officials or government providing the investment authorization. A review of fisheries taxation was conducted in 1999, but reforms were not implemented due the change in government.

In general, it appears that government officials tend to equate domestic tuna industry development with nationals operating fishing vessels. When questioned on this subject, they agreed that other activities and the foreign investment aspect are important, but it is clear where their priorities lie.

Constraints in Domestic Tuna Development

The civil unrest since 1999 is a threat to most development prospects, including that for the tuna industry. In addition to the damaging effects of violence, a breakdown in government services and infrastructure has created a very unfavourable environment for economic development, as well as major difficulties for resource management interventions.

In addition to those constraints related to the civil unrest, perceptions of constraints which are commonly expressed by government fisheries officials include: · Insufficient infrastructure 64

· Poorly trained workforce · Low air freight capacity · Lack of capital and markets · High cost of vessels · Title to land for commercial development · “No facilitator to make it happen”

Perceptions of constraints which commonly expressed by fishing companies include: · Taxation of the fisheries industry · Non-enduring nature of both government policies for the industry and of security of investment · Lack of government capacity to implement management for the industry; non- adherence to the Tuna Management Plan. · European Union HACCP requirements · Competition with low-cost countries

In general, the government and commercial sectors had very different views on constraints. Government officials do not appear to be very sensitive to investor concerns, especially on government policies. On the other hand, key private sector players indicated that if certain government policy problems were addressed (taxation, investment security), many of the government-identified constraints could be rectified by the companies themselves (infrastructure, training). In terms of addressing constraints relating to investment, government officials tended to focus on attracting investments and approving investments, whereas the main private firms seemed to emphasize improving the security of investment.

The issue of security of investment was a major theme of the 1995 FFA/ADB Solomon Islands Tuna Industry Development Study. The report of the study (Grynberg et al. 1995) stated: “studies of multinational firms have repeatedly found that a stable, reliable set of policy measures and trading environment is much more attractive to foreign investors than concessions as such (the latter can, after all, easily be removed). Hence clarity, consistency and reliability of official policy towards foreign investment are critical requirements. These are not currently features of SIG dealings with overseas firms”.

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The types of views expressed by industry ranged from challenges for the company (meeting EU HACCP requirements), comparative advantages of the Solomon Islands (good, consistent fishing near the home base), to opportunities for expansion (fully process all tuna caught in the Solomon Islands). Views expressed by government were often things to be done which would result in greater benefits (displace foreign fishing) or required government action (establish a team in the Fisheries Department dedicated to tuna).

Compared to our Pacific Island countries, the Solomon Islands main advantage appears to be on the catching side: substantial resource, relatively good weather, high longline catch rates, and conditions favorable to purse seining. With respect to the post-harvest 65 possibilities, considering the relatively cheap/abundant labour but otherwise high cost of manufacturing, the production of tuna loins for further processing abroad appears to be a logical opportunity.

Several individuals felt that the government should proceed to encourage developments in these two areas. Alternatively, the view was expressed that the government should focus on improving the policy, investment environment, and fisheries management environment, then the private sector will develop the opportunities where they perceive the most opportunity to lie.

Chapman (1998) studied tuna industry development in the Solomon Islands. His conclusions on opportunities included: · Encouraging a major foreign investor to develop a value-added processing facility, perhaps at Bina. Substantial donor support would be needed for infrastructure development. The author stated “This is the only large-scale development option”. · Encouraging expansion of the fresh-sashimi export sector, either by the present operator or by a second company. · Encouraging foreign-owned purse seiners to take up Solomon Islands registration, if only to gain access to licences under the FSM Arrangement. · Encouraging the transhipping sector · Providing supplies and services to the foreign tuna fleets.

Interventions to Promote Domestic Industry Development

Several of the interventions mentioned by individuals interviewed represented direct subsidies to commercial concerns (supply of 800 stainless steel fish bins, renovation of factory) or activities beyond the scope of likely donor assistance (establish new air freight route).

Those interventions mentioned during the visit which appear to have a reasonable possibility to be funded by conventional donors in the fisheries sector are: · Implementation of the fisheries taxation reforms recommended by ADB in 1999 · Provision of infrastructure, identification of markets, and facilitation of transporta tion to those markets · Carrying out a short study producing specific steps that the government should take to promote investment in the tuna industry · Assistance to the cannery to produce a pouched product · Promotion of privatization of the cannery · Facilitation of EU HACCP approval and quality control upgrading · Enhancement of air freight service Honiara/Brisbane · Promotion of simple tuna vessels for use by Solomon Islanders · Carrying out a comprehensive comparative study of benefits of pole -and-line fishing vers us purse seining.

Some Considerations on the Suggested Interventions

Some comments should be made on specific interventions on the list above. Although a full analysis is beyond the scope of this review (“highlight the areas that would require further analysis”), some additional thoughts on aspects of the suggested interventions may advance the process of providing appropriate assistance.

In reconciling the above -suggested interventions with both perceived constraints and the consultant’s experience, many seem worthy of support. Alternatively, some of the above ideas could represent well-intentioned government-led fisheries development that has not enjoyed much success in the tuna industry of the Pacific Islands.

Several interventions listed above are associated with Soltai. This seems logical, given the tremendous importance of the company to the country. Seven years ago a review of the economic, financial and social costs and benefits of the company’s operations (Hughes and Thaanum 1995) concluded that the company was not sustainable as it operated. During the past half-decade operational conditions for the company have deteriorated markedly. There are now serious and growing concerns over the ability of the government to support the company. Conside ring the dire financial condition of the company, an important consideration is whether some of the suggested interventions represent “tinkering at the edges” instead of addressing the important core issues affecting the sustainability of the company. An mportanti question is whether at least some of the available assistance should be focused on dealing with the underlying factors important for the survival of Soltai.

The EU HACCP seafood import requirements are an important issue for many of the tuna firms in the Solomon Islands. Although the value of the above-suggested “facilitation of EU HACCP approval and quality control upgrading” is not disputed, it should be noted that there are regional initiatives underway on this subject. Both the Food and Agriculture of the United Nations (FAO) 21 and the European Union22 are presently embarking on providing substantial assistance to requesting Pacific Island countries for meeting EU HACCP requirements. It is likely that these programmes will not eliminate the need for HACCP assistance dedicated to the Solomon Islands, but at the very least, any HACCP work specifically for the Solomon Islands should be planned and implemented to be complementary to the regional programmes. It also should be noted that the Solomon Islands will probably require HACCP assistance in two areas: (1) Direct assistance to commercial exporters, and (2) Assistance to set up the “Competent Authority” required by EU regulations.

The issue of enhancing the Honiara/Brisbane air freight situation is important for firms exporting fresh tuna. It should be noted that the issue of air freighting tuna is both well - studied and without easy solutions. In early 2001 FFA completed a comprehensive regional sashimi air freight study (Center for Asia Pacific Aviation 2001), and included a section on the Solomon Islands. The Solomons section of the report stated: “There is little doubt that the current air freight service to the Solomons could be expanded if the

21 The FAO work is from its Technical Cooperation Programme to which countries must apply. As of October 2002 only Fiji, Tonga, Palau and Marshalls have requested to receive assistance from the regional HACCP project. 22 There are two EU-associated possibilities for HACCP assistance: one is through a relatively large regional EU HACCP project; the other is through requesting assistance from the EU Centre for Development of Enterprise (CDE) which has several national/regional HACCP activities. 67 investment in additional fishing capacity takes place…”. This emphasis on investment is important and relates to the conclusions below on desirable interventions for promoting tuna industry development in the Solomon Islands.

The issue of the need for additional infrastructure to promote tuna industry development was often mentioned, particularly by individuals in the government sector. It is presumed that any infrastructure provided under an assistance programme would be for eventual use by commercial firms. It was therefore ironic that when interviewed, the representatives of commercial firms in the tuna business usually did not mention infrastructure as been among the most important constraints, preferring to dwell on taxation and policy concerns.

Concerning “Promotion of simple tuna vessels for use by Solomon Islanders”, it should be noted that there is a very long heritage of such attempts in many Pacific Island countries, including the Solomon Islands. These have not often been successful. Given the current economic situation in the country, conditions are even less conducive to success. In another sense, the development model may be inappropriate; the vessel itself may be only one of many factors working against establishing viable fishing businesses for locals in the Solomon Islands. Alternatively, it may be more realistic to encourage a scheme in which locals gain skills and experience working their way up within viable commercial tuna fishing companies.

Some comment should be made on the suggestion for “Carrying out a short study producing specific steps that the government should take to promote investment in the tuna industry”. The crucial relationship between government policies, investment, and tuna industry development is well -documented for both the Solomon Islands and neighbori ng countries: · In reviewing tuna industry development in the Solomon Islands, Grynberg et al. (1995) state that the focus should be on “specific measures designed to attract foreign investors, possible methods of stimulating local participation in the industry, and means of improving the benefits derived from the inward foreign investment.…….The effects of establishing a less munificent but more transparent and stable set of guidelines for dealing with foreign investment would be to increase the level of inward investment, and to increase the returns to SIG from it.” · In a Pacific Islands regional overview, Pollard (1995), on the basis of reviewing the tuna development situation in nine countries, states: “If the countries of the region want to establish viabl e, sustainable, locally-based tuna industry then their joint experiences to date dictate that this should be led by private sector investment.” · In a study focusing on encouraging the export of fresh tuna from the South Pacific, Phillipson (1998) states: “A principal means to fast track developments in relation to [exports of fresh tuna] is for governments to be more proactive in seeking investment in the tuna industry. This can be achieved by reviewing existing policies, removing impediments and adopting ne w policies and guidelines that promote opportunities for investors in the tuna industry.”

If the private sector is to be the engine of tuna industry development in the Solomon Islands (as both formal government policies state23 and regional experience suggests), and the private sector’s main concerns relate to the investment policies of the government, then it would seem logical that addressing the policy impediments to investment should receive high priority when prioritizing donor interventions focused on the tuna industry.

23 According to the present Minister of Fisheries, the 1999 Solomon Islands Tuna Management Plan still represents official government policy. The plan states that one of the government policies in the fisheries sector is to “facilitate growth of domestic industry through private sector development”. 69

Papua New Guinea

Inventory of Domestic Tuna Industry Development

The major firms of the tuna industry in PNG are Latitude 8, Neptune, Coco, RD, Frabelle, FairWell, and South Seas Tuna. Other companies with involvement include Blue Haven, Kidu Kidu, Longline Tuna, Manus Provincial Government, Maps, Molina, Nako, Nuigini Islands Sea Products, Yuwan Fisheries, PNG Fresh Tuna, Pacific Blue Sea Fishing, and Sanko Bussan.

Latitude 8 Limited is based in Port Moresby and operates 13 tuna longline vessels which range in length from 15m to 32 m. All vessels are PNG flagged. Nine of these vessels were productive in 2002. For the non-active vessels, one was too small to fish more than a few days in the uncharacteristically rough sea conditi ons experienced in 2002, one is being re -fitted, one needs an auxiliary engine, and one is just a hull. The company also has a chilled tuna export packing facility. Latitude 8 exported 1050 mt24 of fresh tuna in 2001, in addition to about 42 mt of frozen tuna. About 825 mt of fresh tuna was exported in 2000, and about 500 mt in 1999. With respect to tuna-related work, about 120 people are employed at sea (102 PNG nationals) and 37 people are employed ashore (34 PNG nationals).

Neptune Fishery Company Limited is based in Lae and Rabaul, and operates 9 longliners, of which 3 are primarily targeting shark. All vessels are PNG flagged. The company operates a chilled tuna export packing facility. Neptune is processing an increasing amount of by-catch from access vessels during transhipment. The company indicates that in 2001, 360 mt of fresh tuna 25 (worth K10 million) and 500 mt of sharks (K6 million) were exported. NFA records indicate that 256 mt of frozen tuna was exported in 2001. About 120 people are employed at sea (95 PNG nationals) and 50 people are employed ashore (35 PNG nationals). .

Coco Enterprise Limited operates 6 longline freezer vessels which ship their catch out of Rabaul. All vessels are PNG flagged. About 166 mt of tuna were exported in 2 001, all of which was frozen. NFA records indicate that this was worth K$468,000. About 70 people are employed at sea (22 PNG nationals) and 22 people are employed ashore (20 PNG nationals).

Companies involved with longlining that operate less than five vessels include Blue Haven (2 vessels), Kidu Kidu (1), Longline Tuna (1), Manus Provincial Government (3), Maps (2), Molina (1), Nako (3), Nuigini Islands Sea Products (1), Yuwan Fisheries (1), PNG Fresh Tuna (1). All vessels operated by these companies are PNG flagged, except for a Fiji-registered longliner chartered by Manus Provincial Government. NFA records indicate that these 10 companies employ about 200 people at sea (130 PNG nationals). A crude estimation of employment ashore is 60 (45 PNG nationals). Allowing for some incompleteness in NFA records26, these companies in 2001 collectively exported about 475 mt of fresh tuna and 32 mt of frozen tuna.

24 NFA records indicate the company exported 959 mt of tuna in 2001, but the Authority acknowledges that fishery export data for 2001 is less than complete. 25 NFA records indicate 267 mt 26 The 1,745 mt of fresh tuna exports recorded by NFA for 2001 is substantially less than the 2015 given by FFA (2002) for Japanese imports of fresh tuna from PNG. This equates to a difference of 18.5%. 70

Sanko Bussan does not operate tuna vessels but packs and exports tuna for other companies, including Molina and Manus Provincial Government. NFA records show 143 mt of tuna was exported by the company in 2001, of which about 128 mt was fresh. Employment is likely to be around 20 people of which 22 are PNG nationals.

RD Corporation of the Philippines fully owns RD Fishing PNG Ltd. and RD Tuna Canners Ltd. Its operations are covered under a 20-year agreement signed in 1995. 10 group purse seiners using about 300 FADs, are currently fishing. These vessel are all Philippine-flagged, but fall into the licensing category of “locally-based domestic”. The cold storage capacity ashore is currently 600 mt. The company’s cannery has a daily throughput of 100 mt of tuna, or about 25,000 per year. In 2001 1,464,158 cases of tuna were produced. In addition, about 15,888 mt tonnes of frozen tuna was exported. About 550 people are employed at sea (25 PNG nationals) and 2,550 people are employed ashore (2,500 PNG nationals).

Frabelle (PNG) Pty. Ltd. operates five purse seine vessels, of which four are single seiners and one is a group. Four of the vessels are PNG-flagged and one is Philippine- flagged. All five vessels are in the licensing category of “locally-based domestic”. NFA records that the company exported27 9,092 mt of frozen tuna in 2001. In addition to the exports, the company has sold about 700 mt of tuna to the RD cannery to date in 2002. According to the company, about 160 people are employed at sea (60 PNG nationals28) and 29 people are employed ashore (23 PNG nationals).

South Seas Tuna Corporation Ltd. operates five purse seine vessels. Four are Vanuatu - flagged and one is flagged in Netherlands Antilles. The vessels are all in the category of “locally-based foreign”29. NFA records that the company exported30 26,975 mt of frozen tuna in 2001. NFA records indicate that about 129 people are employed at sea (7 PNG nationals). Using the other locally-based companies as a guide, it is estimated the company may have 25 people employed ashore (20 PNG nationals).

Fair Well Fishery (PNG) Ltd. operates three Vanuatu -flagged purse seiners, all of which are in the licensing category of “locally-based foreign”. The company commenced operation in 2001 and therefore no exports are recorded for that year. According to Fair Well, about 65 people are employed at sea (15 PNG nationals31 ) and 2 people are employed ashore (all PNG nationals).

Pacific Blue Sea Fishing Company Ltd. operates one purse seine vessel, which is PNG flagged. NFA records that the company exported32 5080 mt of frozen tuna in 2001. NFA records indicate that about 37 people are employed at sea (4 PNG nationals). Using the other locally-based companies as a guide, it is estimated the company may have 5 people are employed ashore (3 PNG nationals).

27 Using the current NFA definition of “exports” 28 The NFA licensing database list 13 PNG nationals employed aboard the vessels. 29 According to the PNG Tuna Management Plan, “Locally-Based Foreign Fishing Vessel” means a chartered foreign fishing vessel which operates from Papua New Guinea during its licensing period and lands or transships an approved portion of its catch in Papua New Guinea as an export of Papua New Guinea. 30 Using the current NFA definition of “exports” 31 The NFA licensing database list no PNG nationals employed aboard the vessels. 32 Using the current NFA definition of “exports” 71

Summary of Some Indicators of Domestic Development Active Canneries Air Local Local Frozen Fresh Cases Locally- and Export Jobs Jobs Tuna Tuna Canned Based Dedicated Packing on on Exports Exports Tuna Tuna Loining & Value vessels Shore 2001(MT) 2001(MT) Produced Vessels33 Facilities Adding 2001 Facilities Latitude 8 9 L/L 0 1 102 34 42 1050 0 Neptune 9 L/L 0 1 95 35 256 360 0 Coco 6 L/L 0 0 22 20 166 0 0 Other 16 L/L 0 5 130 70 32 600 0 longline companies34 RD 10 P/S 1 0 25 2,500 15,888 0 1,464,158 Frabelle 5 P/S 0 0 60 23 9,092 0 0 South Seas 5 P/S 0 0 7 20 26,975 0 0 Fair Well 3 P/S 0 0 15 2 0 0 0 Pacific Blue 1 P/S 0 0 4 3 5,080 0 0 Sea Total 40 L/L 1 7 460 2,707 59,532 201035 1,464,158 24 P/S October 2002, unless otherwise noted

Other Indicators of Development

Kumoru (2002) gives the following tuna-related information:36 1997 1998 1999 2000 2001 Number of active locally-based 10 13 12 12 18 longline vessels Number of active locally-based purse 10 13 12 12 18 seine vessels Domestic longline catch (mt) 550 375 366 599 --- Domestic purse seine catch (mt)37 9,095 30,502 32,129 43,094 49,534 Total tuna catch in PNG waters (domestic and foreign) Frozen tuna exports (mt) 4,286 29,559 29,122 32,561 29,85738 Fresh tuna exports 453 590 679 1,193 1,745

Kumoru (2002) further indicates that the tuna catch by PNG domestic vessels represents about 23% of the total tuna catch in PNG waters.

33 This category includes locally-based foreign fishing vessels (8 seiners, 1 longliner) 34 Includes Sanko Bussan. 35 The 1,745 mt of fresh tuna exports recorded by NFA for 2001 is substantially less than the 2015 given by FFA (2002) for Japanese imports of fresh tuna from PNG. 36 Individuals from both industry and NFA have expressed doubts on the accuracy of information in this table. 37 Includes “locally-based foreign vessels” 38 This figure is quite different from the amount in the NFA database and from that given by the exporting companies. 72

The Government Gazette (G57, April 2002) designates 12 ports in PNG for transshipping. Kumoru (2002) states: “About 10 to 15 transshipments are done monthly in each port except for Madang where transshipment is almost daily.”

NFA (2002) indicates: · Ten companies provide stevedoring services to fishing vessels in seven PNG cities. · The drydock at Motukea, Port Moresby handles vessels up to 10,000 GRT

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economy of the PNG. The s tudy estimated that (a) 50,500 mt of tuna was caught by locally-based vessels in 1999, (b) the 500mt long line component of the domestic catch was worth K 12,810/mt and the 50,000mt purse seine component was worth K 2,160/mt, (c) the value added ratio was .4, and (d) the value added from the locally-based offshore fishing ( = contribution to GDP) was K 45,592,000 or US$17,735,000.

Supply by local commercial tuna fishing operations to PNG’s domestic markets is also increasing. By-catch from the fresh tuna longline industry is progressively supplanting imported canned and frozen fish products, which are becoming increasingly expensive in kina terms. Seafood imports were estimated to be 56,000 t in 1990, 35,539 t in 1995, and 13,473 t in 1998 (ADB 2001).

Little data is available on subsistence catches of tuna, but 10% of the estimated annual subsistence production of 26,000 tonnes is thought to comprise pelagic species, including tuna (FAO, 1997). Troll fishing, which is conducted in only a few areas of PNG typically includes a much higher proportion of tuna. Dalzell et al (1996) estimated that troll catches in PNG are comprised of more than 84% tunas and other scombrids.

Changes from Previous Studies

The October 2002 situation noted above is remarkably different from that noted in previous studies. The 1995 FFA/ADB PNG Tuna Industry Development Study (Grynberg et al., 1995) gives the status of tuna fishing in PNG in late-1994. That report states: · Despite the availability of massive tuna stocks in its EEZ, the extent of domestic industrial tuna fishing in PNG is minimal, comprising two Taiwanese vessels operated by the Niugini Fishing Company and reflagged to PNG, and experimental and trial fishing using longline technology · No tuna joint ventures are currently based in PNG and no large-scale tuna processing is undertaken in PNG · All tuna caught in PNG waters is exported directly by the catching firms · No enterprises have shore -based tuna operations in PNG at present · Since all of the currently operating tuna fishing companies are foreign -owned and foreign-based, the employment benefits currently accruing to the domestic economy are very limited. 73

· Canned tuna is regarded as a luxury item (relative to canned mackerel) by most Papua New Guineans. · The impact of the tuna industry on the socio-cultural characteristics of Papua New Guinea is negligible, given the fact that there is no shore -based activity beyond port visits by foreign vessels. · There are at present no environmental consequences to tuna fishing in PNG waters as all fishing is done well offshore and the annual catch is well below the sustainable maximum

Other references give information on aspects of the tuna industry in PNG in previous years: · FAO (2002) states a locally-based purse-seine fishery has also began to develop in PNG in the mid -1990s, largely through the charter of foreign vessels by local companies. Three vessels operated in 1995, landing a total of 15,056 t of tuna. Some of this catch was transshipped in PNG to canneries in the Philippines, while a part was unloaded in Micronesia. · Gillett et al. (2001) state: (a) The value of the tuna exported during 1998 and 1999 was US$39.5 million and US$29.3 million respectively, (b) The tuna industry accounted for between one and two percent of all exports from the country in 2000, including those from the major mining and petroleum industries, and (c) The total number of PNG nationals directly employed in tuna catching, processing, and exporting was about 3,000 in 2000.

Other Considerations Concerning Domestic Tuna Industry Development

With respect to industry representation: · The Fishing Industry Association (FIA) of Papua New Guinea was formally established in 1991. The FIA is constituted as an incorporated association under PNG law. The FIA is also recognised under the Fisheries Act. There are presently 17 financial members and 44 people/firms on the mailing list. A review of fisheries associations in Pacific Island countries (Walton 1998) stated: “In many respects the FIA provides a model for other Pacific Islands to develop meaningful consultative processes with government”. · The tuna industry is further able to influence government policies affecting its interests by having two representatives on the governing board of the National Fisheries Authority.

There is little, if any, national government participation in commercial aspects of the tuna industry in PNG. The present sentiments of the PNG tuna industry on this subject are summed up by the words of one industry representative, “one of the biggest risks would be having government trying to help by participation”. On the other hand, the Manus 74

Provincial Government is involved in longlining, and other provincial governments are trying to do likewise.

The quality of the business environment in PNG has some major problems. The government itself (through literature available from the Investment Promotion Authority) recognizes major difficulties with: (a) Basic infrastructure (including high transport charges, electrical blackouts, and inadequate postal services), (b) Law and order, (c) Relative remoteness, (d) Lack of stability in politics in and government policies, and (e) Land compensation issues.

Despite the shortcomings of the business environment, substantial tuna-rela ted development has taken place in recent years. NFA officials attribute this progress to the spectre of a cap on the number of seiners, zero VAT rating for much of the input into the tuna industry, markets opened by Melanesian Spearhead Group arrangements , and the success of RD cannery operation. Other observers of the fisheries situation feel that the introduction of a transparent licensing process has improved investor confidence.

Constraints in Domestic Tuna Development

Perceptions of constraints which are commonly expressed by government fisheries officials include: · Air and sea freight costs · Non-permanent access to EU markets · Law and order situation · Cost of doing business in PNG · Time required for approvals from various government departments · Lack of credit · Investment policies · Currency exchange controls

Perceptions of constraints which are expressed by fishing companies include: · Scarcity of trained fishing vessel crew, especially captains and engineers · Fisheries -related infrastructure, especially at the airport · Air freight availability and high cost of sea freight · Interactions with marine mammals · Difficulties in obtaining work permits for expatriate workers · Difficulties associated with finance: security and high interest · EU HACCP requirements · The temporary nature of EU concessionary access · US import tariffs · Foreign exchange controls · Overcapacity in the purse seine fleet and potential for resource depletion · Physical interactions with FADs 75

· Barrier to Australian markets caused by quarantine regulations · Long approval process for foreign investment · Insufficient incentives and promotion for tuna -related investment · Availability of raw product for canning

In general, the views of the government and of commercial sectors were not remarkably different. On e factor which may contribute to this situation is the fact that the tuna industry has effective mechanisms to communicate their views to the government fisheries agency: FIA and membership on the NFA board. One constraint, however, was very important to the fishing companies but was not mentioned by government officials during the visit: scarcity of trained crew39.

The 1995 FFA/ADB PNG Tuna Industry Development Study (Grynberg et al., 1995) discussed constraints. The main themes related to impediments we re: · There is no history of extensive indigenous entrepreneurial activity, with associated risk-taking and market-creation, nor is there a well-established tradition of engagement in large-scale productive activity or domestic and international trade. · The poor, and deteriorating, law and order situation creates uncertainty regarding the security of day-to-day operations and increases staffing costs because of the high inducement payments required to attract expatriate staff. · The traditional land tenure systems in PNG complicate development of industrial activities and many investors have been deterred by the complex and often unreliable processes dealing with land acquisition. · The very low level of human resource development means that skills, at all levels, are in very short supply, so that extensive training is required across the board, and that the need for (expensive) expatriate labour will be a long-term one. · Despite PNG’s generally low level of development and poor skill supplies, has an expensive labour force. It is also much less productive; an overall cost per unit output figure of "three times" is frequently quoted in this regard.

A more recent study (Lightfoot 2000) dealing with investment costs, operating costs, and profit margins for the longline and purse seine fleets operating in PNG waters concluded that the rate of domestication is dependent upon several constraints. These were the availability of suitable local crew, adequate capital, transport for the catch, and managerial skills.

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The types of views expressed by government officials include: · Considerable possibilities for onshore value adding and expanding tuna sashimi trade to PNG’s substantial resources

39 Although not mentioned by government officials, there are indications that they recognize the constraint, as evidenced by the request for AusAID assistance a few years ago for the National Fisheries College. 76

· The deriving more benefits from foreign tuna industry investment by providing less incentives · Small medium scale tuna operations “piggy-backing” on the larger operations

The views expressed by individual fishing companies were: · Expansion of the longline fishery for chilled tuna · Processing by-catch from tuna vessels · Providing crew for foreign purse seine vessels · Farming yellowfin and bigeye · Loining · Substantially increasing the onshore processing of purse seine catches

It appears that there are considerable opportunities provided by the substantial tuna resources of the country. The annual total allowable catch (TAC) for the various tuna fisheries in PNG are stated in the tuna management plan are longline - 10,000 mt; purse seine - 338,000 mt; and pole-and-line - 20,000 mt . These sum total of the TACs is indicative of the potential for expansion from the present catch levels, about a three-fold increase.

In addition to the often-mentioned magnitude of PNG’s tuna resources, there are indications that the longline catch rates are exceptionally high in PNG. Polacheck (1987) examines 23 years of Japanese longline data in the period 1962 to 1985 and plots catch rates for the Pacific Island area. By using catch rate isopleths, it is shown that the catch rates for yellowfin in PNG are significantly above that of other Pacific Island countries. Similarly, the results of SPC experimental longline fishing in PNG (Cusack 1995) “exceeded previously recorded CPUE for the SPC statistical region”. This suggests that there may be a major opportunity for further development of the longline fishery for fresh tuna if the air freight and crew supply shortages can be resolved (see section below).

With respect to purse seining, it appears that there is a major opportunity for deriving further benefit from the existing locally-based foreign flagged vessels by some “screw tightening”. This could include various inducements to have more national crew, more shore infrastructure, and more productive vessels, the latter by improved reporting or by replacement of poorly performing vessels.

Opportunities for tuna processing will depend to a large extent on the international competitiveness of the loining and canning operations and maintaining the various preferential access arrangements. Further reduction in the value of the kina, improved productivity of labor, attaining economies of scale in sea freight, and better business conditions, especially greater stability of policies, would do much to enhance the opportunities for onshore processing. Some of the schemes put forward by industry to address these issues are worthy of further consideration (see section below).

Participation of small -scale fishers in the capture of tuna has always been intuitively appealing but attempts to encourage such activity have not been very successful. The reality is that it frequently represents head-on competition with efficient industrial scale tuna harvestors. In other Pacific Island countries where such development has been successful, it is often a case of the small producers “piggy-backing” on the infrastructure used by the larger producers. Preston (1996) explains that in PNG “Infrastructure that is 77 geared to the handling, packing and export of high-quality fresh fish should create an opportunity for small-scale fishermen to adapt their own fishing practices to the production of high quality products”. This could be an important opportunity but attempts to promote such a symbiotic relationship should not be detrimental to the industrial exporter: “killing the goose that lays the golden egg”.

Interventions to Promote Domestic Industry Development

The most commonly expressed views of government officials are the need for assistance dealing with: · Provision of infrastructure which is likely to have a catalytic effect, with the wharf complex at Manus being cited as an example. · The scarcity of air freight capacity · Building a business culture and entrepreneurial spirit · Manpower training, especially that relevant to the model in which small-scale fishers take advantage of the infrastructure and marketing opportunities provided by industrial-scale tuna fishing operations · Attachment training for land-based tuna activities, such as vessel and processing facility management

The most commonly expressed views of fishing companies are the need for assistance dealing with: · Training of fishing vessel crew (especially engineers) by additional support to the National Fisheries College · Further enhancement of the airport cold storage facilities · Provision of continuing technical assistance to NFA to assure continuity of efficiency and of support to the private sector · Assistance to the PNG Fisheries Industry Association (i.e. dedicated staff) and support to the concept of a regional association of commercial fishery interests · Updating the late 1990s FFA study on benefits of domestication in the PNG tuna industry · Promotion of concept of “one -stop shop” for foreign investment · Support to lobbying US during renewal of US tuna treaty on reduced tariffs · In-depth analysis of the feasibility and costs/benefits of creating an extensive tuna industry zone adjacent to tuna processing facilities

Some Considerations on the Suggested Interventions

Some of the suggested interventions above deal with the quality of governance affecting the fisheries sector. Conceptually, this can be divided into two categories: (1) general 78 factors which affect all sectors of the PNG economy (i.e. at a higher level than the fisheries sector), and (2) factors which are specific to the fisheries sector. Although there is much to be done to improve general governance in PNG and efforts should certainly be encouraged, it is questionable whethe r a fisheries-oriented initiative should attempt such an ambitious undertaking. On the other hand, national governance within the fisheries sector in PNG is presently appears quite good. In fact, many other countries in the Pacific Islands are aspiring to attain the quality that PNG has achieved. This may suggest that fisheries-oriented interventions dealing with the quality of governance in PNG should focus on maintaining the present favorable conditions. Possibilities could include mechanisms to assure continuity in recent NFA reforms, access to supervisory services, occasional auditing of NFA performance, and enhancing the Fisheries Industry Association to continue its role in encouraging quality governance in the fisheries sector.

The air freighting situation constrains most opportunities for expansion of the longline fishery for fresh tuna. Surprisingly, many longline operators severely affected are not aware of the recent FFA study on air freighting of fresh fish (Centre for Asia Pacific Aviation 2001), despite the fact that the report of the study has a section on PNG. With respect to PNG, the study indicates: · The industry faces a lack of adequate shore based infrastructure, some port congestion at Port Moresby and the costs/problems of air freighting fresh fish from northern ports to Port Moresby, the only exit point. · Vessels fishing for the sashimi trade are being forced by circumstance to work mainly out of Port Moresby, which is less suitable as a base for catching bigeye and which therefore necessitates larger vessels and longer steaming times and so higher operational costs. · Analysis of the PNG sashimi value chain suggests that international air freight prices may not be as significant a share of total costs as they are, for example, in the Solomons. However, this analysis does not reflect the potential absolute barrier posed by internal transport to potential producers in the North - that appropriate connecting air service are simply not available. · It is concluded that options include the re-establishment of direct services to Japan and resolution of the domestic bottleneck through consideration of a freighter operation.

Following on from the conclusions of the study, it appears that an outside intervention which is fairly limited in scope could do little to assist in the provision of direct service to Japan. On the other hand, there may be a possibility in facilitating the provision of freighter service to the northern parts of PNG. This may include such items as suggestions for any necessary changes to government aviation policies and measures to overcome the “chicken or egg” situation where the desired air service will not happen without the ready cargo and the cargo will not happen without the ready air service.

The lack of trained vessel crew is a major constraint to the development of both the longline and purse seine fisheries in PNG, as pointed out by industry and other reviews of tuna industry domestication (e.g. Lightfoot 2000). The reality is that there is not enough trained crew at present but the availability has increased a great deal in the past two years due to the activities of the National Fisheries College. Although the NFC capacity to train is unlikely to exceed a throughput of 400 people per year, recent 79 changes to the manning regulations make is easier for vessel operators employ crew with only basic safety training. An intervention which may prove useful with respect to crew training is a study of the options for industry to support the training of more crew than the 400 that NFC is able to accommodate.

With respect to the post-harvest situation, concessionary access to certain markets is very important to both canning and loining. Attempts to gain a more permanent access to the EU market (i.e. not dependent on annual derogation) may benefit from external assistance (e.g. specialized legal advice). With respect to meeting the EU HACCP requirements, action may be required on the national level, as well as for the individual exporters. Ongoing regional HACCP assistance, such as that presently available from EU, CDE, and possibly FAO, should be taken advantage of, or at least explored, before approaching other donors for such assistance.

The concept of a marine industrial area dedicated to export-oriented fisheries-related industries may be worthy of donor support. The RD Corporation can only promote the idea to a certain extent before its objectivity concerning the concept becomes questionable. At that point, assuming NFA gives its support, it may be useful to have an outside evaluation covering the economic feasibility, required government support, and likely benefits, including whether such a facility could achieve the economies of scale that the promoters envisage.

The opinion was expressed that an importan t intervention for the PNG tuna industry would be assistance in lobbying the United States during the renewal of the U.S. tuna treaty for a reduction of duty on canned tuna from PNG and other Pacific Island countries. Apart from any difficulties of using donor funds for lobbying purposes, attempts at reducing tariffs on tuna products may be extremely difficult, as judged by the attempts to obtain special tariff treatment to the Andean countries of Bolivia, Peru, Colombia and Ecuador in 2002. Despite the importance of those countries to the U.S. for combat drug processing and dealing, the exemption required many months of concerting lobbying by many pressure groups before Congressional approval, after which the U.S. President used his perogative and refused to include Ecuador, the major tuna producing nation of that region, in the tariff reduction.

In 1996 FFA carried out a study on the benefits of domestication in the PNG longline fishery (FFA 1996). That study appears to have had a major impact on government policies. Considering the diversity views presently being expresses both within the private sector and within NFA on domestication, there would be appear to be considerable benefit in updating that study and expanding the scope to include the purse seine fishery. It is interesting to note that the 1996 FFA study recommended “a further review of the policy and management framework for the fishery be conducted no later than mid-1998”.

PNG’s Fisheries Industry Association has been quite successful. Although FIA could make a reasonable case for obtaining donor assistance to enhance its activities, it appears that the Association now has a momentum of its own and is in some respects able to carry out many important functions itself.40 On the other hand, it has been pointed out that many issues confronting the tuna industry in PNG and other Pacific

40 There were plans to have an Australian volunteer attached to FIA in the recent past and an individual was recruited, but that person is now working for NFA. 80

Island countries are international in character. Although there have been hundreds of regional meetings of government fisheries officers, there has never been a regional meeting of private sector tuna companies. Such a meeting could result in establishment of networks, identification of common problems, and allow a dialogue with donors. As national fisheries associations can often have more effect than single companies on government policies, a regional association could have more impact on international issues than national associations. Enhancement of fisheries associations to enable them to address their government-related constraints could result in benefits which endure long past the period of assistance.

Fiji

Inventory of Domestic Tuna Industry Development

The major fishing firms of the tuna industry in Fiji are indicated in the table below by the number of licensed boats owned.

Number of licensed boats Licensee Long line Pole and line Agape Fishing Enterprises Ltd 6 Alf & Ed Fishing Enterprises Co Ltd 1 Celtrock Holdings Limited 4 Felixstow Limited 2 Fishing Fresh Word Limited 1 Great Ocean Enterprises (Fiji) Ltd 3 Hangton Pacific Company Limited 7 Hans Marine Company Limited 1 Jiko Fisheries Company Limited 3 Kottex Fish Trading Co Limited 1 Nomad Company 4 Ocean Harvest (Fiji) Limited 2 Ocean Traders Limited 2 Orion Marine Company Limited 1 Pabloc Fish Trading Company 1 Paradise Shipping Services 1 Pingan Fisheries (Fiji) Limited * 2 Rabi Fishing Company Limited 2 Fishinvest (Fiji) Limited 1 Saheb Holdings Limited. 4 Seafresh (Fiji) Limited. 4 Solander (Pacific) Limited. 9 Taifi Fisheries Limited. 1 The Fiji Fish Marketing Group Ltd. 23 Tosa Bussan (Fiji) Limited. 1 Tuna Pacific Company Limited. 2 Vista Fisheries Limited 1 Waikava Marine Industries Limited. 1 Win Full Fishing Company Ltd. 5 Yuh Yow Fisheries Limited. 2 TOTAL 96 2

In addition to the fishing companies listed above, a number of firms involved with tuna processing could be considered as major participants in the Fiji tuna industry. These are Tripacific Marine Ltd., Eagle Ridge Investments Ltd., and Pacific Fishing Company Ltd. The latter two companies are involved in tuna canning.

The Fiji Fish Marketing Group Ltd. is the dominant firm of the longline fishery in Fiji. According to the Fisheries Division, the company holds 23 licenses under its own name. According to company management, Fiji Fish controls the firms Taifi Fisheries and Yuh 82

Yow Fisheries, as well as partial ownership of other firms (e.g. Jiko Fisheries). Fiji Fish has export packing facilities, as well as two wharves at its Lami base. According to the Fisheries Division export permit database, the company in 2001 exported 223 mt of bigeye, 307 mt of yellowfin, and 272 mt of albacore. According to the company, its 26 boats (presumably those of Fiji Fish, Taifi, and Yuh Yow), in 2001 exported about 2500 mt of fish by airfreight41. The 26 boats carry about 12 crew each (with some expatriate captains), or about 312 people total. In addition, about 200 people are employed ashore in engineering, fish packing, retail sales, transport, and administration.

Solander (Pacific) Ltd. holds nine longliner licenses. The company indicates it operates 11 longline vessels, with the additional two vessels presumably being managed on behalf of another company. Of the 11 vessels, two are New Zealand lagged,f one is Vanuatu flagged, and eleven are Fiji flagged. The company has office and engineering facilities in the Walu Bay area. The export fish are packed by Celtrock. Solander is presently constructing a slipway which is expected to be operational in early 2003. According to the Fisheries Division export permit database, the company in 2001 exported 1037 mt of bigeye/yellowfin and 416 mt of albacore. According to the company, in 2001 639 mt of fresh tuna was air freighted to Japan and the U.S. and 1,443 mt of frozen tuna was sea freighted to Pago Pago. Solander employs about 110 people on its 11 vessels (one expatriate) and about 35 people ashore (2 expatriates) plus cadets.

Jiko Fisheries Company Ltd. is affiliated with Great Ocean Enterprises (Fiji) Ltd. Each of these two companies has three longliners. The management of Fiji Fish Marketing Ltd., indicates that they have a 30% shareholding in Jiko. The fish of both Jiko and Great Ocean are packed by Fiji Fish. The smaller vessels use the wharf facilities of Fiji Fish and Lami, while the larger boats require deeper water and use the wharves in Walu Bay. According to the Fisheries Division export permit database, in 2001 Jiko exported 243 mt of bigeye/yellowfin and 395 mt of albacore (Great Ocean did not become a separate entity until January 2002). According to the company, a total of about 1700 mt of all species of fish was caught by company vessels in 2001. It is estimated that about 80 people, including 20 expatriates, are employed on the 6 vessels and about 12 people (including 3 expatriates) are employed ashore.

Celtrock Holdings Ltd. is primarily involved in fish processing, but has some involvement as a license holder for four longliners. According to the company, they provide ice to vessels, handle fish, and do value adding. The main products are sashimi for the Japanese market, a mixture of fresh fish and sashimi for the US market, loins for the EU, and vacuum packs for New Zealand and the EU. According to the Fisheries Division export permit database, in 2001 Celtrock exported 71 mt of bigeye/yellowfin and 4 mt of albacore. Celtrock indicates that the present throughput of fish is about 300 mt per month. According to the Fisheries Division, the company employs 60 people at sea, of which 24 are from China and 6 from Vanuatu. Depending on the workload, from 110 to 140 people are employed (all Fiji citizens) ashore.

Ocean Trader Ltd. is involved with both longlining and processing. The company owns three longline vessels, two of which are presently active and licensed. The vessels are based in Suva, while the processing occurs at a factory in Pacific Harbour, 50 km to the west of Suva. Ocean Trader and its predecessor company were involved with tuna pole -

41 This 2500 mt may include some non-tuna species, but is still remarkably higher than that recorded by the Fisheries Division export database. 83 and-line fishing for many years but ceased this fishing in early 2001, when the company decided to convert their vessels to enter the tuna longline fishery. The factory is primarily involved in tuna smoking and drying, but some loins and other value -adding is done. Present throughput of fish (including some bottomfish) is 100 mt per year. Ocean Trader indicates that in 2001 they exported 3.4 mt of dried/smoked tuna, and 4.4 mt of headed/gutted yellowfin and bigeye. According to the Fisheries Division export permit database, in 2001 Ocean Trader exported 5.5 mt of bigeye/yellowfin and 7.5 mt of albacore. The company employs 35 people on vessels, including 12 expatriates, and 11 people ashore, including one expatriate.

In addition to the above, there are presently 20 other companies involved in operating longliners in Fiji. These firms collectively operate 50 vessels. The major companies (those which exported more than 500 mt tonnes of fish in 2001) are Great Pacific, Saheb, Win Full, and Seafresh. According to the Fisheries Division export permit database, in 2001 the companies not detailed in paragraphs above exported 1650 mt of bigeye/yellowfin and 723 mt of albacore. It is estimated that the 50 vessels employ about 540 people, of which about 200 are expatriates. These companies are likely to employ 200 people ashore, of which 20 are expatriates.

Tosa Bussan (Fiji) Limited and Fishing Fresh World Limited operate Fiji-based pole-and- line tuna vessels. Although two vessels are presently licensed by the Fisheries Division, there are reports that the vessel owned by Tosa Bussan is the only vessel presently operating or to have operated to a significant degree in 2001. According to both Amoe (2002) and Lawson (2002), in 2001 the Tosa Bussan vessel caught 431 mt of skipjack and 44 mt of yellowfin. The company has a facility which processes skipjack tuna into tataki. The relevant data held in the Fisheries Division export permit database appears to have errors42; nevertheless it shows that in 2001 94 mt of yellowfin/bigeye, 74 mt of albacore, and 22.4 mt of tataki were exported. It is estimated that Tosa Bussan employs 25 people at sea (no expatriates). Chapman (2002) indicates that 59 staff, including three expatriates, are employed ashore in processing and administration.

Tripacific Marine Ltd. processes the fish caught by other firms. The company is based in Lami. In the near future, it will move to larger facilities nearby. In the 1990s, a company in the same group as Tripacific, Foods Pacific Limited (primarily a meat canning company) did some tuna canning but presently is not involved in this activity. According to Tripacific officials, the company has two major activities: (1) packing sashimi tuna for Japanese and U.S. markets, and (2) value adding of tuna bi-catch (loining, vacuum packing, steaking) for local, Australian, and New Zealand markets. Presently the company services 33 longliners, both those that are licensed to fish in Fiji, as well as those that are not licensed but offload fresh fish for export from Fiji. In 2001 the company serviced 8 to 12 boats. Tripacific indicates that in 2001 the company processed about 20 mt of fish per month: 70% albacore, with the remainder fresh tuna for export and bi - catch. The Fisheries Division export permit database does not give exports by Tr ipacific, but rather they are listed under the catching company. The firm presently employs about 40 people, including an estimated two expatriates, but will soon expand employment when it moves into larger facilities.

42 2001 exports in the database given for the categories of “(loins)”, “bigeye tuna”, “tataki”, and “tuna loins (steak)” are each 22.38 mt. 84

Pacific Fishing Company Ltd., more commonly known as Pafco, was established at Levuka on the island of Ovalau by an arrangement between the Government of Fiji and Japanese interests. Pilot cannery operations began in 1970 and by 1974 the cannery accommodated a throughput of 15,000 mt of tuna per year. In the late 1970s Pafco established a can manufacturing plant. In the early 1990s the Australian government funded the upgrading of the wharf and freezer complex. In 1994, Pafco acquired the assets of Ika Corporation, a government–owned pole -and-line fishing company which a few years later became insolvent. Financial difficulties encouraged a change of strategies and in July 1997 a partnership was established with Bumble Bee Seafoods Incorporated for the production of albacore loins. According to company officials, presently about 25% of Pafco’s albacore requirements come from domestic longliners. They are also supplied by 30 to 40 longliners from Taiwan, Korea, China, and Japan which offload in Fiji. Pafco indicates that about 85% of the fish throughput is for loin production, with the remainder for canning. In 2001, 300,000 cases of tuna were produced for both local and export markets. About 11,000 mt of albacore loins were also produced. The company presently employs about 800 staff in Suva and Levuka, including five expatriates.

Eagle Ridge Investments Ltd. has also been known as Tropex and, according to the Fisheries Division, is the distributor and holding company to Fish Canners Ltd. The company operates a cannery in Rokobili, between Suva and Lami. The focus is on canning mackerel, but tuna is also canned. According to company officials, about 60,000 cases of tuna was produced in 2001. It is estimated that 60 jobs at Eagle Ridge could be considered related to tuna canning.

Summar y of Some Indicators of Domestic Development Active Canneries45 Air Local Local Frozen Fresh Cases 47 Locally- and Export Jobs Jobs Tuna Tuna Canned Based43 Dedicated Packing on on Exports Exports Tuna Tuna Loining & Value vessels Shore 2001(MT) 2001(MT) Produced 46 Vessels44 Facilities Adding 2001 Facilities

Fiji Fish 23 0 1 300 200 272 529 0 Solander 11 0 0 109 33 416 1037 0 Jiko + 6 0 0 60 9 85 243 0 Great Ocean Celtrock 4 0 1 36 120 4 71 0 Ocean 2 0 1 23 10 8 6 0 Trader Other 50 0 1 340 180 723 1650 0 longline companies Tosa 1 0 1 25 56 74 94 0 Bussan Tripacific48 0 0 1 0 28 0 0 0 Pafco 0 1 0 0 800 11,000 0 300,000 Eagle 0 1 0 0 60 0 0 60,000 Ridge Total 96 L/L 2 6 893 1496 12,582 3630 360,000 1 P/L October 2002, unless otherwise noted

Some comment should be made on the figures of frozen and fresh tuna exports on the above table.

43 A major issue at present is the presence in Suva of about 30 to 40 longliners which, although not licensed to fish in Fiji waters, offload fresh fish for export from Fiji. In this report, the term “Locally-Based Tuna Vessels” is taken to mean those vessels which are licensed to fish in Fiji waters. It is therefore similar to the legal term “Fiji fishing vessel” defined in the Fisheries Act: "Fiji fishing vessel" means any fishing vessel which is registered in Fiji or the operations of which are based in Fiji and which is wholly owned by a natural person who is a citizen of or a company, which is at least 30% owned by Fiji citizens, incorporated in Fiji. For the purpose of avoiding doubt, any fishing vessel which is not a Fiji fishing vessel by this definition shall be considered for licensing under the provisions of the Marine Spaces Act. 44 The number listed is the number of licensed vessels owned by the company. According to Fisheries Division officials, few, if any licensed vessels are presently inactive. 45 Although Voko Industries and Foods Pacific have canned tuna in the past, they have not done so in recent years (preferring to focus on mackerel and meat) and are not included in the table. 46 A small amount of loining is also carried out by Ocean Trader, Celtrock, Tosa Bussan and Tripacific, but as these amounts are quite limited and records were difficult to obtain, no attempt has been made to list the non-Pafco loining operations in the table. 47 While it is recognized there were significant problems with the 2001 export data held by the Fisheries Division, that information is used in the summary table of this report, rather than the mostly anecdotal data received from the fisheries companies. It is assumed that the bigeye and yellowfin categories of the export database represents fresh tuna exports and the albacore category is equivalent to the frozen tuna category, although it is recognized that small quantities of yellowfin are exported frozen and some albacore is exported fresh. 48 The Fisheries Division export permit database does not give exports by Tripacific, but rather they are listed under the catching company. 86

· Most of the verbal and written information received directly from the companies was very different than the export information in the Fisheries Division database. · A third source of tuna export information, data collected by the customs authorities, was examined to obtain additional insight. Exports figures recorded by Fiji Islands Revenue and Customs Authority, as given in the 2001 annual report of the Fisheries Division, show the following export categories (and mt exported in 2001): “albacore or longfinned tunas [fresh]” (108 mt); “yellowfin tunas [fresh]” (3,170 mt); “skipjack [fresh]” (77 mt). With respect to frozen tuna, the relevant categories are: “albacore or longfinned tunas [frozen” (430 mt) and “other tunas [frozen]” (187 mt). · Another source of information on the export of fresh tuna from Fiji is the Japanese import records. FFA (2002) indicates that in 2001, Japan imported 1824 mt of yellowfin and bigeye from Fiji. It should be noted that Fiji also exports a significant amount of fresh tuna to the U.S.

It can be concluded that there is a fair amount of uncertainty as to the amounts of tuna exported from Fiji in 2001. According to the Fisheries Division, there has been a major improvement in the accounting for tuna catches and tuna exports in 2002. The new system shows from January 1, 2002 to October 31, 2002, a total of 3,759 mt was exported. This would equate to about 5,000 mt per full year

Other Indicators of Development

Lawson (2002) gives the following catches for “Fiji Islands longliners”: No. Vessel Albacore Bigeye Yellowfin Other Total Active Catch (mt) Catch (mt) Catch (mt) Catch (mt) Catch (mt) 1997 34 1842 409 970 1027 4248 1998 39 2121 460 862 1329 4772 1999 43 2279 462 725 1559 5025 2000 55 6065 687 2463 2224 11441 2001 101 7971 662 2082 1504 12219

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economy of Fiji. The study estimated that (a) 5,500 mt of tuna was caught by locally-based vessels in 1999, (b) the value of this catch was F$50.6 million, and (c) the value added ratio was .50, and (d) the value added from the locally- based offshore fishing ( = contribution to GDP) was F$25.3 million, or US$12.8 million. It should be noted that in years subsequent to 1999, catch estimates were improved by adjusting for missing logsheet information. This resulted in more than a doubling of catches between 1999 and 2000.

Chapman (2002) states there are three companies in Suva with slipways. The largest is the government-owned and operated Shipbuilding Fiji Limited (SFL), which had 3 slipways with capacity ratings of 1000 t, 500 t and 200 t. The other two companies have one slipway each, both of 100 t capacity. Several of these slipways are being upgraded at present, which should increase capacity. These slipways service all the vessels of Fiji (under 1000 t), plus vessels from neighbouring countries also come to Fiji for slipping.

According to Lovell (2002) a number of shipping agencies in Suva cater to tuna vessels. The main firms are: · William and Gosling Ltd. · Pacific Agencies (Fiji) Ltd. · CKP Fishing Co. Ltd. · TAI-FI Shipping Agency Ltd. · Tuna Pacific Agency Ltd.

With respect to small-scale commercial tuna development, Grynberg and Twum-Barima (1995) estimated that the total annual artisanal catch in Fiji of tuna was 172.5 tonnes, or about 4% of the total fish catch. Anderson and Gates (1996) show that in the area around Suva, artisanal tuna production was about 150 mt per year prior to FAD deployments at the end of 1991 and increased to about 250 mt during the following two years. Chapman (2002) states that since September 1999, 36 local fishermen around Suva have been subsidised for the purchase of a 7.2 m fibreglass skiffs with 40 HP outboard and fishing equipment for tuna fishing.

Changes from Previous Studies

Gillett (1995) gave a description of the Fiji tuna fleet in late 1994: · The pole -and-line fleet in 1994 totaled 10 vessels, 8 with offshore licenses (including 2 Kiribati vessels), and two apparently EEZ licensed vessels. Annual landings in recent years have been in the range of 3,000 to 4,400 mt, with 1993 landings of 3,200 mt, including 340 mt of yellowfin/bigeye. · The number of sashimi longline vessels reporting tuna longline landings has increased from 5 in 1989, to 23 in 1993, and further during 1994. As of 12th October 1994, the Fiji Deep Sea Fisherman's Association reported that 35 vessels were operational. The fleet changed considerably during 1994, with the arrival of US-registered vessels to undertake exploratory fishing for swordfish. · The cannery longline fleet comprised 17 vessels during 1993, with the same number licensed during 1994 (one of these has since sunk). Landings have been around 3,500 mt in recent years (3700t in 1994), with more than 90% of this albacore.

Main themes of the 1995 FFA/ADB Fiji tuna industry development study (Grynberg and Twum-Barima, 1995): · The problems of the canning industry are the problems of stagnation and the problems of the longline industry are problems associated with rapid economic growth. · As an absolute minimum, the privatisation of the fishing arm is an essential component to the success and profitability of Pafco. Without a successful fishing arm Pafco has little long term future. · There are major import duty and tax concessions in the tuna industry. However, policy makers are now turning to the sector as a possible source of revenue. There is a danger that the government will do an about face on the assumption that the exports that have been experienced in the last 18 months are likely to be 88

permanent and if anything expand. This may well be the case but it is by no means guaranteed. The imposition of export or other ad valorem taxes should be undertaken with due care and perhaps in several steps, testing at each stage to see what implication these taxes may have on the future development of the industry. · The operators in the longline industry have themselves indicated that if there is to be development of infrastructure then it should be undertaken by the private sector as this is less likely to result in very high cost infrastructure. This approach should be actively supported by government and by donor agencies. · Given the intense personal and commercial animosity that exists between the management of the three enterprises involved in the longline sub-sector, it seems unlikely that any co-operation will develop. · The domination of the longline export industry by one individual cannot be viewed as positive and the government should encourage the development of other exporters in the industry. It cannot even be in the interest of the existing exporters that the industry is so obviously an enclave of European and part- European families. · There appears to be support from Solander, Feeders and the Fiji Fish Co. for the de velopment of projects that would provide financial assistance to Fijian vessel captains to buy boats that would then operate with and market through one of the three firms that has marketing capacity into the Japanese market.

Pollard (1995) states that the successful operations of Fiji’s major private fishing company has also led to a substantial increase in numbers employed, from 15 people in 1988 to 640 in 1994.

Gillett (1997) gave information on tuna-related employment in Fiji in the mid-1990s: Domestic pole/line vessels: 180 jobs; PAFCO cannery: 700 jobs; Domestic longline vessels: 180 jobs; Sashimi handling/processing: 100 jobs; Artisanal fishing vessels: 50 jobs.

Other Considerations Concerning Domestic Tuna Industry Development

With respect to industry associations, Fiji Deep Sea Fisherman's Association was formed in the 1980s. The “one boat, one vote” system of representation resulted in the domination of the association by the major tuna vessel operator, and subsequently led to disenchantment by other vessel owners who felt unfairly dominated. The last meeting of the association appears to have been in the mid-1980s.

The Fishery Offshore Council of Fiji was established in the late 1990s by a Fisheries Division initiative. This group meets occasionally and was represented at the September 2002 consultations on the Fisheries Bill. The view has been expressed that council works towards the development of a tuna fishery plan for Fiji and addresses issues as 89 they arise. Alternatively, some of the key participants in the Fiji tuna industry feel that the Council is more oriented to objectives of the Fisheries Division than that of industry.

During the formulation of the Fiji Tuna Development and Management Plan, there was considerable consultation with industry representatives. It is anticipated that this consultation process will continue.

In another sense, industry solidarity in its dealings with government is difficult in Fiji. The 1995 FFA/ADB Tuna Industry Development Study indicated: “Given the intense personal and commercial animosity that exists between the management of the three enterprises involved in the longline sub -sector, it seems unlikely that any co-operation will develop”. Some of the key participants in the Fiji tuna industry express this sentiment somewhat differently: the various elements of the industry have very different objectives in dealing with the government. The major tuna vessel operator’s attitude towards interaction with the government is that personal communication with the Prime Minister’s Office is the only effective mechanism to represent the interest of his firm.

The level of direct government participation in the tuna industry was quite large during the period from the mid-1970s to the early 1990s when both Pafco and Ika Corporation were active. With the demise of Ika and Pafco’s alliance with a commercial U.S. tuna company, the government’s direct participation is much less prominent at present. Recently, the concept of a national ishingf corporation is being discussed by government fisheries officials.

The quality of the business environment appears relatively good in Fiji. The government seems keen to enable the fishing industry to be a positive force for the growth of the national economy. One of the objectives of the Tuna Development and Management Plan is to encourage institutional changes that would ensure transparency, accountability and efficiency within the Fisheries Department in its management of the longline fishery. Alternatively, the view has been expressed that the government’s affirmative action in the fisheries sector49, encourages the non-productive practice of establishing bogus fishing companies.

Constraints in Domestic Tuna Development

Perceptions of constraints which are commonly expressed by government fisheries officials include: · Scarcity of air freight space · Over-crowding on the wharf and jetties · Uncertainty over the appropriate Total Allowable Catch · Lack of detailed knowledge of the economics of operating a tuna longline company in Fiji · Poor skill level of indigenous Fijians · Lack of potential to increase catches · No protection from the large Asian influx

49 The Tuna Management Plan states that in the long term, 50% of fishing licenses, contracts, and processing licenses will be allocated to indigenous Fijians and Rotumans. 90

· Lack of competent authority for HACCP compliance · The quality of fish from foreign vessels and its damaging effect on Fiji’s reputation in the tuna markets

Perceptions of constraints which are expressed by the companies primarily involved in tuna fishing include: · Huge influx of Asian vessels · Poor governance in the fisheries sector · Deviation from the Tuna Development and Management Plan · “Too many vessels is the source of most problems” · Apart from the number of vessels, effort creep due to increase in average fishing power of vessel · Inaccurate accounting for tuna catches and exports, which results in TAC being exceeded · Inadequate air freight for more vessels than mandated by the Tuna Development and Management Plan · Security of tenure and associated concern that Asian vessels will get preference · Lack of tuna industry knowledge by government fisheries officials

Perceptions of constraints which are expressed by the companies primarily involved in tuna processing include: · Lack of coordination in the fisheries sector and ad hoc formulation of policies · Non-transparent fisheries management · Insecure long-term supply of fish · Political stability · Lack of preparation for meeting EU HACCP requirements · Out of date legislation · Bogus company formation to meet affirmative action requirements · Graham Southwick · Government involvement in development work · Lack of information from government on results of research and overseas meetings

In general, the views of the government and of commercial sectors were quite different. Another major division is between those companies that are benefiting from the unlicensed vessels that offload catch in Fiji and those that suffer from the practice.

The 1995 FFA/ADB Fiji Tuna Industry Development Study. The main themes related to impediments were: · Infrastructure : (a) Shortage of port facilities in the Suva area, (b) Shortage of slipway facilities, (c) Shortage of cargo space on Air Pacific flights to Japan. · Structural: (a) Control of the industry and the Deep -sea Fishermen’s association by Fiji Fish Co., (b) Control of the industry by Europeans and non-indigenous Fijian interest. 91

· Economic: (a) Uncertainty over the future of the industry caused by the rapid rate of growth and the possibility that it may result in the entry into the industry of Asian interests that are likely to increase supply and substantially diminish prices on the Japanese sashimi markets, (b) The uncertainty over changes in access rules, which may lead to the removal of fishing rights of non -Fijian vessels from the Fiji territorial sea, (c) A fluid policy environment that is creating uncertainty. In the industry ther e is some measure of uncertainty over whether the government intends to impose export taxes.

The 2002 Fiji Tuna Development and Management Plan comments on constraints: “There are major constraints to the further development of the tuna fishery in Fiji, the two most significant are limited air cargo space for shipping product to market and the vast training needs for all personnel involved in the fishery from those who handle fish and fishing gear on board vessels to processing plant workers, to government managers and scientists.”

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The types of views expressed by government officials concerning opportunities include: · Small-scale tuna fishing development · Increased involvement of indigenous Fijians · Deriving additional benefits from non-domestic vessels offloading in Fiji · Achievement of economies of scale in air freighting · Value added product development

The views expressed by the larger fishing companies were somewhat more cryptic, probably reflecting the highly competitive nature of the tuna industry in Fiji: · “We have a few good ideas, but we won’t let it out” · “Doing what we are doing now, but doing it better”

The smaller companies were freer with their thoughts concerning opportunities: · The consistent supply of uniform-size albacore is quite attractive for both overseas buyers and local value adding · Deriving additional benefits from non-domestic vessels offloading in Fiji · Expanding possibilities for domestic vessels by banning non-domestic vessels from offloading in Fiji

There was some sentiment in the views expressed by government fisheries officials that one of their major roles, or at least a role that they were required to assume by the present government, the is advancement of indigenous Fijian interests through the opportunities afforded by the fisheries sector. Because of the present composition of the tuna industry in Fiji, these views were not expressed by the commercial inte rests interviewed.

The Tuna Development and Management Plan contains much information on opportunities for the tuna industry: “This plan is intended to provide a list of potential areas that could be targeted further for future economic development including: · Fishing in the high seas and EEZ of neighbouring countries; · Allocating processing licenses for distant water fishing nation fleet to offload catches in Fiji; · Skipjack fishing; and · A larger slipway that would attract foreign vessels for servicing”

The plan also indicates the opportunities from a resource perspective: Albacore Bigeye Skipjack Yellowfin Significance The major longline A small but valuable Main target of purse Contributes a high to Fiji species component of longline seine and pole & line proportion of the value catches fishing of the longline catch; and is a valuable secondary species in the pole and line and purse seine fisheries. The Stock Samoa is likely the For these three species, Fiji lies outside the areas with highest stock and Fiji richest area for densities, but within areas of moderate stock densities; and catches in Fiji albacore. Fiji catches waters make up less than 1% of regional catches. make up around 15% of regional catches. Fiji Catch Among the highest in Among the lowest in Pole & line catch rates Moderate and declining Rates the region and stable the region but relatively are about the same as in a similar way to less affected by the in other domestic regional trends factors causing the fisheries in the region substantial declines in and stable yellowfin catch rates in longline fisheries in the region.

Chapman (2002) comments on Fiji’s tuna industry potential: “The medium-scale tuna longline fishery has passed the development stage, with around 90 vessels in the fishery at present. This has been developed by the private sector, and the Fisheries Division is looking at managing this sector under the National Tuna Development and Management Plan for the country. There is scope for the development of small-scale tuna operations, although marketing will be the main factor.”

Interventions to Promote Domestic Industry Development

The most commonly expressed views of government officials are the need for assistance dealing with: · A study of the economics of conventional domestic longlining in Fiji, as a prerequisite for management of the fisheries for economic objectives · A study of the profitability of trolling for tuna using outboard powered vessels in conjunction with FADs, as a prerequisite for the government promoting additional participation in this type of fishing by indigenous Fijians · Development of techniques for handling tuna from small-scale fishing so that the quality is high enough for export; subsequent training of indigenous Fijians in these techniques. 93

· An assessment of opportunities for rural communities to benefit from tuna resources · A study of the feasibility and implications of a government-owned national fisheries corporation · Planning fisheries infrastructure oriented to small-scale tuna fishing · Training to meet crew requirements · Assistance to meet HACCP requirements

The most commonly expressed views of fishing companies are the need for assistance dealing with: · Getting the Tuna Development and Management Plan back on track, including enhancement of procedures for accounting for tuna catches/exports. Formulation of additional provisions for encouraging adherence to the plan. · A study of the benefits of local ownership of tuna vessels · The promotion of a Pacific Island regional association of tuna fishing/processing companies · HACCP requirements · Establishing accredited laboratory facilities · An assessment of the relation of existing infrastructure (air cargo, wharves) to vessel numbers · Studies which may lead to additional air cargo · An assessment of mechanisms to facilitate credit to worthy operators · A feasibility study for fisheries training school · Obtaining a donor-provided volunteer to help with assisting an embryonic fisheries industry association and with vessel logistics to new participants in the longline fishery · Development of mechanisms so that industry can have some impact on regional management arrangements

Some Considerations on the Suggested Interventions

The Fiji Tuna Development and Management Plan attempts to make the management and development process more transparent, coherent, and logical and it was developed with considerable consultation with the various stakeholders in the Fiji tuna fishery. Accordingly, donor interventions should, as much as possible, support initiatives specified or alluded to in the plan. Quoting from the plan, some of the initiatives are: · Training school: The tuna fishing industry is expanding, and there is a growing demand for trained people to work in the industry, both on the fishing vessels and 94

in the processing and packing facilities. The plan provides for the establishment of a Fisheries Training School. · Small-scale fisheries training: There is also a requirement to meet the training needs of small-scale fisheries and the Ministry is committed to provide such instruction in the form of hands -on workshops conducted in a village setting. · Air cargo space: Without dedicated cargo space departing from Nadi, expansion of the tuna industry will be dependent on the level of passenger service to Fiji Asia and North America. The Ministry recognizes this to be one of the greatest impediments to growth in this sector and will commission a study to provide some options for overcoming this obstacle. · Fisheries Jetty: The Ministry will conduct an assessment on the work needed and the cost for having the fisheries jetty in Lami repaired or upgraded, and this work will be undertaken as soon as funding is identified and available. · Fisheries jetty: The Ministry will commission an environmental impact assessment on the area adjacent to, or close by, the current Fiji Fish jetty in Lami, for the construction of a wharf complex to allow at least 20 to 25 commercial tuna fishing vessels to tie alongside, with access to fuel, fresh water and electricity. · Business management: The Ministry will either support existing training in managing a small business, or seek assistance in establishing a more specific course for training in managing a small fishing business with the assistance of SPC in the running of the first workshop. · Management authority: The Ministry will be working towards the creation of a National Fisheries Authority to control the issuance, renewal and replacement of licenses, collect licensing fees and enforce regulations in collaboration with the Navy, Police and Fisheries. This will ensure transparency and accountability in the licensing process and handling of funds. The NFA will be audited and would have a Board of Directors representing the major interests in the fishery to provide the direction. This is a radical measure that needs to be developed carefully due to its legislative and administrative ramifications · Outer islands tuna infrastructure: The Ministry plans to establish three shore facilities, at Lau, Lomaiviti and Vanua Levu. These will cost around $FJ 1 million each, and include ice plants, freezers, chillers, processing facilities, slipway for small craft, small jetty, workshops etc. Once the facilities are established, the Fisheries Division will commence a small-scale development project on catching tunas around FAD’s. Subsidised skiffs, outboards and fishing equipment will be provided to local fishermen as part of the project.

From a technical perspective, many of the above ideas are wo rthy of donor support. Additional justification is provided by the fact that the initiatives were developed within the framework of the tuna management plan. However, before any support is provided, each proposed intervention should be subjected to a rigo rous technical and economic assessment with a view to supporting only those projects that are viability and sustainability. This is especially important for (a) those initiatives dealing with small-scale tuna fishing as the economics may not have been adequately scrutinized in similar past interventions, and (b) those initiatives which rely on subsidisation; the amount of the subsidy and length of time over which it is required should be readily apparent to the donor as well as the intended recipient before the intervention commences.

The air freighting situation constrains many opportunities for expansion of the longline fishery for fresh tuna. Surprisingly, many longline operators severely affected are not aware of the recent FFA study on air freighting of fresh fish (Center for Asia Pacific Aviation 2001), despite the fact that the report of the study has a section on Fiji. With respect to Fiji, the general conclusion of the study is that the Fijian fresh tuna sector is in a favourable position relative to other Forum states but the long-term factors affecting the availability of capacity have begun to have significant impact over the last two -years. They include: · The growth in exports of other commodities, most particularly aquarium products · The continuing needs of the high value garment industry for access to air freight space, again with an emphasis on the North American market · The changing composition of the medium- to long -haul passenger aircraft fleet operating in and through the Region, from wide body to narrow gauge aircraft with substantial lower air freight capacity · The expansion of air freight volumes out of Auckland and Sydney, limiting the opportunities to air freight via those trans-shipment points. The study gives the following options fo r overcoming these factors: · A Freighter Service: The possibility of a dedicated freighter service to Auckland, Sydney or Honolulu to allow for on-shipment to Los Angeles and possibly Narita raises several issues. · Combi Service: Combi services increase the volume of freight carried per passenger by the provision of cargo space, suitably screened, on the passenger deck. · Expanded Passenger Services - This is perhaps the most obvious option for Fiji, where expansion of the fresh fish trade has been based entirely on access to freight space on scheduled passenger aircraft. · Alternative Routes - The possibility of carrying freight through alternative routes on scheduled passenger aircraft, especially to Los Angeles, might be explored as a long-term option. The most obvious opportunity lies with trans-shipping through Auckland. · Marketing Response - In recognition of the entrenched nature of air freight constraints, the sector has begun to explore ways of achieving a greater share of higher value fish exports and to extract greater value from those species that do not so readily lend themselves to air freight.

The Fiji Tuna Development and Management Plan states that the Ministry recognizes the air freight to be one of the greatest impediments to growth in the tuna industry and will commission a study to provide some options for overcoming this obstacle. In planning for such a study it is important to realize that it is unlikely that any government officer would address the air freighting issue with the zeal of a private sector participant whose survival is dependent on improvements. Therefore there should be an attempt to maximize the participation of the private sector in the planned study.

Chapman (2002) made 122 suggestions concerning the tuna industry in Fiji, many concerning interventions in support of domestic industry development. The conclusion of the report made reference to required interventions. These include: · There is scope for the development of small-scale tuna operations, although marketing will be the main factor. 96

· The government needs to look closely at the infrastructure needed, including the wharf situation in Lami and Lautoka. · There is a need for basic training for Fijians as crew, as well as for captains/engineers and this could be addressed through the establishment of a Fisheries Training School as part of the Maritime Training School. · The Fisheries Division now needs to re-assess its role and responsibility in fisheries, and come up with a new workable structure.

While not disagreeing with Chapman’s suggestions, there may be a need to further examine the wharf situation. Specifically, is there adequate justification for scarce government resources (or scarce donor resources) to be allocated to the construction of such facilities to service what appears to be a reasonably profitable tuna industry?

It appears that the attitudes and perceptions concerning the Fiji tuna industry are markedly different between the government fisheries officials and the private sector. This difference is perh aps greater than in other Pacific Island countries. It may therefore be important to examine mechanism for improving the situation. This could consist of interventions to (a) address some of the issues causing the rift between government and the private sector, and (b) promote initiatives which may increase the dialogue between the two parties.

One of the most divisive issues at present concerns the Total Allowable Catch for the longline tuna fishery. The specific issues are: · Is TAC mandated by the plan appropriate? As there is the perception of a difference between the views of SPC and of FFA on this subject, is there a need for an opinion by another outside agency on the subject? · As the management of many tuna companies in Fiji feel that the TAC for the present was exceeded earlier in the year, is there a need for a review of the accounting of the catches? · Do the vessels which are not licensed to fish in Fiji waters (but which offload fresh fish for export from Fiji) detract from the TAC which is available to the Fiji - licensed vessels?

A short study addressing the above issues may help mitigate what is presently the cause of much of the government/industry difficulties in Fiji at the present time.

For the longer term, there is clearly a need for mechanisms to improve government/industry dialogue and understanding. Although substantial amount of effort has been expended in organizing fisheries industry associations so that industry can speak to government with a unified voice, it does not appear that all the potential for using associations to improve the relationship has been exhausted. Alternatively, there is likely to be other means besides associations to improve the dialogue between the two parties that is so important for development of the tuna ndustry.i A study on the situation therefore seems warranted.

Federated States of Micronesia

Inventory of Domestic Tuna Industry Development

The major firms of the tuna industry in FSM are the National Fisheries Corporation, the Micronesia Longline Fishing Company, the Caroline Fisheries Corporation, the Chuuk Public Fisheries Corporation, the Diving Seagull Corporation, the Southwest Pacific Venture Corporation, and Tri-Marine. Other companies with commercial involvement include Pohnpei Fisheries Corporation, Clearwater Incorporated, Micronesian Fishing Venture, Pohnpei Marine Services, and the Pohnpei Economic Development Authority.

The National Fisheries Corporation, commonly known as NFC, was established by Public Law 3-14 with the responsibility of promoting the development of the pelagic fisheries and related industries within the FSM extended fishery zone. The Corporation began operations in August 1987. In addition to its own assets, NFC owns a portion of Micronesia Longline Fishing Corporation (NFC share is 95%), Yap Fresh Tuna (50%), Chuuk Fresh Tuna, Inc. (50%), Kosrae Sea Venture (50%). NFC has office facilities in Pohnpei, operates its own longliners (2 operational, 1 under repair), and manages other longliners (one for Kosrae, one for a municipal government in Chuuk). NFC is also involved in the air freighting of fish from FSM to Guam for onward shipping to Japan by handling the arrangements with the aircraft owners, being the conduit for subsidies (Japan up to July 2001, FSM government from then to present), coordination of shipments, and the ground handling of cargo. During late 2001 there was one scheduled NFC cargo flight per week, plus occasional charter flights. According to NFC air freight records, NFC tuna exports from NFC vessels were 381 mt in fiscal year 200050, 212 mt in FY 2001, and 158 in FY 2002. The exports for the two vessels managed by NFC were 77 mt, 126 mt, and 91 mt for the same years. Ten people (all FSM citizens) are employed on the two operational NFC longliners. 16 Indonesians are employed by the two vessels managed by NFC. The NFC has an office staff of 16 in Pohnpei, two people in Chuuk, and three in Guam.

Micronesia Longline Fishing Company Incorporated (MLFC) was started by an Asian Development Bank loan. The firm was incorporated in 1991 and the first vessels were purchased in January 1995. About 95% of the company is owned by NFC, with remainder by the private sector. In early November 2002, MLFC had eight operational and three non -operational vessels. According to company management, an additional vessel will become active before the end of November. MLFC records show that in FY 2001, 414 mt51 of tuna was exported by air (worth $3,543,495) and 144 mt of tuna and other fish (worth $143,973) was not exported. All of the exported tuna went to Japan. The company employs 64 people on vessels (6 FSM citizens) and 11 people ashore (7 FSM citizens).

The Caroline Fishing Company, commonly known as CFC, was created in 1990 as a joint venture between Pohnpei State Government, NFC and Tuna Development Company Ltd., which was owned by Kailis and France of Perth, Australia. According to Pollard et al. (1995), investment totaled to $13.25 million, with $2 million contributed by Pohnpei State Government, $2 million by NFC on behalf of the FSM government, and

50 Although many fishing firms in FSM use the fiscal year October 1 to September 30 for accounting for catches and exports, this is not always clear in reports and discussions. 51 NFC air freight records show 442 mt was exported. 98 the Australian partner contributing two FSM-flagged purse seine vessels. The main assets of the company in late 2002 are two relatively small purse seine vessels (both are over 30 years old), an office/workshop complex, net yard, and a 30 year lease on a wharf and adjacent land (about 20 years remaining in lease). CFC occasionally provides dock space and net repair service to purse seine vessels of other companies. According to company management, 2001 was a poor year for fishing, as each vessel landed about 2,000 mt of tuna. 2,500 mt is more typical and 3,000 mt is considered to be a good year. All tuna is transshiped, mostly to Bangkok. The two vessels employ 32 people, 18 of which are FSM citizens. It is estimated that CFC employs 12 people ashore (8 FSM citizens).

The Chuuk Public Fisheries Corporation is a state government statutory company with a board of directors. The firm has one ex-US purse seiner, the Nien Feioch. This vessel is managed by Nieseset Incorporated, a Chuuk-based management firm which also provides port services for the fishing vessels of other companies. Catches for the Nien Feioch during 2001 are estimated to be 4,500 mt, all of which were transshipped. 18 people work aboard the vessel (9 FSM citizens) and there is one secretary ashore. Nieseset employs four people, 3 of which are full time and FSM citizens.

Diving Seagull Incorporated is wholly owned by Yap States government. The firm has one purse seiner, which was purchased from Latin Am erica. The vessel is managed from an office in Yap. Catches during 2001 are estimated to be 4,000 mt, all of which are transshipped. It is estimated that 18 people work aboard the vessel (perhaps half are FSM citizens) and 5 people work in the office (perhaps three are FSM citizen).

Tri-Marine (FSM) Incorporated is wholly owned by Tri-Marine International Incorporated. The FSM firm presently has four purse seine vessels: two vessels (one FSM-flagged, one Vanuatu -flagged) are now fishing, one vessel (FSM-flag, purchased from Europe in early 2002) is on the delivery voyage to Pohnpei, and the fourth vessel has just arrived in the FSM and is in the process of changing registration from the Solomon Islands to FSM. It is expected that another seiner (an ex-US vessel) will join the fleet next month. According to company management, catches by the only vessel that fished in 2001 were about 5,300 mt. This vessel both transships catches, as well as makes direct deliveries to the cannery in Pago Pago. The other company seiner presently fishing transships catches to Bangkok. The remaining two vessels belonging to the firm have not yet commenced fishing under the company. 89 people are employed on the four seiners, 25 of whom are FSM citizens. The company also emplo ys 3 people ashore, including one expatriate.

The Southwest Pacific Venture Corporation (SPVC) is based in Yap and is owned by China National Fisheries (Group) Corporation of Beijing which is affiliated with MFV in Pohnpei. The present operation started in July 2002 (no 2001 exports) and leases the facilities of Yap Fresh Tuna Incorporated, including that for fish packing, ice making, and cold storage. Fresh fish is exported by air (Continental and NFC charter flights) and by sea to Guam by carrier vessel. NORMA records that the company has 15 licensed longline vessels, which presumably corresponds to the number of operational vessels. According to company management, each vessel has 10 crew from China. Ashore the company employs an estimated 10 staff from China, 5 FSM citizens full-time and FSM citizens 20 part-time.

Pohnpei Fisheries Corporation, commonly known as PFC, was established as a wholly public corporation in 1993 by State statute. PFC was established to own and operate the fish processing plant originally built for the Economic Development Authority. PFC is engaged in two principal lines of business: (1) provision of ice, and (2) processing and marketing of second grade tuna, marlin, and bi-catch. The firm’s assets include a large facility built to process up to 15 mt of fish per day, ice machines, office facilities, and five non-functional boats in various states of deterioration. According to company management, PFC facility presently services 13 longline vessels (6 MLFC, 5 NFC, 2 MFV; about one mt of exports per month), but the financial breakeven point would occur with 48 vessels (22 mt per month). PFC typically buys about 10 per cent of the catch of a longliner and produces frozen loins and steaks for the U.S. market and fresh fish for the EU market (repacked in Guam to meet HACCP requirements). According to company management, in 2001 the firm exported about 218 mt (75% tuna, 25% bi - catch) and 90% of these exports were frozen products delivered by sea freight. The company presently employs 36 people, including 3 expatriates. The reduced production of the facility has not resulted in job cutting but rather a reduction of hours worked for most employees.

Clearwater Incorporated has four Chinese-built longline vessels. Although the vessels are FSM-flagged and operated by an FSM-based company, the vessels are currently fishing out of Majuro. Because the vessels did not start fishing until mid-2001, the tuna catch for that year only resulted in 140 mt of export grade fish from Pohnpei. At the end of 2001 the vessels transferred to Majuro where they still operate, transshipping about 70% of its catch to the US market and the balance to Japan. The four vessels each employ 10 crew, all from China. Clearwater has two Pohnpei-based office staff.

Micronesian Fishing Venture (MFV), presently has only two longliners operating, both based in Pohnpei. These vessels are Chinese vessels chartered by Hong Kong interests. The company is affiliated with SPVC in Yap. Prior to 2002, the MFV had 30 longliners operating out of Pohnpei. According to company management, in 2001 catches resulted in 1,200 mt of tuna exports. According to NFC records, MFV exported 1,550 mt of fish in 2001. Each of the two vessels employs eight Chinese crew and the office staff consists of four people from China and four FSM citizens.

Pohnpei Marine Services (PMS) is under the same ownership and management as Pacific Foods and Services Incorporated (PFS). PFS formerly operated longliners, but there has been no fishing activity since 2001 when one longliner caught 5 mt of fish and exported 3 mt of tuna by air freight. The three longliners owned by the company (all FSM-flagged) are presently inactive. PMS provides port services to purse seiners. According to company management, it has serviced about 110 port calls by seiners from Taiwan, Korea, Japan, and FSM. The companies presently employ 2 watchmen on the inactive longliners, 4 people in seiner servicing, and two in office administration. Seven of the eight staff are FSM citizens.

Several other longliners are presently operating out of FSM ports. These include one vessel of the Yap Fishing Authority; one Japanese-owned, FSM-flagged, Pohnpei-based vessel; and Taiwanese longliners operating from Chuuk. The number of Chuuk-based Taiwanese vessels is unknown, but NFC export records suggest there may be three such vessels. Information on present employment and 2001 exports from associated with these boats is not available, but estimated to be 50 people (including 14 FSM citizens) and 350 mt of tuna. 100

The Economic Development Authority (EDA) is an entity of the Pohnpei State Government and has several functions related to tuna industry in Pohnpei, including providing services related to cold storage, ice supplies, export handling/packing of fresh fish, provision of water/food, and (to foreign fishing vessels) agency services. The EDA has export facilities on the main wharf. New longline transshipment facilities have been constructed under grant aid from Japan but legal and administrative problems between Pohnpei Port Authority and EDA have prevented use of the facilities. EDA staff directly involved in the tuna industry consist of 18 transshipment staff (employed when there is transshipment activity; to be considered 9 full-time jobs) and 18 in maintenance and engineering. These numbers include 3 expatriates.

NFC54 4 L/L 0 0 10 21 0 338 0 MLFC 8 L/L 0 0 6 7 0 414 0 CFC 2 P/S 0 0 18 8 4,000 0 0 Chuuk Public 1 P/S 0 0 9 3 4,500 0 0 Fisheries & Nieseset Diving 1 P/S 0 0 9 3 4,000 0 0 Seagull Tri-Marine 4 P/S 0 0 25 2 5,300 0 0 SPVC 15 L/L 0 1 0 15 0 0 0 PFC 0 0 1 0 33 200 18 0 55 Clearwater 0 0 0 0 2 0 0 0 MFV 2 L/L 0 0 0 4 1,550 1,550 0 PMS & PFS 0 0 0 2 5 0 5 0 56 Othe r 5 L/L 0 1 10 4 0 335 0 longline Companies EDA57 0 0 1 0 24 0 0 0 Total 34 L/L 0 4 89 131 19,550 2,660 0 8 P/S November 2002, unless otherwise noted

52 This category includes all catches by domestic purse seiners, regardless of area of capture or port of offloading. 53 Although many fishing firms in FSM use the fiscal year October 1 to September 30 for accounting for catches and exports, this is not always clear in reports and discussions. 54 Amounts given include the one Kosrae vessel and one Chuuk vessel managed by NFC 55 As the four company vessels are all based in Majuro, they are not considered as local FSM vessels in the table. 56 This includes the export processing facilities of CFTI i n Chuuk. 57 Fish exports processed by EDA are included in this table under the fishing company 101

Other Indicators of Development

Lawson (2002) gives the following catch information for FSM longliners: No. of Longliners Total Catch (mt) Active 1998 23 1,139 1999 27 929 2000 26 1,181 2001 23 774

This is substantially less than the estimate of fresh tuna exports made by using company-supplied information and by NFC air freight records.

Park (2002) estimates that: · 2,561 mt of tuna was unloaded during the 1,014 longline transshipments in FSM ports in 2001. · 93,283 mt of tuna was transshipped in 178 purse seine transshipment operations in FSM ports in 2001.

Several agencies provide service to transshipping seiners and associated carrier vessels. In Pohnpei, in addition to the PMS agency mentioned in the section above, Pohnpei Transfer and Storage serviced 201 seiner port calls, primarily vessels from Korea. The company estimates that each port call resulted in the payment of $2,500 for goods and services and $2,000 in cash advances.

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economy of the FSM. The study estimated that (a) 2,500 mt of tuna were caught by locally-based vessels in 1999, (b) the value of this catch was $12.5 million, (c) the value added ratio was .50, and (d) the value added from the locally-based offshore fishing ( = contribution to GDP) was $6.25 million.

With respect to small -scale tuna production, (Gillett et al. 2001) state that: · Extrapolating data from Pohnpei small -scale commercial harvesting to artisanal activities and economic conditions in other states, gives an estimate of 57 tonnes of tuna per annum that enter commerce locally. · The subsistence catch of tuna is thought to be about 1900 tonnes annually.

In 1996, the last year for which total export data is available, total exports recorded in government statistics amounted to $10.4 million, of which “fish” exports were $9.83 million or 94.5% (FSM 1998). It is estimated that 95% of “fish” exports were tuna. Thus, it is estimated that tuna accounted for 90% of all exports by value.

Infrastructure associated with the tuna industry (besides that mentioned in the section above) includes: · The slipway in Kosrae · The presently inactive Pacific Tuna Industries facilities in Kosrae: dock, cold storage (3000 mt), ice maker (50 mt/day) 102

· The Chuuk Fresh tuna facilities in Chuuk: buildings, cold storage (300 t) and ice machine · The Yap Fresh Tuna facilities in Yap: buildings, cold storage (1000 mt), and ice machine. These faciliti es are presently on long-term lease to SPVC, as described above.

Changes from Previous Studies

Pollard et al. (1995) made the following assessment of employment and other benefits associated with FSM tuna companies:

Enterprise Employment Other Benefits Chuuk Fresh Tuna Inc. planned 32 Local profits, sales of local and imported produce, port fees, duties, taxes. Tonoas cold store 15 Rentals for storing longlining inputs. Westpac few if any License fees, stevedoring, port fees. Namarabushi Plant None none, closed Pacific Tuna Inc. 60 Some provisioning, rentals, and port fees. Increased fuel purchases may also lead to lower overall cost of fuel and therefore reduce subsidy to electricity generation. Kosrae Sea Venture New New Caroline Fisheries Few License fees, stevedoring. Corporation Pohnpei Fisheries 64 Profitability to be determined, longline Corporation provisioning, license fees, some sale of by- catch on local market. Economic Development 66? License fees, provisioning. Authority Yap Fishing Corporation 12-18 Local stevedoring and port charges where applicable. Yap Fresh Tuna Inc., and 35 to 40 Local profits, sales of local and imported YFA. produce, port fees, duties, taxes. Micronesian Longline New New Fishing Company NFC longliners 25-30 Sales of local and imported produce, license fees. TOTAL: About 317

Other studies giving information on domestic tuna industry development in FSM include: · Gillett (1997) estimated the following tuna related employment in FSM in the mid - 1990s: Foreign fishing vessels: 120 people, Domestic tuna enterprises: 31758 , Artisanal vessels Kosrae: 20, Artisanal vessels Chuuk: 100, Artisanal vessels Pohnpei: 60, Artisanal vessels Yap: 20 · Sitan (2000) who indicated that in 1999 the total amount of sashimi-grade tuna exported was 1,725 tonnes (Sitan, 2000).

58 Includes expatriates; the summary table in a section above counts only jobs held by FSM citizens 103

Other Considerations Concerning Domestic Tuna Industry Development

With respect to industry representation, the Pohnpei Commercial Tuna Longline Operator Association commenced in 19 98 and presently has four members. The Chairman of the Association feels that its most successful initiative was the elimination of the planned state tax on the export of fish. The association, using Canadian funding administered by the Forum Secretariat, recently sponsored the 2002 National Offshore Fisheries Conference at which the FSM Offshore Fisheries Association was established. There is the intention that in the future the national association may interact with other national fisheries associatio ns in the Pacific Islands.

In addition to the industry/government dialogue facilitated by the existence of the fisheries industry associations, government consultation with industry is encouraged by the FSM Tuna Management Plan. That plan has, as a guiding principle, the concept that “active and ongoing consultation with domestic industry will enhance decision-making” of the government tuna fisheries management agency.

There is a large amount of direct government participation in the FSM fishing industry. Gillett et al (2001) indicate that various estimates place the total tuna industry investments by the governments of FSM at over $100 million. McCoy and Gillett (2002) indicate that 12 government enterprises (at both the national and state levels) have major commercial involvement in the tuna industry: National Fishing Corp., Micronesia Longline Fishing Corporation, Caroline Fisheries Corporation, Economic Development Authority, Pohnpei Fisheries Corporation, Diving Seagull, Inc., Yap Fishing Authority, Chuuk Fresh Tuna, Inc., Tonoas Cold Store, Westpac, Pacific Tuna Industries, Kosrae Sea Venture.

Pollard et al. (1995) shows the two very different sentiments which have historically been expressed on the subject of government involvement in the tuna industry: · “Why should (FSM) government allow the private sector to compete with it, especially when government needs those revenues for its commercial (tuna) projects.” (National Government, Division of Marine Resources official, 1991) · “This or any government has no business being in business” (professional accountant brought in to assist with struggling FSM State government-sponsored fisheries project, 1993)

In the 1990s there was a growing realization that (a) the government fisheries firms were accumulating staggering losses, and (b) these government firms were crowding out the private sector and becoming a major constraint on the opportunities for commercial success. Subsequently there were a number of initiatives aimed at privatization, including several by the Asian Development Bank and by World Bank agencies. Unfortunately, there has been little, if any, real progress in fisheries privatization. DEA (2002), commenting on privatization in FSM, states “as yet no enterprises have been transformed”.

104

The quality of the business environment in FSM has some major problems. As often mentioned by commercial firms, the FSM is a high cost location for conducting business in general. As distinct from doing business in other Pacific Island countries, the unique nature of the nation/state system of government often results in the need for companies to deal with an extra level of bureaucracy. The taxation system is often mentioned a contributing to the poor business environment. Pollard et al. (1995) state “Though simple to administer and understand, Gross Receipts Tax (GRT) is a “cascading” tax and the prevailing tax regime is a disincentive to primary industry and manufacturing investment.”59 In reviewing the business environment in late 2002, DEA (2002) states “the foreign direct investment needs further improvements; the regulatory environment needs improvement with provision for secure long-term land leasing, leasehold mortgages, and chattel mortgages; the public enterprise sector is in need of transformation; a modern broad-based and efficient tax regime needs to be established; and the provision of public services needs to become performance oriented.

Constraints in Domestic Tuna Development

Perceptions of constraints which are commonly expressed by government officials with duties related to fisheries include: · Limited air freight capacity; “chicken and egg” situation on improvements · Poor business environment · Poor services provided by the states · Requirement for local vessels fishing in FSM waters to underg o customs and immigration formalities and the high cost of these services · States increasing their fees to fishing vessels after the national government has reduced their fees to promote tuna development · Conflicting advice by consultants · High cost of fuel · The Banking system not encouraging investment in tuna fishing · Government agencies with commercial involvement in the tuna industry detracting from the functioning of private sector tuna firms, especially EDA

Perceptions of constraints which are expressed by fishing companies include: · Limited air freight capacity; High air freight charges · Poor support facilities (e.g. machine shops) · Poor government services · Creeping government charges · Poor business environment · High cost of operation: high prices for fuel, skilled labour; requirement to air freight in many parts/supplies

59 A fishing firm manager in FSM commented: “Generally the GRT i s not a good tax for high cost-low margin businesses but with regard to fisheries, all fish exports from FSM are in fact exempt from payment of the GRT. Thus this has not been a major impediment for export directed fishing businesses.” Others disagree with this sentiment. 105

· Low level of onboard vessel skills · Excessive restrictions dealing with the capture of sharks · Government agencies with commercial involvement in the tuna industry detracting from the functioning of private sector tuna firms, especially EDA · Requirement for local vessels fishing in FSM waters to undergo customs and immigration formalities and the high cost of these services · Dependence on the Japanese market · Realities of doing business in small island communities · Problems with ice availability · Administrative delays in dealing with NORMA/FFA · Longline catch rates declining · Penalties too high · Unclear legislation

In general, the views of the government and of the commercial sectors were not very different. This may be as a result of the opportunities for key government and industry people to exchange ideas.

With regards to factors broader than the fisheries sector, foreign investment is generally recognized as being very important for economic development. There are problems, however, with the attractiveness of the FSM for foreign investors. · In 1999 the Foreign Investment Advisory Service of the International Finance Corporation and the World Bank assessed the foreign investment environment of the country (FIAS 1999). One of the conclusion reached was on the national and state legislation dealing with investment is that the legislation uses “criteria that are discriminatory (different treatment for foreign investors than citizen investors [after investment has been approved]), not transparent, and time consuming. Further, decisions are likely to be made in a discretionary manner, all of which creates uncertainty for investors and detracts from the attractiveness of the investment environment……It is quite apparent from the policies implicit in the legislation that the various governments still believe that foreign investment can only be controlled by using excessive legislation.” · A more recent review of the situation by a team from the Asian Development Bank (DEA 2002) indicates “Reform of the foreign direct investment regime remains a critical element of the policy environment before the FSM will be able to attract the level of private investment critically needed to improve overall economic perform ance”

The 1995 FFA/ADB FSM Tuna Industry Development Study commented on constraints: · The FSM labor pool is limited both in number and by range of current skills. The tuna industry specifically needs foreign skills and foreign management until Micronesians can be trained and can gain experience in the industry. Imports of foreign labor are discouraged by bureaucratic administration and the requirement to annually renew elaborate work permits · All non-service FSM State and National government enterprises that have been in operation for more than 2 years have proven unprofitable. The inability of 106

these ventures to succeed in economic terms can be traced to a variety of reasons associated with government involvement in their operation · For longline transshipment, the inability to extend airport runways in almost every state without major capital cost could be a development limitation in the future. · Though simple to administer and understand, Gross Receipts Tax (GRT) is a “cascading” tax and the prevailing tax regime is a disincentive to primary industry and manufacturing investment. · A very significant problem in the FSM is the difficulty in finding out exactly what the current law is. · The FSM currently exhibits a comparatively highly protected economy with relatively highly protected and highly priced resources. The FSM economy is further protected by investment and recruitment approval processes that emphasize sanctions and concessions as opposed to open, uniform treatment.

McCoy and Gillett (2000) commented on constraints in the two sub-sectors of the FSM tuna industry: · Major issues affecting profitability of the longline industry are vessel productivity as reflected in catch rates of target species, availability, reliability and cost of air freight, cost and efficiency of transshipment services in port, and the yen exchange rate · Major issues affecting the purse seine industry are the current overproduction and resultant low prices, high operating costs, restricted fishing grounds, and the lack of skilled labor (officer-level).

During an ADB fisheries project in FSM there was a discussion of constraints with the manager of a longline company which has since largely departed from FSM (Jason Rui, Luen Thai Fishing Venture Ltd., per. comm., October 1999). Factors which were important in the decision to not base vessels in FSM included: · Unreasonable high access fees: “Palau is cheaper” · Pohnpei Ports Authority has fees which are too high · The fish handling in Pohnpei is quite poor · The company dislikes ports which require an inspection each time returns from fishing trip · The requirement to sell all bi -catch to PFC is a drag on profitability · The very high fines for going on the reef are a major deterrent to basing at a particular location – no boats are based in Yap because of this

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The types of views expressed by government officials include: · Vertical integration of fishing industry: one commercial company to be involved in catching/processing/marketing · Providing services to fishing vessels; Improvement of services provided to vessels 107

· Gains from privatization of government fisheries enterprises

The views expressed by individual fishing companies were: · Servicing vessels · Value added processing · “Doing what the Marshalls did”: value adding to purse seine catches · Measures to improve attractiveness of FSM ports to fishing vessels · Taking advantage of the existing lavish fisheries infrastructure · Fo rmulation of a regional or sub-regional access arrangements similar to those enjoyed by the regional purse seine fishing vessels under the FSM Arrangement.

The discussions related to the subject of opportunities in FSM tuna fisheries seemed to suggest an evolution in thinking. Fifteen years ago, key Micronesian players perceived that, because of the weak private sector and other factors, the opportunities related to tuna lie in government investment in infrastructure and in government participation in commercial activities. During the following decade, due to the poor performance of these government interventions, the thinking seemed to have shifted to the idea that the most favorable opportunities are for Micronesian private sector companies to longline for fresh tuna. In subsequent years, numerous failed operations of this type appears to have result in an additional evolution in thinking - that tuna fishing itself is too risky and that value adding ashore and servicing of fishing vessels are the most important opportunities.

Three important points related to opportunities should be made: · There is no doubt that the FSM is well endowed with infrastructure. This includes general infrastructure (airports, fuel storage, etc.) as well as that specifically related to the tuna industry (cold storage, wharf space). There appears to be an opportunity for taking for deriving some form of comparative advantage from those substantial facilities. · Another point relates to a misconception concerning the advantages conferred by FSM being in close to the tuna resources. Given the high cost of FSM services and the necessity for importing many of the goods used by the tuna industry, proximity to the resources does not necessarily compensate for FSM being a high cost location from which to operate from. This is demonstrated by the desire of some FSM fishing companies to operate from ports in other countries. · The presently under-utilized assets of the failed government fisheries could represent a significant foundation for a private sector firm. Despite past failed attempts at privatization, if the buildings, cold storage, dock facilities could be expeditiously cut loose from government control, these could be the basis, or at least a component, of generating substantial economic activity by the private sector.

Interventions to Promote Domestic Industry Development

The commonly expressed views of government officials for assistance include: · As the government policies and activities which have a major impact on tuna industry development are generally at the state government level, there is a need 108

for a state-by-state assessment of the required changes in order to facilitate development. · A related initiative is the development of state fisheries policies and associated mechanism to assure adherence · A ‘tightening” of the FSM Arrangement for Regional Fisheries Access to encourage domestic development, rather than the present situation in which the FSM arrangement is used as a tool to circumvent the Palau Arrangement · “Something new/brilliant” to progress the privatization of failed government fisheries enterprises · Assistance to increase the effectiveness of fishing industry associations · Assistance in attracting overseas fisheries investors · A detailed survey of the operators of fishing fleets to determine what they like/dislike about FSM ports and associated services · A “recipe” for private sector management of the new Pohnpei longline transshipment facility

The most commonly expressed views of fishing companies are the need for assistance dealing with: · The airfreight situation: in-depth analysis of options, including the achieving of economies of scale · Development of a fisheries information strategy, so that the government can get relevant information to the fishing companies · A study to compare FSM port facilities and charges to those of other countries with a view of increasing competitiveness · A study on the need for the Pohnpei State EDA; a study on the strategy for “making EDA go away”. · “Someone who knows what they are talking about” to do a realistic assessment of fisheries privatization in FSM · Assistance to fisheries associations so they can effectively address themselves the array of issues facing the FSM fisheries industry · Re-focusing the Yap fisheries school on relevant skills · A study of the fisheries fuel and fuel tax situation · Establishment of a technical assistance fund that the industry can utilize as and when needed · Assistance with the establishment of contact with overseas investors · A careful economic analysis of the benefits to be gained by FSM from licensing foreign fishing vessels versus benefits from attracting foreign vessels to FSM ports. · Assistance with meeting HACCP requirements

Some Considerations on the Suggested Interventions

Some comments should be made on specific interventions on the list above. Although a full analysis is beyond the scope of this review (“highlight the areas that would require 109 further analysis”), some additional thoughts on aspects of the suggested interventions may advance the process of providing appropriate assistance.

The reality is that there has been a very large amount of assistance focused on the development of FSM’s tuna industry. A list of such assistance prepared in 2000 and covering the previous decade shows over 20 interventions by ADB, FAO, SPC, FFA, the World Bank, SPPF, FIAS, and others. This assistance has engendered attitudes that need to be taken into account in the formulation of future assistance in the sector: · An important FSM government officer with fisheries responsibilities has stated “with respect to tuna industry development, we have almost exhausted all forms of outside assistance”. · A key player in industry has stated “Constraints to tuna fisheries development in FSM have been studied to death”. · Some individuals contacted during the visit to FSM were of the opinion that outside donors may have done as much as they can; what remains is the generation of political will to “get rid of self-inflicted problems”. These problems include the lack of progress on privatizing government fishery companies and continued government monopolies in providing essential commercial services to the tuna industry.

Assuming the above is correct, it would seem reasonable that mechanism to generate political will should receive at least some attention in future donor efforts to facilitate domestic tuna industry development in FSM. With this in mind, the following should be considered: · Economic studies that point out losses or the cost of foregone opportunities are often effective at generating political will. Several of the interventions suggested above appear to fall into this category. It should be noted, however, that NORMA has recruited an economist who could conceivable carry out some of this work but this person has a general economics background, rather than specialized knowledge of the fisheries sector. Perhaps the best way for the NORMA economist to acquire the necessary experience/skills may be through an advisor or mentor highly qualified in fisheries economics. Ideally, the advisor would have a strong background in fisheries economics, extensive knowledge of the western Pacific tuna fishery, and work experience in developing countries. · Experience in other countries has shown that fisheries industry associations can also be effective at the generation of political will for what can often be a difficult but necessary change. Enhancement of fisheries associations to enable them to address their government-related constraints could result in benefits which endure long past the period of assistance. It should also be noted that in the section above, both the government and industry people interviewed indicated the desirability of support to industry associations.

With respect to privatizing government fisheries enterprises, there is now a widespread belief in FSM that these government firms are both a burden on the government budget as well as a constraint to private enterprise growth in the fisheries sector. The subject of lack of progress in privatization is beyond the scope of the present study. It may be useful to comment, however, that should the political will to progress privatization be developed, perhaps the most useful contribution to the process by an external agency 110 would be to provide an objective, technically-correct, and accurate assessment of the value of the companies to their (non-technically knowledgeable) government owners.

In a section above there were comments about the high failure rate by Micronesian- operated longline companies. Because of these well-known recent bankruptcies, the potential private Micronesian investors are extremely reluctant to become involved in the actual fishing at the present time. Accordingly, efforts by donors to encourage domestic fishing activity at this point are not likely to be successful.

The air freighting situation constrains most opportunities in FSM for expansion of the longline fishery for fresh tuna. In early 2001 FFA completed a comprehensive regional sashimi air freight study (Center for Asia Pacific Aviation 2001). As that study included a study of the FSM situation, any interventions aimed at improving the air freight situation should be formulated with careful attention to that study. Some of the conclusions relevant to FSM were: · Air freight rates paid to market are not notably higher - and in some cases lower - than for other Pacific Island country exporters. However, the proximity of the competing Guam fishing industry emphasizes the impact of the inevitably higher rates which FSM shippers must pay to export via Guam. · This air freight price differential with Guam is encouraging boats to trans-ship in Guam, thereby reducing the FSM fleet and therefore the economic benefits flowing to FSM. Regularity and dependability of service also makes Guam more attractive as a trans -shipment point. Almost total reliance on APA - operating a single B727-200 aircraft - to provide air services to Guam means that the link is fragile and subject to technical disruption. · In the absence of government support - whether through the NFC or other means - the FSM industry would be at risk, as Guam continues to provide a more attractive environment. · Some options may exist for alternative air service opportunities. These should preferably support, rather than replace the existing system, at least in a transition period. Some possibilities exist for organising backhaul loads to help underwrite the cost of the existing APA service. This would require considerable coordination between different government departments and other organisations initially (e.g., involving government and private import contracts from Guam), but could potentially become a self supporting commercial activity.

With respect to the options for alternative air service, there may be a role for the fisheries association. There are two considerations here: (a) in some respects it is unlikely that any government officer would address the air freighting issue with the zeal of a private sector participant whose survival is dependent on improvements, and (b) A successful association activity producing tangible benefits can make a remarkable amount of progress in achieving association solidarity so important for the effective functioning of the association. For these two reasons, any assistance provided to enhancing air freight service should, as much as possible, work through the fisheries association. Areas which may be fruitful include issues related to economies of scale and cooperation with neighboring countries to the south.

One of the suggestions in the above section deals with providing a mechanism so that useful information can be passed from government agencies to the FSM fishing companies. This seems reasonable, as the government receives a large amount of 111 information on the tuna-industry, much of which could be important to the private sector. An example of this is the recent FFA fish air freighting study60. A review of NORMA (then MMA) in 2000 concluded “The greatest difficulty of MMA as perceived by key FSM leaders, concerns the flow of information. The TA team largely agrees with this contention and recommends that action should be taken to improve the information flow situation by bringing into MMA outside expertise, enthusiasm, and ideas to address the issue……Any new staff which MMA may obtain through a thorough examination of the MMA’s future workload in conjunction with the government staff reduction initiative, should have information dissemination responsibilities as a major portion of their terms of reference. “ As with the economics advisor mentioned above, one way the situation could be addressed is by having the NORMA officer with information-disseminating responsibilities work with a fisheries -oriented information specialist to learn the types of information of interest to the industry, the various sources of such information, and mechanism for delivering the information. There is also the possibility of providing support to the Offshore Fisheries Association to enable the establishment of a website on which various people/agencies can pos t information.

60 Only one of the many private sector fisheries individuals interviewed during the FSM visit had even heard of the study. 112

Samoa

Inventory of Domestic Tuna Industry Development

The major firms of the tuna industry in Samoa are Apia Export Fish Packers, Tradewinds, CJ Exports and Imports, and Albacorp. Other companies with commercial involvement include Riverside Marine and the owners of over 100 alia catamaran fishing vessels.

Apia Export Fish Packers Ltd. is the major export company, handling about 68% of Samoa’s tuna exports. The export facilities are located on the wharf between the Fisheries Division and the fish market. According to the company, Apia Export Fish Packers manages 9 large boats 61, supplies three other large boats, and buys fish from about 75 alia. The management of the firm stated that in 2001 the company exported 168 containers of frozen tuna to Pago Pago (approximately 15 mt per container) plus 1,800 mt of chilled fish to Los Angeles62. The company employs 32 staff ashore (all Samoan citizens) plus the crew of vessels.

Tradewinds Fishing Company Ltd., based at the Apia Fish Market operates vessels, exports fish from its packing facilities, and has a retail fish outlet. The company has three large vessels, manages three other large vessels, and buys fish from about 10 alia. Company officials indicate that in 2001 about 2 to 3 containers of frozen tuna were exported to Pago Pago each month, about one to two mt of fresh fish were air freighted to Los Angeles each week, and about 150 kg of tuna is sold daily through the retail outlet. The company employs 15 staff ashore (all Samoan citizens) plus the crew of vessels.

Albacorp Investments Ltd. is based close to the main wharf in Apia and has a buying facility in Savaii. Company management indicates it owns a Japanese-style longline vessels (which often makes direct deliveries to the cannery) and 15 alia. In its Apia processing facility, Albacorp freezes albacore for shipment to Pago Pago, packs whole chilled tuna for export to Hawaii and Los Angeles, produces some filets for the local hotels, and sells gear, bait, and ice. According to Albacorp, in 2001 12 containers of frozen albacore were exported to Pago and about 6 mt of chilled tuna per week were air exported to Hawaii and Los Angeles (during the latter part of 2001, the volume was reduced to about 2 mt per week). There are 31 employees of the company that work ashore: 5 in Savaii and 27 in Apia (including one expatriate).

CJ Exports and Imports Ltd. is located near the main wharf. The fish export facility is operated in conjunction with a large retail food store and other businesses. It is estimated that the firm is associated with 3 large vessels and 20 to 25 alia. Fisheries Division officials estimate that CJ is responsible for about 5 to 10% of the tuna exports of the country in 2001, which is likely to be about 80 mt of chilled tuna and 300 mt of frozen albacore. The company indicates that it employs 18 people ashore in its tuna business, of whom two are expatriates.

61 Large vessels are defined by Fisheries Division staff as greater than 15 m 62 Fisheries Division Officials, using export records of the airlines, have determined that the total amount of chilled fish exported in 2001 was 1,102 mt which exceeds the 1,800 mt claimed by Apia Export Fish Packers. A more modest 1,000 mt is used on the summary table. 113

Riverside Marine is a relatively new company. Although the company started fishing in 1999 with one vessel, its fish are exported using the services of another exporter63 . Presently the company operates three vessels (with a fourth reportedly on the way) and has export packing facilities under construction (completion scheduled for early 2003). The company management indicates that it currently exports about 2.5 mt of chilled fish to Japan and Los Angeles each week, in addition to the frozen exports to Pago Pago. On shore, Riverside Marine employs 14 people, of which 2 are expatriates.

The owners of over 100 relatively small catamaran fishing vessels are also important players in the Samoa tuna industry. According to the Fisheries Division, there presently are 130 active catamarans of a size 12.5 m and smaller. This is down from 139 such craft in 2000. About hal f of the alia fleet is based in Apia, about a third in other parts of Upolu, and the remainder in Savaii. There are over 500 jobs on the catamarans.

Summary of Some Indicators of Domestic Development Active Canneries Air Local Local Frozen Fresh Cases Locally- and Export Jobs Jobs Tuna Tuna Canned Based Dedicated Packing on on Exports Exports 65 Tuna Tuna Loining & Value vessels Shore 2001(MT) 2001(MT) Produced Vessels64 Facilities Adding 2001 Facilities Apia Export 0 1 32 2,520 1,000 0 Tradewinds 0 1 15 450 50 0 Albacorp 0 1 31 180 100 0 CJ Exports 0 1 18 300 200 0 and Imports Riverside 0 0 12 0 0 0 Marine66 Vessels 118 413 up to and including 11 m Vessels 12 74 over 11 m and up to 12.5 m Vessels 8 36 over 12.5 m and up to 15 m Vessels 9 115 over 15 m and up to 20.5 m Vessels 6 36 equal to or greater than 20.5 m Total 153 0 4 674 108 5,451 1,350 0 November 2002, unless otherwise noted

63 The 2001 exports of this firm are included under the exporting company who handled the fish. 64 As the relationship of vessels to exporting companies is not clear, the number of active vessels and associated employment is listed separately by vessel size. 65 The amounts of air exports claimed by the companies has been reduced so that the total is close to the total amount determined by airline export documentation. 66 The 2001 exports of this firm are included under the exporting company who handled the fish. As the firm’s packing facility is not yet complete, it is not listed in the table. 114

Watt and Imo (2002 ) indicate that two tuna longline vessels are transhipping their catches in Samoa. One of the vessels is registered in the Cook Islands, licensed to fish in the Cook Islands and is based in Samoa. The other vessel is registered in Samoa, licensed to fish in the Cook Islands and Samoa and is based in Samoa.

With respect to small-scale tuna fishing, trolling for tuna produces about 100 tonnes of tuna annually (Passfield, per.com.) This amount is likely to have increased in 1999 due to the two FADs deployed in 1999.

Other Indicators of Development

Watt and Imo (2002) give the following tuna catch information: Year Number Longline Total Vessels Catch Tuna Active Exported Longline Catch 1996 90 2092 2369 1997 170 4872 5720 1998 200 5072 5985 1999 175 4407 5112 2000 155 4505 5271 2001 149 5150 6180 Units: mt

Watt and Imo (2002) give information on exports of tuna longline exports from Samoa: Longline exports 1996 1997 1998 1999 2000 2001 (mt) VSC Sampac 1150 2800 3400 2270 2926 3295 cannery Star Kist cannery 370 1500 1100 1100 398 753 Air freight 572 572 572 1037 1181 1102 Total tonnes 2092 4872 5072 4407 4505 5150 Foreign revenue 13,844,400 27,476,400 29,581,400 27,531,400 38,971,000 45,788,000 from exports (SAT$)

The above report also indicated that: · A total of 618 mt of tuna from longliners worth S$1,829,280 was not exported in 2001 · A total of 149 vessels participated in the Samoa longline tuna fishery in 2001: 116 vessel less than 10 m in length, 14 vessels over 10 m and up to 12.5 m, 8 vessels over 12.5 m and up to 15 m, and 11 vessels over 15 m. · The tuna longline fishery is now the major export earner in the country, with exports of 5150 mt in 2001, worth an estimated SAT$45.8 million (Watt & Imo 2002). This was a considerable increase from exports of 2,092 mt in 1996, worth an estimated SAT$13.8 million (Watt & Moala 1999).

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economy of the Samoa. The study estimated that (a) 5,156 mt of tuna were caught by locally-based vessels in 1999, (b) the value of this catch was US$9.84 million, (c) the value added ratio was .50, and (d) the value added from the locally-based offshore fishing ( = contribution to GDP) was US$4.92 million. 115

The revised tuna management plan was approved by Cabinet in February 2002. The new plan includes provisions for the following numbers of vessels: · Class A: vessels up to and including 11 meters: Licences available: No limit · Class B: vessels over 11 meters and up to 12.5 meters; Licenses available: 19 · Class C: vessels over 12.5 meters and up to 15 meters Licences available: 21 · Class D: vessels over 15 meters and up to 20.5 meters; Licences available: 16 · Class E: vessels equal to or greater than 20.5 meters; Licences available: 9

A recent survey (Watt and Imo 2002) was conducted to determine the ice production capacity in the Apia area. It showed: · Tradewinds Ltd : 6.0 tons per 24 hours · Apia Export Fish Packers: 12.5 tons per 24 hours · Albacorp Ltd: 15.0 tons per 24 hours · Vailima Brewery: 3.0 tons per 24 hours · CJ Exports: 6.0 tons per 24 hours · Total ice production: 42.5 tons per 24 hours

Gillett et al. (2001) indicated: · The entire locally based tuna longline fleet appears to be spending locally about US$5.5 annually annually. · The wages paid represent about 40% of the expenditures by the vessels, or about US$2.2 million

Changes from Previous Studies

King et al. (1999) state: · In 1990 and 1991, the Fisheries Division ran trials on vertical and horizontal tuna longlining with the result that 25 alias were eventually fishing commercially with horizontal longlines by the end of 1994 · By mid-1999 there was a mixed fleet of 167 fishing vessels · The rapid growth of the fishery has been accompanied by severe problems, including the loss of over 25 lives at sea. · Catches have increased from 844 mt in 1994 to 6072 mt in 1998. · The fishing fleet has grown from 25 Alias (9 -10 m catamarans ) in 1994 to a mixed fleet of 167 boats which are actively tuna fishing in 1999. In 1999 the fleet consists of 146 active alias, 15 larger catamarans, and 6 large monohull vessels. About 61% of the fleet is based in Apia, 8% in Siumu, 6% in Apolima Uta, 4% in Poutasi, 3% in the rest of Upolu, and 18% spread around the island of Savaii. In addition, there are approximately 42 alias without longline fishing gear, and about 30 either derelict or unused boats onshore.

With respect to tuna-related employment: 116

· In a section above it was estimated that in November 2002, 674 people are employed aboard tuna vessels and 90 people are employed by the tuna industry ashore · Hand (2001) estimated 436 Samoans were involved in tuna catching/exporting in 2001. · Gillett et al. (2001) gave the following tuna related employment for Samoa in the late-1990s: (a) Using the most recent estimates of numbers of local longliners (Passfield 2000) and knowledge of the number of crew on various size categories of vessels (Watt, per. Comm .), the number of people working on locally-based tuna longliners was estimated to be 455 people; (b) 55 Samoans were employed by the tuna processors/exporters in Apia.

Unpublished Treasury Department information shows that 71.8% of all Samoa exports in 1999 were fish and information in Watt and Moala (2000) suggest that 82% of all fish exports were tuna or fish caught while fishing for tuna. The tuna industry was therefore responsible for about 60% of all exports from the country in 1999.

Other Considerations Concerning Domestic Tuna Industry Development

With respect to industry representation, the Commercial Fisheries Management Advisory Committee (CF-MAC) was formed in September 1999. According to Watt and Imo (2002) the committee is comprised of representatives from the private sector and relevant government departments: two elected representatives from the Upolu Fishermen's Association, Savaii Fishermen's Association, Fish Exporters Association and Boat Builders Association and one appointed representative from the Treasury Department, Ministry of Agriculture, Forests, Fisheries and Meteorology, Fisheries Division, Ministry of Transport, Port Authority and the Department of Trade, Commerce and Industry. Three CF-MAC meetings were held in 2002. The issues covered were: · Review of Tuna Management Plan · Fisheries Wharf Management Plan · Taxation of the fishing industry · Additional berthing capacity for the fishing fleet in the Apia area · Limited air freight capacity for fresh chilled fish · National Marine Sanctuary

There are several associations which represent the interests of the tuna industry. These include: · Associations of fishermen in Upolu and Savaii · Boatbuilders Association · Fish Exporters Association

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At a level broader than the fisheries sector, many of the major tuna companies are members of the Chamber of Commerce and the Exporters and Manufacturers Association.

Opinions on the effectiveness of these groupings varies considerably. Fisheries Officials seem to consider the CF-MAC as quite valuable but indicate that the major weakness is the fact that those that attend often do not report the results to their associations. Most of the key industry participants expressed the opinion that the CF-MAC is moderately effective at exp ressing industry views to government but somewhat less successful at having an impact on government decision making. The Upolu and Savaii associations seem to have organisational problems and some industry participants feel they are at least partially defunct. Fisheries Division officials indicate they have put considerable effort into helping them organize and they can do little more at enhancing their effectiveness. One major tuna exporter stated that the Chamber of Commerce is the most effective associa tion related to fisheries as it has a direct line to the Deputy Prime Minister.

Walton (1997) commented on the effectiveness of the Upolu and Savaii fishermen’s associations: “The two main associations are presently not well developed in terms of formalised involvement in fishery operations or development planning. The associations are constrained by the ad hoc nature of consultation with government and the limited resources available within the organisations to support a more dedicated lobby and communications capability.”

Direct government participation in commercial aspects of the Samoa fishing industry is now limited to the operation of a single large catamaran. In the past, and to a lesser extent at present, this catamaran was used to demonstrate the advantages of a craft lager than the traditional alia, with the catches being sold to offset running costs. According to fisheries officials, the operation of the vessel in the future will become more research oriented.

The business environment of Samoa appears relatively good. This observation is supported by the opinion of a key player in the Fiji tuna industry who occasionally visits Samoa (R.Brody, per. com). Judging by the comments of the main Samoa tuna industry participants, few of their major constraints concern Samoa’s business environment. On the government relationship to industry, one exporter’s opinion seemed to embody the sentiment of the others: “the attitude of the government is not too bad”.

According to the Department of Trade, Commerce and Industry (TCI), a recently implemented review of investment in Samoa has resulted in major improvements in the investment climate. TCI indicates that Samoa offers the following advantages to investors: · An extremely stable political structure based on strong social and cultural values that date back many centuries · A healthy and industrially adaptable workforce who can communicate well in English. Minimum wage rate of SAT $1.40 per hour or US$0.60 per hour is very competitive · Freedom for repatriation of both capital and profits · A stable financial environment with a single digit inflation, balanced budget and high international reserves 118

· Provision of quality of essential infrastructure services such as telecommunication, water supply, electricity and nternali transport at relatively low cost · Relatively low level of both corporate taxes and import tariffs · Preference Trade Concessions and access under the Cotonou Agreement to EU Markets and GSP to USA, Canada, Japan and other preference giving countries · Transparent and consistently applied Investment Policies and Procedures. In addition, the following are considered to be positive features for tuna-related investment in Samoa: · The Labour and Employment (Employment of Expatriates) Amendment Act 1999 simplifies the procedures relating to employment permits for the recruitment of foreign workers. · There are no restrictions on foreign exchange for current transactions · Repatriation of capital and profit remittances on foreign capital is permitted · There are no government fees or levies charged on exports · The Government has allocated an amount of $1.0 million to set up an export credit scheme, which is to be used by eligible exporters as collateral to obtain export financing from local financial institutions.

Constraints in Domestic Tuna Development

Perceptions of constraints to the further development of the tuna industry in Samoa which are commonly expressed by government officials with duties related to fisheries include: · Limited air freight capacity · The soon -to-be-introduced fisheries taxation scheme · Crowded port facilities · Lack of cold storage at the airport · Small size of the Samoa EEZ · Excessive credential requirements for captains/engineers

Perceptions of constraints which are expressed by fishing companies include: · The very crowded fisheries wharf situation which results in considerable port delays · Lack of effective port management · Poor services at the fisheries wharf · Political influence to increase the number of vessel licenses available · Excessive credential requirements for captains/engineers · Pilot whales taking a large portion of the catch · Mid-level Fisheries Division staff are not motivated, helpful, or informed · Poor credit availability to the tuna industry · Anticipation of the new fisheries taxation scheme in 2003 · Declining tuna catch rates 119

In general, the views of the government and of commercial sectors are not remarkably different. The various fisheries-related associations and committees may be a factor in keeping the government and industry thinking along similar lines.

Other studies have commented on constraints in Samoa’s tuna industry: · Su’a et al. (2002) give the constraints of the Samoa tuna industry: (a) The available onshore infrastructure is insufficient to cater for the current fleet, rendering onshore activities very dangerous, (b) There a pressing need to address the issue of quality control at all levels of the industry, (c) The present ice production capacity is not sufficient to supply the entire fleet with ice to chill the catches. · Watt and Imo (2002) state that the offshore commercial fishing industry has not evolved over the last six years without difficulties. Lack of sea safety awareness within the fishing industry has resulted in many lives being lost at sea. Foreign revenue has been lost due to high rejection rates of tuna longline catches as the fishermen are not carrying sufficient ice to chill their catches and fish buyers are accepting poor quality fish. The infrastructures in Samoa to support the fishing industry are not adequate. Catch rates of the fishing fleet are decreasing as the fishing effort has increased dramatically since 1994. · Watt et al. (2001), commenting on infrastructure constraints, cite lack of air freight capacity for fresh chilled exports, lack of ice production capacity, and lack of mooring facilities for the fishing fleet. Commenting on safety constraints, the report states: “A total of 41 lives were lost at sea67 in tuna fishing accidents from 1997 to September 2001. It is believed the accidents were attributed to the lack of stability of the alia catamaran when loaded in rough weather, lack of safety equipment, lack of strength and stability of the modified alia catamarans, and lack of basic seamanship skills”.

Opportunities in Domestic Tuna Development

Questions to government officials relating to opportunities for the Samoa tuna industry resulted in the following responses: · Possibilities of fishing the zones of nearby countries after negotiations with Samoa’s neighbors; reciprocal fishing agreements · On-board loining · Value adding, especially marinating and vacuum packing · Taking advantage of the high quality fish due to characteristically short fishing trips · Exporting to EU markets · Attracting boats from neighbouring countries to new fisheries facilities

Although some companies were reluctant to express their opinions on future opportunities, the views which were expressed by fishing companies included:

67 Because four people who were missing and presumed dead have now been recovered, the lives lost is now estimated to be 37. 120

· Value adding, including loining, using Samoa’s cheap labour · Possibilities of fishing the zo nes of neighbouring countries · Penetration of the Japan market · “Doing what we are doing now, but doing it better with decent wharf facilities” · Opening an up-market retail outlet for tuna

Su’a et al. (2002) give the tuna industry advantages in Samoa as good catches, positive market behavior, and readily available financial facilities.

The major comparative advantages of Samoa relative to other Pacific Island countries appear to be the low cost yet productive labour, a large number of entrepreneurial fishermen, stable political environment, the considerable political power of the sector due to the prominence of its exports and employment, favourable business environment, proximity to canneries in American Samoa, and the fact that the tuna industry is not completely dependent on air freight. To some extent, these comparative advantages determine many of the opportunities.

An important feature of Samoa longlining which has a major impact on opportunities is the fact that the fishery is probably fully developed with respect to fishing effort and catches. Watt et al. (2001) state: “The increased number of hooks set by the fishing fleet has resulted in an additional 1 to 2 million hooks set each year since 1994…..The increased fishing effort has resulted in the catch rates declining. Catch rates have decreased from 94 kg per 100 hooks in 1994 to 62.3 kg in 2000.” Watt and Imo (2002) indicate that the catch rates have been even lower in 2002. With respect to opportunities, this information suggests that any additional benefits to Samoa from the longline fishery are likely to arise from post-harvest developments and/or expanding the fishing into neighbouring zones. There is also the suggestion that there may be an opportunity to increase the overall profitability of tuna longlining in Samoa by a reduction of effort, but this could be a complex situation involving the fisheries of neighbouring countries.

Interventions to Promote Domestic Industry Development

The commonly expressed views of government officials concerning desirable interventions to promote domestic industry development include: · Provision of legal expertise to enable the Fisheries Division to improve the fisheries licensing scheme, regulation of transshipment, and EEZ delimitation · An objective assessment of whether the captain/engineer credential requirements are too stringent · Formulation of syllabus for courses to meet requirements for captain/engineer credential · Outfitting the Fisheries Division with a laboratory so it can serve as the competent authority for HACCP requirements · Provision of cold storage at the airport

The most commonly expressed views of fishing companies are the need for assistance dealing with: 121

· Promotion of active fisheries harbour management · Harbour engineer consultant to suggest improvements to existing fisheries harbour · Assistance with air freighting · Sponsorship of courses in fisheries technology, fish handling, processing, and quality control · Training so that the large number of “plantation boys” can get jobs on longline vessels and so that deck crew can progress to captains · Assistance with a laboratory to meet EU HACCP requirements · On-site HACCP training · Analysis of market opportunities for value-added products · Technical advice for establishing value-adding facilities · Study tour for observing up -market retail outlets in neighboring countries

Watt and Imo (2002) suggest that if the Samoa tuna industry is to continue to grow, there is a need for interventions in order to obtain access to more fishing grounds. “The EEZ of Samoa cannot support more fishing effort and remain economically sustainable. Discussions have been held with the Cook Islands and Tokelau to consider the establishment of reciprocal fishing rights. Both countries are interested in establishing such an arrangement”.

Some Considerations on the Suggested Interventions

The nature of the tuna longlining in Samoa, which in many respects could be considered fully developed, should be an important consideration when formulating interventions intended to encourage domestic tuna industry development. Accordingly, the emphasis should be on assistance that increases benefits from the fishery without increasing fishing effort.

Although the harbour appears to be in need of both improved management and better facilities, as strongly pointed out by the commercial operators, the following should be noted: · The future commercial fishing fleet marina based at Mulinu'u Point will relieve much of the congestion caused by the alia fleet in the existing harbour. · Management of the existing harbour is likely to improve, once the pending schedule of charges/fines receives government clearance · Although harbour facilities (e.g. amenities for watering/fueling) obviously need improvement, there is some question as to how appropriate it would be to use public funds to improve the services to private firms, most of which appear to be reasonably profitable. 122

· Improvements to harbour management/facilities are likely to result in the favourable situation of faster port calls and increased time available for fishing. Ironically, this could lead to the unfavorable situation of increasing fishing effort and additional downward pressure on catch rates.

The points above have implications for donor assistance: · Improvements in harbour management/facilities may not be a top priority, as indicated by the comments from fisheries officials in a previous section on desirable interventions · If there is donor involvement in harbour improvements, it should be contingent on a reduction the number of licensed vessels to compensate for the likely increase in fishing effort accompanying such improvements.

The air freighting situation constrains most opportunities in Samoa for expansion of the longline fishery for fresh tuna. The problem is both large and apparently without an easy solution68 . One idea that has been proposed in conjunction with donor support is a regional air freight service, with the justification that several countries neighbouring Samoa are experiencing the same problem. It should be noted, however, than in early 2001 FFA completed a comprehensive regional sashimi air freight study (Center for Asia Pacific Aviation 2001). Although no separate section was dedicated to Samoa, some of general conclusions are quite relevant to donor support to air freighting Samoa tuna: · The potential for some form of joint freight operation may be worthy of further consideration, most likely focusing on linking the island nations with appropriate hubs. However, the economic analysis indicates that this requires a high level of common interest because considerable cooperation and coordination will be required if the unit cost of accessing hubs is to be contained or lowered sufficiently to support onward freight costs to the markets. Given the current status of the markets, it is unlikely that these conditions can be satisfied at present. · It can be concluded that in all of the nations studied, yield management by individual fishing operations is probably the most practical and immediate basis for expanding revenue in an environment where air freight capacity limits will remain. For example, some producers are already focussing on maximising the export of high quality bigeye by air while finding alternative means for the disposal of yellowfin and the increased tonnage of by-catch species that may result.

Of the various types of possible tuna development assistance cited as being important by government fisheries officials and by the management of commercial tuna firms, the interventions that seem to fall best into the category of increasing benefits from the fishery without increasing fishing effort are those associated with (a) assessment captain/engineer credential requirements (b) improvements related to quality control, and (c) promotion of value adding to tuna products.

68 It should also be noted that the Samoa air cargo situation is likely to improve in the near/medium future. The Air New Zealand Boeing 767-300 non-stop service from Apia to Los Angeles has a reduced amount of cargo space due to cargo being uplifted in Tonga. Starting late 2002, Royal Tongan Airlines will charter a Boeing 757 -200 and it is anticipated that there will a once per week service to Honolulu starting December 16, reducing the Tonga cargo on the Air New Zealand flight. 123

An objective assessment of whether the captain/engineer credential requirements are too stringent could lead to standards that are more relevant to the fishing industry rather than the present situation which follows the shipping industry. Alternatively, it could lead to confirming that the present standards are indeed appropriate. In any case, it would add clarity to the situation so that plans and perhaps a syllabus for local training to the required standard can be formulated. This could facilitate the replacement of foreign captains and engineers by Samoans and enhance the establishment of a career path in Samoa tuna fishing.

Promoting improvements related to quality control is important. According to information in Watt and Imo (2002), a large amount of tuna is rejected by Samoa exporters:

Year Total Longline Catch Percentage Tuna Longline Rejected from Rejected Catch (mt) Exporters (mt) 1996 2369 105 4.4 1997 5720 215 3.7 1998 5985 304 5.1 1999 5112 176 3.4 2000 5271 225 4.3 2001 6180 412 6.7

During the six year period 1,437 mt of tuna (worth over US$2.5 million) was rejected by exporters. Much of this is apparently due to poor on -board practices of fish handling and storage on the smaller fishing vessels. Assistance related to improving fish quality appears to be worthy of donor support as a small intervention could result in a significant economic impact and the benefits of the intervention would likely accrue mainly to the small-scale operators.

Making progress in value adding tuna products is important in an environment such as in Samoa where airfreight situation is both limited and precarious. One of the major conclusions in the FFA regional airfreight study is “the need to explore value-added options which reduce the proportion of air freight cost in the value chain”. Although it is clear that there is considerable enthusiasm for more involvement in value-adding on the part of the major tuna companies in Samoa, the most appropriate form of assistance to promote such value adding is less certain. Discussions with an individual in Fiji with considerable experience and success in tuna value adding has indicated (a) that the identification of a reliable overseas distributor is perhaps the most crucial element, (b) a willingness on the part of the Fiji processor to undertake an initial assessment of the Samoa operations and provide technical assistance to those firms wishing greater involvement in tuna value adding.

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Tonga

Inventory of Domestic Tuna Industry Development

The major firms of the tuna industry in Tonga are ‘Alatini, Sea Star, Maui Pacific, Friendly Island, South Seas, Fung Shing, the Ministry of Fisheries, and R.I.O.T. Other companies with some involvement include Tokaikolo Christian Church, Farm Services, G & J, and Tonga Maritime Projects.

‘Alatini Fisheries Company Ltd. is involved in tuna fishing, bottomfish fishing, export packing, sales of ice/bait, and domestic retailing of fish and imported specialty food items. The company has facilities in the Small Industries Centre and a new retail shop on Taufa’ahau Road. ‘Alatini has 7 fishing vessels: 5 are now bottomfish boats and 2 are tuna longliners 69. Last year70 the company exported 142 mt of chilled tuna and 120 mt of chilled bottomfish. ‘Alatini employs 12 people on its tuna longliners (including one expatriate) and 19 people ashore (all Tongan citizens).

Maui Pacific presently provides the management for Sea Star Fishing Company Ltd. In addition to its management role, Maui Pacific also had its bid accepted by the government in April 2002 to become the majority shareholder of Sea Star. The companies have offices, a retail shop, and engineering/storage facilities alongside the wharf at Faua Harbour. Sea Star has two longliners and Maui Pacific has one longliner. According to the present management of the companies, about 140 mt of tuna were exported last year, about 50% of which was frozen. 21 people are employed on the three longliners (including 3 expatriates) and another 27 people are employed ashore (all Tongans).

Friendly Island Fishing Company went into receivership in September 2002. The main assets of the company are seven longline vessels, a processing plant, and an office. According to the receiver, the vessels are operational but have temporarily stopped fishing due to low tuna catch rates. Tuna exports last year were 812 mt, about 50% of which was frozen. Due to the vessels not operating, employment is presently reduced: 10 people on the boats (including 3 expatriates) and 13 people ashore (including 2 expatriates).

South Seas Fishing Company (Tonga) is a subsidiary of the Korean firm Clearness and brightness Fishing Company Ltd. The company started operations in Tonga in July 2002 and presently rents the packing and retail facilities of Discovery Corporation which has ceased their fishing operations. South Seas has four longliners which are presently registered in Belize. The company began exporting tuna in mid -2002 and reportedly sends out about 40 mt per month, of which 70% is frozen albacore. 36 people are employed on the vessels (including 6 expatriates) and 20 people are employed ashore (including 2 expatriates).

Fung Shing Development Company Ltd. started its fishing operations in Tonga in 1998. This company was involved in several types of non -fishing businesses in Tonga and

69 Until recently, ‘Alatini had three longliners but one was recently converted to a bottomfish boat due to poor tuna catch rates. 70 Catches in Tonga are most often expressed for the financial year. The period referred to here is July 2001 through June 2002. 125 decided to expand into fishing (rather than the more usual case of a fishing company coming to Tonga). The company operates three longliners, some of which were purchased from Sea Star including the Lofa. It also uses some of the Sea Star facilities at the wharf. According to the management of the company, 100 mt of tuna were exported in 2001, all of which was frozen. For its tuna operations, the company employs about 50 people at sea (including 5 expatriates) and four people ashore (including 3 expatriates).

The Ministry of Fisheries presently has two longline vessels. The Takuo, a 39.5 m steel longliner arrived in Tonga in early 1998. The 19 m Ekiaki has been operated by MoF since 1987 with longline gear installation by a USAID project in 1993. According to Ministry of Fisheries officials, the Takuo delivered about 100 mt of frozen albacore to the cannery in Pago Pago in 2001. All th e remaining catch was sold locally. The Takuo is presently not fishing, awaiting Ministry decisions as to its future. The Ekiaki has not been involved in any tuna fishing in about two years. The 20 crew of the Takuo and perhaps 3 staff ashore could be considered as the employment generated by the Ministry’s tuna fishing.

R.I.O.T. Unifi Ltd. manages 5 Chinese longliners which are all individually owned. The company is associated with the Yuhuan County Dengta Fishing Company of Yuhuan, China and the Tonga branch of the Salvation Army. The R.I.O.T. operation in Tonga commenced in mid -2002. The company does not have export packing facilities, but rather has used those of Friendly Island and Sea Star. No information is available on employment aboard the vessels; for the purpose of this study it assume that four Tongans work aboard each of the five vessels. The company reportedly has four staff ashore, of which half are probably Tongans.

Tokaikolo Christian Church Company Ltd. has one 23 m longliner. According to ‘Alatini Fisheries Company, which handles the company’s fish, the Tokaikolo vessel started fishing in mid-2001 and does about one fishing trip every four to six weeks. Exports in 2001 are estimated to consists of about 15 mt of fresh fish. Company employment related to tuna is estimated to be 10 Tongans on the vessel and 4 Tongans ashore.

Farm Service and G & J both have one longline vessel but have yet to commence operations.

Maritime Projects Tonga Ltd. could also be considered a stakeholder in Tonga’s tuna industry. The company is presently involved only with bottomfish but has carried out tuna longlining trials in the past, and is an actively involved in the relationship between the local fishing industry and the Tongan government.

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Summary of Some Indicators of Domestic Development Active Canneries Air Local Local Frozen Fresh Cases Locally- and Export Jobs Jobs Tuna Tuna Canned Based Dedicated Packing on on Exports Exports Tuna Tuna Loining & Value vessels Shore 2001(MT)71 2001(MT) Produced Vessels Facilities Adding 2001 Facilities ‘Alatini 2 0 1 11 19 0 142 0 Maui Pacific 3 0 1 18 27 70 70 0 – Sea Star Friendly 7 0 1 7 11 406 406 0 Island72 South Seas 4 0 1 30 18 0 0 0 Fung Shing 3 0 0 45 1 100 0 0 Ministry of 1 0 0 20 3 100 0 0 Fisheries R.I.O.T. 5 0 0 20 2 0 0 0 Tokaikolo 1 0 0 10 4 0 15 0 Total 26 0 4 161 85 2677 2634 0 November 2002, unless otherwise noted

With respect to small-scale tuna fishing, coastal trolling for tuna and other pelagic species is well -established practice in some fishing communities throughout the Tonga group, notably on ‘Eua, ‘Atata, Euaiki, ‘Uiha and Ofolaga. Catch estimates for these small-scale tuna fishing are not available.

Other Indicators of Development

Aho (2002) gives the following tuna catch information for the “Tonga longline fleet”: Number Boats Albacore (mt) Bigeye (mt) Yellowfin Total (mt) 1997 7 143 16 10 2173 1998 7 122 15 19 2161 1999 7 183 30 39 2258 2000 16 475 97 150 2738 2001 21 1268 191 259 3740

Ministry of Fisheries data show that in the financial year (July 2001 through June 2002) a total of 1,313 mt of tuna worth T$12.1 million was exported. Company-supplied data in the section above indicates that 1,309 mt of fresh and frozen tuna was exported.

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economy of the Tonga. The study estimated that (a) 800 mt of tuna were caught by locally-based vessels in 1999, (b) the value of this catch was

71 Catches in Tonga are most often expressed for the financial year. The period referred to here is July 2001 through June 2002 72 Because the Friendly Island vessels are in operational condition, have some crew, and are reportedly awaiting better tuna catch rates to begin fishing, they are considered active vessels for the purpose of this review. 127

US$3.68 million, (c) the va lue added ratio was .55, and (d) the value added from the locally-based offshore fishing ( = contribution to GDP) was US$2.02 million.

Pintz (2002) citing Reserve Bank sources gives the contribution of the fisheries sector to Tonga’s export earnings: 1996 /97 – 14.7%; 1997/98 – 26.4%; 1998/99 – 24.2%; 1999/00 34.8%. He also states that in 2001, tuna accounted for 82% of all fish exports.

Chapman (2001) indicates that there are two slipways and one hoist for hauling vessels out of the water in Tonga. The hoist, which is located at Nuku’alofa, can haul out vessels up to 10 mt.

Changes from Previous Studies

Cambell and Miria -Tairea (1995) gives information on the tuna industry in Tonga in the mid-1990s: · The government owned longliner, Lofa, has carried out trial fishing on a commercial basis for some years. In line with the Government’s policy of promoting the private sector, the activities of the longliner were transferred to the private sector in June 1990. The vehicle for privatisation was the formation of the Sea Star Fishing Company Ltd. Sea Star now operates four longliners and predominantly targets albacore for the canning market in Fiji and Pago Pago with some sashimi grade tuna going to Japan. Prior to September 1993 the Sea Star Fishing Company Ltd had the sole right, by Cabinet decision, to exploit all tuna resources in Tonga. This right was rescinded in 1993 and opened up the opportunity for other companies to enter the fishery commercially. · Another private company is the Capricorn Fishing Company Ltd. This was formed as a partnership in December 1993 and has been operational since January 1994. The company currently operates two longliners of 45’ length. These vessels target the fresh sashimi market in Japan and New Zealand. Fish of inadequate quality for export is sold locally. · Maritime Projects Tonga Ltd was established in 1983 and covers a diverse range of activities in the marine field. It was initially established to catch deep water snapper and grouper and branched into buying from local boats. The company now focuses mainly on carrying out its own fishing for bottom-fish. In addition, it also catches some tuna which it directs at the sashimi market in Japan. The Company operates three vessels in the 10.5 m to 13 m range. They have recently purchased a 25 m experimental fishing craft from Europe. · The Friendly Islands Marketing Cooperative (FIMCO) is an agricultural marketing cooperative with some 2,500 members of which 5% are fishermen. Within this group, some 11 boats in the 8.5 m to 10.5 m length fish for snapper and grouper. Much of this fish is exported to Hawaii although poor handling has resulted in low quality for some of the catches. The cooperative estimates its exports at about 1,000 kg per week from mid 1993. On s ome occasions FIMCO has exported tuna caught by semi-industrial vessels.

Two studies in the mid-1990s gave information on employment related to the tuna industry: 128

· Cambell and Miria -Tairea (1995) state that the level of employment resulting from tuna fishing is unknown, but in the industrial and semi-industrial fleet there are probably in the order of 100 people · Gillett (1997) estimates tuna-related employment as: foreign fishing vessels: 3 people; Pago Pago canneries: 300; domestic longliners: 100; artisanal fishing vessels: 30; sashimi handling/processing: 20.

The Tonga Fisheries Sector Review (Gillett et al. 1998) gave information on the sales of tuna and other fish in 1996: Species Domestic Export Market Market (thousands T$) (thousands T$) Tuna 750 2600 Bottom Fish 270 1700 Other 260 517 Total 1280 4817

Chapman (2001) states that in June 2000, there were 17 tuna longline vessels licensed in Tonga by eight companies, although only 10 of these vessels were actually fishing. All of the vessels are working out of Nuku’alofa, as this is where the infrastructure, and the only airport with international flights for exporting product are located. The vessels themselves ranged in length from 13 to 37 m.

FAO (2002) states in mid-2001 the locally-based longline tuna fleet consisted of about 16 vessels, all of which were based in Tongatapu. “Although most of the air-freighted fish in the 1990s were deep -water snappers, tuna longline activity has increased considerably and fresh tuna is now responsible for most of the fishery exports by air. The development of the tuna fishery was first attempted by a government-run tuna fishing company, but it appears that the recent substantial development of the tuna fishery appears has more to do to creating better business conditions, including the removal of most of the taxes on fuel used in tuna fishing and clarifying government policies and management intentions.”

Other Considerations Concerning Domestic Tuna Industry Development

The major fisheries association in Tonga relevant to the tuna industry is the Tonga Export Fisheries Association (TEFA). In October 2002 there were nine members of TEFA: ‘Alatini, Sea Star, Friendly Island, South Seas, R.I.O.T., Tonga Maritime Projects, Discovery Corporation, Walt Smith International, and Dateline Aquarium. The specific objectives of TEFA as outlined under the constitution are: · To promote and safeguard the export fishing industry and the interests of members of the association. · To represent the interests of members to Tonga Government’s Ministry of Fisheries and other government agencies. 129

· To negotiate all questions and matters of dispute relating to the protection or safeguarding of the export fishing industry in Tonga. · To negotiate all matters relating to the promotion and development of the export fishing industry as they affect the members either collectively or individually. · To do such things as are incidental or conducive to the attainment of the above objectives.

TEFA appears to be one of best organized fisheries associations in the Pacific Islands. The effectiveness of TEFA is considered to be one of the comparative advantages enjoyed by the tuna industry in Tonga over that in neighbouring countries.

The interests of the tuna indus try are also represented by the Chamber of Commerce.

Apart from associations, there are other possibilities for the tuna industry to have a formal dialogue with the government. The most important of these is the Tuna Consultative Committee is established under the Tonga National Tuna Management and Development Plan. The main purposes of the TCC are to: · Review of the performance of the Plan over the previous 12 months · Provide recommendations and advice to the Secretary on changes to the Plan · Provide a forum for discussion of issues and strategies that require the input of Government Ministries other than the Ministry of Fisheries; and · Assist to ensure transparent decision-making in regard to the tuna fishery.

The Secretary of Fisheries chairs meetings of het TCC. The TCC has representation from the Ministry of Fisheries, other relevant Government Ministries/Divisions, representatives from other island districts, a representative of Tongan Export Fisheries Association, the commercial sport fishing industry; and a representative of non- government organisations.

The level of government participation in the commercial aspects of the tuna industry is substantial. This issue has received considerable attention by the various reviews of the fisheries situation in Tonga, especially the commercial fishing activities of the Ministry of Fisheries. The Ministry and its predecessor the Fisheries Division have used 18 different vessels since 1953 to participate in various forms of commercial fishing. The vessel which the Ministry presently operates, the 39.5 m Takuo, represents the largest current commercial involvement of the Ministry. According to annual reports of the Ministry of Fisheries, the objectives of the fishing are “to provide training to local fishermen and to carry out research”.

In addition to fishing, the government is involved in several other commercial activities related to the tuna industry. Chapman (2001) states that the Ministry of Fisheries owns and operates the fish market and ice-making facilities at Faua wharf. “The ice made there is sold to local fishermen and people wishing to sell their catch at the market. Not only is the operation of the market and ice-making facilities is unprofitable, it is also in competition with the private sector, so is a disincentive to further development by the private sector. This raises the issue of whether the Fisheries Department should be involved in commercial ventures, given the effect on private-sector development. The fishing sector would like to see the Fisheries Department withdraw from any commercial activity, and this is the path many other countries are following.” 130

With respect to the business environment in Tonga, Ministry of Fisheries (2000) states: “An investment regime conducive to industry growth should be administratively efficient, consistent, transparent and competitive with other countries in the region. The current investment regime would not appear to meet these requirements and a review of current arrangements is recommended.”

Presently about 45% of the government’s revenue comes from import duties, a situation which contributes to Tonga being a high cost location from which to operate a tuna business73. To address this issue, tax reform legislation is presently being prepared by the Ministry of Finance for presentation to parliament in July 2003.

There has been some success in reforming taxes that have adversely affected the tuna industry. In the mid-1990s, FFA (Kingston et al. 1995) and the Tonga Fisheries Sector Review (Gillett et al. 1998) showed that Tongan import charges on fuel represent 13.5% of total longlining costs and recommended their removal. Subsequently, in June 2000 the government declared that all diesel fuel and lubricants for fishing industries would be free of duty.

Presently one of the major issues in business environment for fishing companies concerns what is often referred to as “excessive administrative procedures”: the multitude of government requirements which, although time consuming for the companies, have little purpose and sometimes not even a legal basis. For example, the fisheries export permit requirement is not supported by law and has apparently no legitimate objectives.

Constraints in Domestic Tuna Development Perceptions of constraints which are commonly expressed by government officials with duties related to fisheries include: · Over-capitalized shore facilities · High wages of staff ashore · Low tuna catch rates · Lack of cooperation between companies at sea · Bad relationship that the fishing companies have with the Ministry of Fisheries · Unclear port situation; uncertainty concerning the jurisdictions of the Ministry of Fisheries and that of the Ports Authority

Perceptions of constraints which are expressed by fishing companies include: · High import duties · High cost of food, fuel, bait · Low catch rates at present · Poor availability of air cargo; High air cargo rates; Possibility that a new airline which probably not sustainable driving out an established carrier · Excessive administrative procedures, especially that required for duty-free fuel

73 Kingston et al. (1995) details the taxes applicable to the tuna industry in Tonga. 131

· Little transparency in government management decisions · Captains and senior crew having a poor attitude towards work due to heritage of working/training under the Ministry of Fisheries: “the blind leading the blind” · Poor availability of skilled tradesmen and officers for vessels · The Korean captains’ organisation driving wages up · Ministry of Fisheries encouraging unqualified entrants into tuna fisheries · Fallout from recent bankruptcy of fishing company, especially concerning credit · Inadequate infrastructure; Recent increase in longline licenses past what infrastructure can accommodate · Poor harbour management; Non-responsive Ports Authority

In general, the views of the government on constraints for the tuna industry diverge considerably from those of the private sector. One factor that could be responsible for this situation is that the government official most active in encouraging the growth of the tuna industry, the former Secretary of Fisheries, recently was promoted to a higher government position. The remaining senior officials could be less familiar with the tuna industry.

Other constraints on the development of the tuna industry are cited in the Tonga National Tuna Management and Development Plan: · Short history of exploitation of tunas meant there was a lack of available expertise; · Operation of unsuitable vessels in the early stages of the fishery’s development; · Lack of infrastructure, particularly wharf and on-shore facilities; and · High cost operating environment, including high fuel prices and air freight charges.

Cambell and Miria-Tairea (1995) cite the constraints to domestic industrial development as regulation of involvement (now de-regulated), lack of certain skills (fishing, management, technical), access to markets, poor quality fuel, high cost of fuel, and limited air cargo space. They indicate that the institutional constraints include non- transparent nature of the relevant policies of the various relevant ministries and high taxes on required imported supplies. In the Ministry of Fisheries, lack of clear policy in the fisheries sector results in a non-facilitating atmosphere.

The Fisheries Sector Review (Gillett et al. 1998) comments on both constraints in the wider fisheries sector and subsequently in the tuna sub-sector: · The commercial fisheries sector is faced with a number of developmental barriers. These barriers include fundamental cost considerations, discriminatory taxes, cumbersome administrative procedures, and external factors. To achieve industry expansion these barriers need to be lowered or removed in a coherent fashion. Without a substantial commitment by Government the fisheries sector will become increasingly uncompetitive and its development potential will never be realized. · With respect to the tuna sub-sector, the Review indicates that the predominance of albacore tuna in catches constrains profits as this species seldom commands sashimi market prices equivalent to those offered for yellowfin and bigeye tunas. 132

Other major constrain ts are overcrowding at Faua fisheries harbour, the limited availability and cost of airfreight, limited slipping and haul-out facilities, the lack of cold storage facilities at Fua’amotu Airport, the limited availability of support services such as hydraulic repair, and a general failure of operators to work in commercial collaboration also contribute to a greater or lesser degree to the difficulties faced by the fishery.

Chapman (2001) identifies several types of constraints, including financing for new fishing operations, Government policies (fuel, bait, fishing equipment and spare parts, licensing, export permits, data collection and use of data), difficulties associated with working on Sundays, and the government’s commercial involvement in the fishing sector. He also mentions that wharf space is limited and several processing plants are away from the wharf, meaning that product needs to be trucked from the unloading vessel to the processing plant.

AusAID (2001) states “the most significant restraints now facing operators and potential operators are the continued narrow skill and experience base in tuna longlining; the fact that production of fresh, export grade tuna is now reaching levels that outstrip the capacity of available airfreight services to move it to market; and ongoing difficulties in accessing credit. Even though the Ministry of Fisheries has long engaged in commercial tuna fishing in its own right it has not been able to provide the emerging commercial tuna fishing sector with much in the way of practical technical assistance because it has only little experience in the specialised sashimi tuna fishery that is now the mainstay of the emerging domestic fleet.”

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The views expressed by government officials include: · The opportunity afforded by very good conditions for fishing for canning grade albacore · Taking advantage of technology to predict abundance of tuna · Value added activities · Development of the skipjack resource.

The views expressed by individual fishing companies were: · Establish of a common, HACCP-compatible processing facility · “Europe being the Japan of the next decade” · “Fine tuning what we are doing now” · Moving to new area outside the Tonga zone · Taking advantage of the low company taxation rate · Selling out to “the hordes of Chinese investors” · Going back to fishing for cannery grade albacore

Chapman (2001) also comments on opportunities in the Tonga tuna industry. He states that the prospects for continued growth in tuna longlining activity in the Nuku’alofa area 133 are good. This is due to the current infrastructure the private sector has established, mainly with high -quality processing facilities to export high-grade fish products. As for other locations in Tonga, he feels that the prospects for Vava’u and Ha’apai are not so positive, with limited infrastructure being the main problem.

Commonwealth Secretariat (1995) has some peculiar observations on tuna industry opportunities in Tonga. The report states: “It appears as that setting up a medium-scale fish canning plant for canning of skipjack tuna or Pacific mackerel variety could be technically and economically viable”.

The Fisheries Sector Review in 1998 was more circumspect on the opportunities for the development of the tuna industry: “Although the target tuna resources are known to exist in Tonga in relative abundance, it has yet to be demonstrated that tuna can be harvested and marketed in a commercially profitable manner. Successful commercial exploitation of the tuna resource on an expanded scale will provide substantial volumes of fresh fish to the local market and, over time, can be expected to drive fresh fish prices down. Thus, longline tuna development can be characterised as an export leader with significant domestic benefits. Employment will be modest and there will be only limited value added to the fresh fish exports. The industry is likely to be concentrated in Tongatapu. Under the right conditions, profits may be substantial”. The Sector Review concluded that the Ministry of Fisheries should focus on five areas, two of which have considerable relevance for the tuna industry: · Encouraging the growth of a tuna longline industry · Establishing mechanisms for stakeholder input in Ministry of Fisheries

In considering the opportunities for tuna industry development, an important aspect is the comparative advantages of the tuna business in Tonga relative to that in competing countries. The advantages of Tonga include: · The presence of a strong fisheries industry association and some degree of cohesion in the industry · Political stability · An abundance of “hard working farm boys for deck labour” · Proximity to southern fishing grounds · Very high albacore catch rate · Educated workforce · Entrepreneurial spirit in the local population · High quality of life for investors

Interventions to Promote Domestic Industry Development

The commonly expressed views of government officials for assistance include: · A thorough appraisal of opportunities in tuna fisheries · Advice on improving fisheries harbour management · Support for testing feasibility of small-scale tuna longlining · Help with improving the licensing scheme, the basic tool for management 134

· Infrastructure: a dedicated fishing port with necessary facilities and ice making plants in outer Islands

The most commonly expressed views of fishing companies are the need for assistance dealing with: · Advice with harbour management; improving governance of the harbour · A study of the “ridiculous government administrative procedures” in the fisheries sector, with emphasis on the scheme for duty exemption on fuel · A study of the fisheries taxation, focusing on a scheme that would offer some relief to the industry during poo r catch periods · A study of the training needs of the tuna industry · Feasibility study for a joint packing/processing facility

The AusAID Tonga Fisheries Project has considerable involvement in the development of the tuna industry in Tonga. The staff of that project indicate that the priority needs for assistance are: · An examination of the costs, benefits, and conflicts associated with the foreign tuna vessels in Tonga. · Efforts for increasing the responsiveness of the Ministry of Fisheries to the needs of industry

A number of reviews of the tuna industry situation in Tonga have been undertaken in the past decade. Most of those reviews made recommendations, many of which require external assistance. In roughly chronological order, some of the suggested interventions are given below.

Kingston et al. (1995) suggested: · A review of existing port facilities · A review of airfreight capacity · Establishment of a government/industry working group to develop training strategies and programmes · Streamlining existing export licensing procedures · Credit facilities be made appropriate for the fishing industry · Government charges be reduced or eliminated · Licensing policies be modified to allow locally based foreign fishing vessels, but giving local vessel priority. Optimum number of licensed vessels to be determined after consideration of port facilities and air freight capacity.

The 1998 Sector Review stated that development of tuna fisheries in Tonga to its full potential is unlikely to occur unless the government works to remove obstacles to private sector growth. In this respect, the Review indicated that the government requires assistance in formulating new policies to: · Remove significant fiscal burdens on fuel and bait costs; · Encourage more flexible lending policies which recognize the unique character of the sector; 135

· Eliminate cumbersome bureaucratic and regulatory impediments; and · Create a clear and thoughtful policy on foreign involvement in the industry.

Chapman (2001) reviewed the Tonga tuna industry development situation, and made over 100 suggestions. Most are targeted at the Ministry of Fisheries, but those that are especially germane to external assistance include: · The Ministry of Fisheries should give support to the Tonga Export Fisheries Association in putting a proposal together for the funding of an Executive Officer position for their Association, and endorse the proposal for donor consideration · The Ministry of Fisheries should seek funding to have a study undertaken on a new fisheries licensing structure across the board, with appropriate licence fees suggested based on the proposed structure; and as part of the study on a licensing structure and fees, consider a percentage of licence fees going into fisheries -related programmes, such as an observer programme, port sampling, or a FAD programme. The study should also include a review of the export permit process and charges.

During the process of producing the Tonga National Tuna Management and Development Plan there was substantial consideration of deve lopment options and assistance required to pursue the options. Any attempts by outside agencies to promote tuna development should therefore pay careful attention to concepts expressed in the Plan which continue to be relevant, including that concerning: · Investment policies: An investment regime conducive to industry growth should be administratively efficient, consistent, transparent and competitive with other countries in the region. The current investment regime would not appear to meet these requirements and a review of current arrangements is recommended. · Credit: The lack of familiarity on the part of the banks with the nature of the fishing industry is often highlighted as causing reluctance on the part of the banks to make loans available to the sector. To address this it is recommended that technical assistance be sought to provide training to the major banks in appraising fisheries loan proposals thereby making the banking sector more responsive to the needs of the industry. · Training: The Tonga Maritime Polytechnical Institute is the primary institute for maritime training in Tonga. However, there is currently no course specific to the needs of the fishing industry being run by the Institute. In order to better service the fishing industry, specialised training for fishing crews is required including pre-sea training.

Some Considerations on the Suggested Interventions

In many respects, the development of the tuna industry in Tonga could be taken as a positive example for other Pacific Island countries. Consider: · The government attempted for many decades what Pollard (1995) refers to as “state capitalism - consistently committing large sums of public funds to invest in and to sustain loss-making tuna ventures.” From 1960 to the early 1990s the government attempted to operate six longliners on a commercial basis. Reports 136

of the Fisheries Division are indicative of the thinking at the time: Fisheries Division (1979) stated “The Tongan Government is considering ways and means of setting up a commercially viable tuna longline fishing enterprise”; Fisheries Division (1980) stated: “Tonga’s 200 gt longliner MV Tavake has continued to operate at a considerable loss in 1980”; Fisheries Division (1981) stated: “There can be no doubt that the government vessels will require continuing high government subsidies if they are to remain fishing”. During three decades the number of domestic longliners remained at one. · In the mid-1990s, a different approach to developing the tuna fishery was adopted by the Ministry. The number domestic longliners went from one to twenty six in a single decade. · Factors thought to contribute to the dramatic increase include (a) Enlightened leader of the Ministry who had the vision of the private sector being the engine of development in the tuna industry and who allowed the private sector to have a reasonable degree of impact on Ministry of Fisheries decisions, (b) Carrying out a through economic assessment of constraints in the tuna industry followed up by removal of the largest government-imposed constraint, (c) A relatively consolidated and assertive private sector, and (d) Transparency and accountability promoted by formulating, adopting, and adhering to the tuna management plan.

Although Tonga has made remarkable progress in tuna industry development, much remains to be done to take full advantage of the benefits from the tuna resources.

In considering the external assistance needs it is important to take into account on-going work. In this respect, AusAID is implementing the multi -year Tonga Fisheries Project. According to AusAID (2001) there are several project outputs related to tuna industry development. These are: · Tuna longlining trials conducted using two 9 m vessels for one year · Provision of practical advice to tuna exporters on processing and marketing options that will enable an increase in tuna export values in the absence of a significant increase in the availability of airfreight capacity · Development of Ministry of Fisheries resources to deliver responsive assistance and advice to commercial tuna fishing operators (particularly new entrants) on vessel selection, gear specification and procurement, fishing skills, vessel seaworthiness and safety at sea, and other matters. · A sustainable program of FAD deployment, maintenance and replacement, with training in offshore fishing skills provided to improve catches of tuna and other pelagic fish. · Information on the credit-worthiness of the sector.

Discussions with the staff of the Tonga Fisheries Project indicate that certain activities related to tuna industry development will receive particular attention. These are: · Small-scale tuna fishery development: FADs, cooperatives, use of ice, safety at sea · Linkage of oceanographic information to tuna fishing success · Value adding, including an assessment of loining 137

· The possibility of zoning so that tuna vessel access in the Tonga zone is proportional to benefits to Tonga · Improving the utility of vessel-provided data · Sport fishing development · EU HACCP issues · The relationship of financial institutions to the tuna industry · Air freighting, including the possibility of bringing in specialized expertise

It can be seen that many of the interventions suggested by the Ministry of Fisheries and the private sector in sections above will be addressed by the AusAID Tonga Fisheries Project.

The air freighting situation constrains many opportunities in Tonga for expansion of the longline fishery for fresh tuna. In early 2001 FFA completed a comprehensive regional sashimi air freight stud y (Centre for Asia Pacific Aviation, 2001) which included a section on Tonga. In considering whether any assistance in the area air freight is appropriate, the results of the study should be carefully noted.

The FFA air freight study stated: “Maximising passenger carriage (including passenger excess baggage) is economically more sensible for the local airline, and it is reluctant to consider subsidising the fishing sector by reducing yields. Investigations of freighter services have not been promising, and one attempt to run such a service (combining Apia and Tonga) was unsuccessful. Indeed, a more likely outcome in the short-term is the loss of capacity as a result of the shifting aircraft mix on the part of both Air Pacific and Air New Zealand. This does not simply affect the capacity available out of Tonga, but also the capacity available from key hubs, in this case Nadi and Auckland. Coupled with short-term uncertainty about the availability of capacity on existing services and the seasonal potential for offloading, this increases the risk faced by existing operators.”

The study investigated several options for mitigating the constraint of restricted air freight capacity:

Option Results of Analysis Promote new or expanded freighter services Unlikely to be achieved without a larger two way trade. Insufficient local demand. Rely on expansion or new passenger services to Unlikely with current and foreseeable tourism activity provide belly capacity Shared freighter service across FICs to hubs Could link with Fiji and Vanuatu to hub on Auckland or Brisbane to Japan and US Manage Market Yields Focus on bigeye for Japanese market and other species for US; extra processing for lower grade fish Recommended Options Rely on passenger service expansion; e xplore shared international freighter; yield management

The FFA air freight study concluded: “The level of aviation services to and through Tonga is surprisingly good for a small nation, although there is limited freight capacity, especially over the summer peak season. The implication is that there is not a lot of potential for increasing capacity significantly through increasing passenger services. Furthermore, changing aircraft fleet configuration and service rationalisation may reduce 138 capacity. Attention needs to be directed towards building the logistical arrangements and commercial links which will facilitate air freight through intermediate points.”

Many reviews of the fisheries situation in Tonga have concluded that privatising the commercial activities of the Ministry of Fisheries would result in better business atmosphere. This is certainly true for the tuna industry which is still subject to the many types of commercial involvement by the Ministry of Fisheries: fishing, ice production, marketing, and boat building.

Efforts to promote tuna industry development through encouraging privatisation should be formulated with the knowledge that there has been a long heritage of efforts to privatise functions of the Ministry of Fisheries, including two UN projects specifically focused on this issue74 . The past efforts were largely ineffective due to lack of political will and concern for the welfare of Ministry staff whose government job would be jeopardized by privatisation. It is suggested that any interventions include (a) ascertaining at the outset what realistically would be feasible, (b) generating the political will to accomplish this, (c) proposing attractive benefits to those individuals negatively affected, (d) establishing institutional incentives to get away from the perception that privatisation represents a net loss for the Ministry (loosing part of their turf with no positive institutional aspects).

Tonga, like several other Pacific Island countries, continues to place much emphasis on tuna-related development for small-scale fishers. Currently, the focus is on FADs and longlining from small vessels. Several points should be made concerning intervention in these areas: · Despite decades of tuna-related development efforts throughout the Pacific Islands, FADs remain one of the few innovations that allow small-scale fishers to economically take advantage of the region’s large tuna resources. Tonga was one of first countries to deploy FADs, and has had several externally directed FAD programmes in the last 20 years. The Fisheries Sector Review examined the FAD situation in Tonga, noted that a FAD programme is not beyond the recurrent budgetary resources of the Ministry, and concluded that a key issue is “why, if the Ministry accepts that FADs can be useful, cost-effective fisheries enhancement tools, has Tonga’s FAD programme largely lapsed?” Future donor interventions dealing with FADs should focus on the institutional aspects of maintaining an on-going FAD programme at the Ministry, rather than on the technical aspects which have already received substantial attention. · Tonga has long had an interest in using small-boat for longlining. The Tonga National Tuna Management and Development Plan promotes the concept of small longline vessels for the Ha’apai and Vava’u areas which would “provide the opportunity for small-scale fishermen to enter the commercial tuna industry due to the lower cost of such vessels”. The reality is that small-boat longlining is, at best, marginally economic when the vessels are based close to urban areas. In the more isolated areas, the additional expenses related to vessel supplies, support services, repairs, plus the problems associated with difficult fish transport logistics create a situation even less profitable. If small boat longlining ever becomes feasible in Tonga (and past trials in Tonga have not been positive), there is very little possibility that the fishers in the outer islands would enjoy the benefits. Any donor support to small boat longlining should therefore not be

74 The first attempt took place in 1987 (FAO 1987). 139

promoted with the idea that it is creating significant opportunities for areas away from Tongatapu.

Several reviews of the fisheries situation in Tonga, including Pintz (2002), have called attention to the cumbersome administrative requirements of the Ministry of Fisheries for commercial firms. This was also cited as an important constraint to the tuna industry in the present study. The requirement for a permit to export fishery products 75 is illustrative of the situation. Although the issuance of an export permit by MoF is seen as a priority by many Ministry staff, the reality is that the Ministry has no legal authority to require such permits, and there appear to be no quality assurance or even statistical objectives, but the requirement results in significant expenses and delays to the exporting firms. It appears that the administrative requirements for fuel tax exemption falls in a similar category. With the idea that there may be more efficient procedures to achieve the objectives of many of the Ministry administrative requirements that the private sector feels are unreasonable, there appears to be scope for donor intervention in this area. A review of the administrative requirements and suggestions for improved procedures seems appropriate.

In examining various possible interventions for promoting tuna industry development in Tonga, the following can be concluded: · Many important issues will be addressed by the AusAID Tonga Fisheries Project. · There should be a continuing dialogue on tuna development assistance between Tonga’s external development partners and the Tonga Fisheries Project staff, as well as the Ministry of Fisheries. · The Tonga Fisheries Project appears to have the mandate and expertise to accommodate such issues as fisheries technology, commercialisation, safety at sea, and credit. · Consideration should be given to use other development assistance for areas where the Tonga Fisheries Project has less expertise, such as in issues relating to governance, licencing, taxation, investment policies, harbour management, and administrative procedures reform.

75 The issue of such export permits may have been addressed in the new Fisheries Bill which is under consideration in parliament, but the example remains a valid illustration. 140

Tuvalu

Inventory of Domestic Tuna Industry Development

The major components of the tuna industry in Tuvalu are NAFICOT, the Fisheries Department, and private commercial fishermen based in Funafuti.

The National Fishing Corporation of Tuvalu (NAFICOT) was established by the Tuvalu Government in the NAFICOT Act of January 1982. Its original purpose (according to the Act) included (a) engaging in fishing, culturing and harvesting all forms of aquatic life, (b) encouraging and assisting in the development of locally owned fishing enterprises, (c) encouraging the people of Tuvalu to exploit marine resources of all kinds, and (d) making a contribution to government revenue. In the early years of NAFICOT the main role of the company was to provide the management structure for a donated Japanese pole-and -line vessel which was delivered in March 1982. Originally, NAFICOT was under the Fisheries Department but in 1986 became a government enterprise under the Ministry of Natural Resources. The Teone fish market, constructed/equipped with British/Australian funding, was acquired by NAFICOT in 1987. According to a 1994 study by the Commonwealth Secretariat, the market has operated at a loss every year, despite outside funding for the market manager.

NAFICOT’s pole-and line vessel, which employed from 25 to 33 crew, produced reasonable catches during the 1980s, with a peak catch of 1,091 mt in 1988. It fished in the waters of Tuvalu, Fiji, and the Solomon islands, in addition to being chartered to JICA in the mid-1980 and to SPC in the early 1990s. The vessel was then used for transport within cruises for several years until it sank in Funafuti lagoon in September 1997.

The present assets of NAFICOT include blast freezers 76, chest freezers, chillers, ice machines, a building (housing offices, retail fish shop, processing area), four fishing vessels, a truck, forklift, and two retail shops in the urban area. NAFICOT obtains fish from four sources: the NAFICOT fleet, the Fisheries Department vessel Manaui, the community fisheries centres in the outer islands, and private fishermen in Funafuti. Sumner (2001) states the total NAFICOT fish throughput in 2000 was 53.9 mt. NAFICOT data indicates the 2001 throughput was 35.3 mt,77 while the general manager estimates that the 2001 throughput was about 80 mt, of which 50 to 60 percent of the fish are pelagic species. NAFICOT is presently the only commercial supplier of ice in Funafuti. No fish is presently being exported by the corporation. According to the Fisheries Department, the last tuna exports of NAFICOT were several boxes of dried product sent to Australia in about 1999. Market investigations are presently being undertaken in New Zealand and Fiji. NAFICOT employs 27 staff, 9 of which work on the boats.

It is understood that NAFICOT has recently concluded a memorandum of agreement with Asian interests over a possible joint venture arrangement involving longliners and

76 According to NAFICOT management, the small blast freezer, chillers, and one vessel were not operational during November 2002. 77 The fish is valued by NAFICOT as being worth A$2.90/kg; the total annual tonnage may be greater as there is no data from the category “private fishermen” September through December. 141 purse seiners. Two longliners donated by Korea are scheduled to arrive early in 2003 and become part of the NAFICOT fleet.

The Fisheries Department of the Ministry of Natural Resources Development has some involvement in the tuna industry. It currently uses its vessel Manaui to transport fish from the outer islands to Funafuti, performs some commercial marine engineering work for Funafuti fishermen, operates the slipway, and sells some fishing gear. In the recent past the Fisheries Department had substantially more commercial involvement, including fishing by the Manuai and boatbuilding. Although difficult to estimate, the commercial services provided by the Department which are related to the tuna industry could be thought of as equivalent to 3 full -time jobs.

The Fisheries Department is also involved with the outer island community fisheries centres (CFC). The Department provides technical advice to the island council CFC management, a subsidy for operating costs, and transport of fish to Funafuti. Much of the fish handled by the CFCs is tuna, but volume estimates are not available.

To facilitate tuna fishing, the Fisheries Department deployed fish aggregating devices (FADs) around Funafuti during the 1980s. FADs were again deployed of each island in Tuvalu in 1993 in conjunction with a U.S.-sponsored fisheries project.

Funafuti commercial fishermen are an important component of Tuvalu’s tuna industry. It is estimated by the Fisheries Department that of the 125 fishing boats on Funafuti, 10 to 20 fish commercially and mainly for tuna. Another 10 commercial boats fish frequently for tuna. Alternatively, the head of the Funafuti fishermen’s association indicated that there are about 10 boats which could be considered full-time commercial tuna boats.

There is little reliable information on the amount of tuna caught by these boats. Patiale and Dalzell (1990) estimate that in 1989 Funafuti private fishermen caught about 100 mt. Fisheries Division (1992) gives the total for “all fishing in Tuvalu during 1991” as 530 mt, with Funafuti private fishermen landing 166 mt. The proportion of tuna in these catches was not given. SCP (1997) stated: “consumption [of fish] in Funafuti of the order of 60 kg per capita78”. If half of the fish consumed by the 5,000 residents of Funafuti is tuna, this equates to catches of about 150 mt of tuna. The outer islands tuna catch is assume to be largely for the personal consumption by the families of the tuna fishermen. Gillett and Lightfoot (2002), selectively using the information in eight studies covering Tuvalu fisheries, estimated the Tuvalu annual “coastal commercial” fisheries production for recent years to be 220 mt. If half of this consists of tuna, then about 110 mt of tuna is landed on a commercial basis in Tuvalu.

If the commercial Funafuti tuna trolling vessels carry an average of 2.5 crew, 15 full-time tuna troll vessels would employ about 38 people. Ten vessels fishing half-time would be equivalent to about 12 full-time crew. Much of the tuna caught by commercial fishermen is sold by family members. It is estimated that the 15 full -time and 10 part-time Funafuti tuna vessels may result in 15 jobs ashore.

Summary of Some Indicators of Domestic Development Active Canneries Air Local Local Frozen Fresh Cases

78 Whole fish weight equivalent 142

Locally- and Export Jobs Jobs Tuna Tuna Canned Based Dedicated Packing on on Exports Exports Tuna Tuna Loining & Value vessels Shore 2001(MT) 2001(MT) Produced Vessels Fa cilities Adding 2001 Facilities NAFICOT 0 0 1 9 18 0 0 0 Fisheries 0 0 0 0 3 0 0 0 Department Funafuti 20 0 0 50 15 0 0 0 commercial fishermen Total 20 skiffs 0 1 59 36 0 0 0 November 2002, unless otherwise noted

Other Indicators of Development

The National Tuna Development and Management Plan (Government of Tuvalu, 2002) gives annual catches of tuna in Tuvalu waters:

Year Boats Albacore Bigeye Skipjack Yellowfin Other Total 1995 59 5.3 21.4 3316.2 431.3 6.9 3781.0 1996 52 0.7 115.8 19258.6 1046.3 1.3 20422.6 1997 33 0.0 12.9 2746.7 4436.8 0.0 7196.5 1998 86 152.1 292.8 40160.6 4734.0 47.8 45387.3 1999 98 69.1 394.5 32679.2 5453.4 62.0 38658.2

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economies of the Pacific Island countries. The study stated that there was no locally-based offshore fishing in Tuvalu in the late 1990s. This can be compared to other Pacific Island countries and to foreign -based offshore fishing as follows:

Value of Catch of Locally- Value of Catch of Foreign- Based Offshore Vessels Based Offshore Vessels Tuvalu $0 $38,000,000 All Pacific Island Countries $178,400,000 $478,625,000

Tuvalu % of All P.I. Countries 0% 7.9% PercentageUnits – US$

Other considerations concerning tuna-related development are: · There are two agencies on Funafuti which provide agency services for overseas ships, including fishing vessels · The most recent transhipments were the three Taiwanese longliners who transhipped in Funafuti lagoon in 2001 · The mos t recent transhipments by purse seiners were those by U.S. vessels in 1995/96 143

· The most recent port call by a foreign tuna vessel was the Korean longliner which recovered a drifting Tuvaluan fishermen and came to Funafuti in September 2002 to drop off the m an and pick up some provisions · The most recent crew that Tuvalu formally provided to foreign fishing vessels was a single man in 1998

There has been substantial work on the production and export sale of dried fish and of tuna jerky produced by solar-drying at outer island centres but so far these have not led to commercial development.

Changes from Previous Studies

There is some information on past tuna-related employment: · Gillett (1997) gives information on such employment in the mid-1990s: Foreign fishing vessels – 7 jobs; Tuna jerky manufacture – 20 jobs; Artisanal tuna fishing vessels – 50 jobs · The Household Income and Expenditure Survey 1994 (MFEP, 1998) shows that a total of 316 persons reported income from fishing. The proportion of tuna fishers in this total is, however, unknown. · Quoting census sources, Commonwealth Secretariat (1994) indicated that 63% of all households in Tuvalu participate in “ocean fishing”, while 65% participate in “lagoon fishing”. · During the commercial operation of the NAFICOT pole-and-line tuna vessel Te Tautai in the 1980s, 25 people were employed aboard

Other Considerations Concerning Domestic Tuna Industry Development

Tagata Faiva i Funafuti (TFF, Funafuti fishermen’s association) has about 30 members, of whom about one-quarter regularly troll for tuna. According to the present Chairman, the association was started to discourage NAFICOT from lowering the buying price of fish. The Chairman feels the biggest success has been in collective bargaining over the price of fish. There are presently discussions in the association over limiting fish catches by members during periods of high supply to prevent a price collapse. According to the Chairman, little dialogue occurs between the TFF and the Fisheries Department.

In the past there was the Faapotopotoga Tangata Faika (Tuvalu fishermen’s association). According the management of TFF, the association was not very effective, primarily because the officers were non -fishermen.

The level of government involvement in commercial aspects of the tuna industry is substantial. The government, through NAFICOT, is involved with fishing, processing, and marketing of tuna. The Fisheries Department is involved commercially aspects of 144 the tuna industry through fish transport, marine engineering work, marine engineering, gear sales, and operation of the slipway. Chapman (2001) states: “The Government of Tuvalu is heavily involved in commercial fishing and marketing activities within the country, as a means of encouraging development. However, this is not working and the government recognises this”. The Department’s commercial involvement appear to have decreased recently, apparently due to a change in government policies.

According to the National Tuna Development and Management Plan, Tuvalu has a positive financial environment for investment in fisheries, but there are some issues that will need to be reviewed. The plans states: “Taxes on items used by the fishing industry are generally low, with most items subject only to a uniform 2.5 per cent tax and no duty but there are some exceptions where action to reduce tax and duty might be appropriate, and it will be important to ensure that policies on investment and finance availability do not constrain tuna domestic development.”

It should be noted that the country does not have a long heritage of commercial activity and experience with foreign investment is very limited. According to the Secretary for Finance, there has never been a successful case of a large foreign investment in Tuvalu.

Constraints in Domestic Tuna Development

Constraints which are commonly expressed by government officials include: · Shortage of marketing opportunities · Shortage of cold storage facilities · Poor availability of good vessels · Lack of appropriate infrastructure · Tuvalu being unknown to overseas investors · Lack of local credit for either boats or equity in a joint venture arrangement · Lack of air cargo space

Constraints which are expressed by NAFICOT and private fishermen include: · Low volume of tuna production · Lack of appropriate infrastructure · Lack of mechanism to attract joint venture partner · Limited market for tuna in Funafuti

In general, the views of the government and private sector on constraints are not remarkably different. There was however, a difference in what is being constrained. Government officials, most of whom have visited industrial fishing bases in other countries, appear to be referring to what is holding back Tuvalu from having tuna activity like neighbouring countries. The fishermen interviewed seem to focus on what is restricting their very small scale tuna trolling activities.

A number of studies have also commented on the constraints to the establishment of a tuna industry: 145

· FAO (1998) states: “Tuvalu faces great difficulties in establishing larger-scale, domestic fisheries. Tuna fishery development in particular is constrained by: the high investment cost of suitable vessels; the high capital and recurrent costs of shore -based and/ or transport faciliti es; the lack of slipping and docking facilities; meagre water supply; limited air transport and services; and the difficulty in attracting foreign investment in competition with other countries in the region”. · Chapman (2001) states: “There are major infrastructure needs to be addressed to provide a climate for the private sector to develop: Safe anchorage, Longer runway, Availability of electricity and water”. · Government of Tuvalu (2002) states: “…… the constraints are also severe. Land for business use is scarce. Electricity and fresh water supplies, and internal and external transport services, are limited and costly. There is a need to improve fisheries facilities, especially for private fishing operators, and private sector capacities in fishing and support activities are relatively undeveloped”.

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The views expressed by government officials include: · Acquiring more boats · Joint venture operations · Using newly acquired Korean longliners as a catalyst for domestic industry development

In another sense, the government’s perceptions of opportunities are given in the National Tuna Development and Management Plan (Government of Tuvalu 2002). Quoting from the plan: · The greatest potential for substantial commercial domestic tuna development lies in medium scale tuna longlining, using vessels of 11-25 metres, targeting albacore at least initially · Successful development of a large-scale tuna processing venture remains potentially the most beneficial form of domestic tuna development for Tuvalu overall, and is potentially particularly powerful in the provision of jobs and incomes for women. · Increasing domestic development benefits from foreign vessels: joint ventures or charters and a domestic fisheries development fund financed from levies on foreign vessels. · Other opportunities mentioned in the plan include small-scale mid-water fishing around FADs and export market development.

The views expressed by NAFICOT and the private sector include: · Simple value adding · Marketing to the overseas Tuvalu community · Targeting shark with tuna longline gear · Upgrading NAFICOT so they can buy all the local tuna production · Providing crew to foreign fishing vessels 146

Other agencies have expressed views on Tuvalu’s tuna industry development opportunities: · Commonwealth Secretariat (1994) stated: (a) “It is virtually essential for NAFICOT to export chilled, frozen, or dried fish if it is to achieve sufficient turnover to meet its operating costs”, and (b) “The joint venture approach has the advantage of allowing Tuvalu to capitalise on the value of its tuna stocks and thus achieve an improved and lower risk of equity than independent development”. · Chapman (2001) stated: (a) “The general prospect for developing a domestic tuna industry in Tuvalu is limited at present”, and (b) “The unique situation that Tuvalu faces with regard to constraints to development and basic infrastructure requirements makes it very difficult to come up with realistic and achievable objectives and strategies for development of a domestic export industry”.

In some respects, Tuvalu is competing with neighbouring countries in the tuna market and in attracting foreign investors. The comparative advantage of Tuvalu with respect to its competition should be considering when evaluating opportunities. The advantages of Tuvalu with respect to Tuna industry development include: · Proximity to the type of tuna schools vulnerable to purse seine gear · Proximity to the canneries in Pago Pago · No current national limitation on licenses for purse seiners or longliners · Abundant labour, which is relatively well-educated and inexpensive · Little seasonality in the abundance of tuna

When considering opportunities for domestic industry development, it important to bear in mind that there is no guarantee that a tuna industry is economically feasible, or even that domestic benefits from tuna can be increased above the present level. The reality is that there is a very limited market in Tuvalu and in exporting, a Tuvalu product competes in the international market with very experienced and efficient producers.

It could be argued that very high tuna catch rates for longlining in Tuvalu could offset the major constraints presently experienced in the counrty. Information in Polacheck (1987) on historical catch rates for albacore, yellowfin, and bigeye suggests that the longline catch rates for all three species would not be remarkably high.

Interventions to Promote Domestic Industry Development

In 2001 a task force was set up by the Ministry of Natural Resources to discuss tuna industry development and tuna management. This group consisted of representatives of the Fisheries Department, Finance and Economic Planning, Foreign Affairs, Marine and Port Services (MPS), Public Works department (PWD), National Fishing Corporation of Tuvalu (NAFICOT), Development Bank of Tuvalu, Fishermen Association, and Tuvalu Association of Non-Governmental Organisations (TANGO).

One or the major roles of the task force was to deliberate on what is needed to encourage the growth of a domestic tuna fishing industry in Tuvalu. The results, as summarized from the National Tuna Development and Management Plan 2002-2006, indicate the following is needed to encourage the growth of the tuna industry in Tuvalu: 147

· Fisheries shore facilities: study the fisheries wharf/small harbour development options, feasibility study of associated fisheries facilities, including slipway, launching ramp, workshops and fish processing and storage facilities. · Fish aggregating device (FAD) programme: equip fisheries department vessel for FAD deployment, establish a 5-year FAD deployment plan. · Small-scale mid -water fishing: conduct workshops on gear development, with SPC assistance using workshop participants small-scale vessels fishing trials. The catch will be sold to NAFICOT for export trials. · Medium-scale longlining: fit the fisheries extension vessel with long -lining gear to undertake trial fishing and i nitial training, export trials, acquire a “super-alia” type vessel and equip it for training in long-lining, establish a training programme to train private skippers and crew. · Improvement of air services: consider plans for upgrading airstrip on Funafuti, feasibility study of upgrading or constructing on Nukufetau and Nanumea, review scope for alternative air freight services off the existing airstrip on Funafuti. · Promoting small -scale tuna processing: assess the outcome of the Nukufetau and Nanumea dried ishf projects, organise workshops on salting and drying techniques, including flavoured tuna jerky, with assistance of regional organisations, export market study, upgrade NAFICOT processing facilities, support NAFICOT in developing overseas markets and providing information on market requirements, evaluate the prospect for a market outlet in Fiji for Tuvalu fish products. · Evaluating large-scale tuna processing: undertake a feasibility study of establishing a tuna canning, loining, and vacuum packing venture. · Fisheries institutional restructuring: undertaking an institutional review of NAFICOT and the fisheries department, including the possible need to retrain some NAFICOT and departmental staff, to provide support to private business to take over some fisheries functions and the provision of more appropriate facilities. · Immediate training needs: undertake a series of identified workshops and courses in HACCP, fishing business management, support sector trades, fisheries observer, Port sampling · Training needs study and training plan: undertake a fisheries training needs study, fisheries training programme · Domestic fisheries development fund: establish a trust fund governed by a board to support small-scale fisheries development fund. · Control of fish exports: undertake a consultancy on fish export controls. · Fisheries investment, finance and taxation review: undertake consultant review of policies and programmes affecting taxation, development finance and investment, including domestic and foreign investment, with respect to fisheries. · Catch data strengthening: improve catch reporting.

Obviously, an outside agency would not be expected to carry out all the above. Discussion with Tuvalu fisheries officials indicate initially indicated that boats, gear infrastructure, and training would be the priority items. Upon further discussions of what would realistically be possible under the present project, the officials endorsed the more 148 modest concept of an economic and technical evaluation of the 14 items on the above task force list.

The most commonly expressed views of NAFICOT and the private sector are the need for assistance dealing with: · Accommodating periodic large catches of tuna in excess to Funafuti requirements · Advice on the operation of the two soon -to-arrive Korean longline vessels · Market-driven export processing ideas · Advice relating to capture/export of shark fins using longline gear

Chapman (2001) gives thoughts on what needs to be done to promote tuna industry development in Tuvalu. His comments included the following comment: “The only way forward is for Tuvalu to establish export markets for fish, the domestic market is limited both in the volume that can be sold and the price people will pay.”

Both Commonwealth Secretariat and ADB in their 1994 studies recommended that Tuvalu seek assistance to establish a Tuvaluan-flagged purse seine fleet. But ADB (1997) advised that “Public money not be used for pelagic fisheries exploitation”

Some Considerations on the Suggested Interventions

The tuna development and management task force spent substantial time considering what is needed to promote the development of a tuna industry in Tuvalu. From a technical perspective, many of the 14 activities that the task force has specified are worthy of donor support. Additional justification is provided by the fact that the initiatives were developed after wide consultation within Tuvalu. However, before substantial time and energy are directed into these activities or before expectations are raised, it would be important to have at least some external evaluation of the economic and technical feasibility of the proposed activities. Such assessments would encourage the Tuvalu government and donors to invest resources in the schemes that are most likely to be successful in promoting development. Conversely, such an assessment could prevent wasting resources on schemes are inherently non-economic or impractical.

As an example, one of the 14 activities is a feasibility study of establishing a tuna cannery in Funafuti. Apparently, the concept has arisen due to the thinking that the atoll country of the Maldives in the Indian Ocean has a tuna cannery and therefore it should be possible to do the same on a Pacific atoll. A rudimentary assessment of the cannery situation, as suggested be done for all 14 activities proposed by the task force, would show that the Maldives cannery has accumulated losses of US$ 41 million (World Bank 2000), represents the largest component of the foreign debt of the Maldives, and is even unable to pay wages that would attract locals to work at the cannery so most of the labour is imported from low-wage neighbouring countries. This illustrates how some 149 simple economic/technical scrutiny of the task force list could avoid a large expense, in this case cost of a full study as proposed by the task force. Alternatively, this may result in assigning the cannery study a lower priority than other activities proposed by the task force.

Discussions with senior officials of the Fisheries Department and of the Ministry of Natural Resources appear to have resulted in agreement that a technical and economic assessment of the task force-recommended activities would be an important contribution to the tuna industry development process.

Another aspect to be considered concerning interventions for promoting tuna industry development is the historical experience. There have been a large number of attempts by donors over the last 25 years to encourage the development of a tuna industry in Tuvalu. These have included donors providing to the government many different types of tuna fishing vessels for demonstration, fish transport vessels, fisheries infrastructure, fish processing centres, processing equipment, freezers, fisheries advisors, marketing studies, and other forms of tuna -related development assistance. The reality is that this substantial assistance to government-led fisheries development efforts has resulted in little, if any, lasting impact on the tuna industry development situation. This may suggest: · That for future assistance a different development model should be considered; it is noted that many of the 14 activities proposed by the task force use the familiar government-led approach; or · That there could be few or no opportunities for tuna-related development at the present time.

One alternative development model to that employed by the government for several decades involves making conditions favourable to a foreign investor and then using the capital and experience of that investor to generate employment and other domestic benefits. Although this may result in more success than past efforts, this model is not without its feasibility problems. According to the Secretary for Finance (who is also Chairman of Foreign Investment Facilitation Board), there has never been a successful case of a large foreign investment in Tuvalu. In the future, any substantial foreign investment in the tuna industry would represent a major departure from the domestic status quo, and this may detract from the viability and/or desirability of this type of development model.

The fact that there could be few or no opportunities for tuna-related development at the present time should be seriously considered. The difficult transportation logistics to outside markets, lack of support services, high cost of fuel, poor availability of water, little heritage of major commercial activity, high costs of doing business, limited domestic market for bi-catch and other factors, all work against the establishment of a domestic tuna industry like those of many Pacific Island countries. While some of these could be addressed by major inputs from the government or donors, such improvement may still not result in the fundamental underlying economics being favourable.

There is also some concern over a concept that has been expressed in several recent reviews of the Tuvalu tuna industry situation: the contention is that, although the present economics related to tuna development are not favourable, improvements in infrastructure will lead to feasibility. Some of the studies indicate that, although 150 exporting is not profitable at the present time, the government or donors should fund infrastructure improvements: · “The effo rts in the establishment of joint ventures with foreign companies in the harvesting of tuna resources has not materialized to date. Therefore the only option is to proceed with the development of the appropriate infrastructure for Tuvalu so that it would be possible to harvest its own tuna resource, with the assistance and support of the Forum Fisheries Agency, other regional organizations, FFA member countries, as well as donor countries and agencies.” (Fisheries Department, 1997) · “To export fish, there needs to be infrastructure in place to get the product out of the country at a price that will make it competitive on overseas markets, and return a profit to the exporter and fishermen…..The best way forward for the Government of Tuvalu is for them to fund developments in infrastructure needs.” (Chapman 2000)

These statements imply an infrastructure solution to Tuvalu’s scarcity of opportunities. Experience in other countries of the region, especially the Federated States of Micronesia, indicate that although improvements in infrastructure could improve the situation, such efforts do not necessarily equate to economic feasibility. This concept reinforces the need for economic and technical scrutiny of proposed projects.

As noted in a section above, one of the comparative advantages of Tuvalu is that there is no current national limitation on licenses for purse seiners. This may be attractive for a purse seine owner wishing to base a vessel in the region, but there is some possibility that such basing could be against the spirit of the Palau Arrangement for the Management of the Western Pacific Purse Seine Fishery. Any Tuvalu licensing purse seiners should be done so that it does not undermine the intent of the Palau arrangement.

151

Vanuatu

Inventory of Domestic Tuna Industry Development

The domestic tuna industry in Vanuatu is presently limited to small-scale commercial fishing from skiffs and sport fishing from charter boats.

There have been various estimates of the amount of tuna captured by small-scale commercial tuna fishing. · Wright (2000) indicates that 40 tonnes of shallow water reef fish and coastal pelagics are marketed each year. · An experienced Fisheries Department official has estimated that commercial trolling for tuna from skiffs produ ces somewhat less than 100 mt of skipjack and yellowfin per year. The catch is both sold and used for bait for commercial bottomfish fishing. · Data on tuna catches around the single FAD off Efate indicates that at least 5.9 mt and 5.6 mt were landed in 1999 and 2000, respectively. · Jimmy (1998) states that pelagic fish sales in the Natai and Santo fish markets were 1.9 mt in 1991 and 6.5 mt in 1992. · A fisheries consultant with a long association with Vanuatu estimates that about 50 mt of tuna is landed by small-scale commercial fishing.

Selectively using the above information, it can be concluded that the small-scale commercial catches of tuna in Vanuatu are about 50 mt per year. Discussions with Fisheries Department officials and commercial fishermen suggest that most of the present tuna landings come from the single FAD off Efate. This FAD was deployed about two years ago by a consortium of skiff fishers and charter boat operators, using mooring lines supplied by the fisheries department and equipment financed by the FAD users themselves.

Fisheries Department officials indicate that there are between five and ten full-time skiff trolling operations in Vanuatu (most of which also fish for bottomfish). There are also between five and ten part-time, market-oriented trolling operations. With an average crew of three people per boat, this could represent the equivalent of 30 full-time jobs. The fishing also generates economic activity ashore. Although difficult to quantify, it is estimated that 10 people are in volved in tuna sales and other activity incidental to the fishing.

Sport fishing from charter boats is another component of Vanuatu’s tuna industry. Chapman (2000) reports that in July 2000 there were eight charter vessels operating from five different companies in Port Vila, and one vessel working out of Luganville. During December 2002 there were five companies (all based in Vila 79) operating eight vessels which ranged in size from 5 to 13 metres in length. According to the charter companies, most of these vessels do some commercial fishing and sell some of the sport fishing catch. The amount of these sales is likely to be included in the estimate for that of the small-scale tuna trollers above. It should be noted that not all of the catch is tuna – much of the fish taken are billfish, wahoo, barracuda, and other non-tuna pelagic species. Information from charter companies suggests that employment aboard the

79 A leading charter boat operator indicated that the single sportfishing boat operating out of Santo was actually a skiff doing much of its fishing in inshore areas. 152 charter vessels would be equivalent to about 24 full-time jobs. In addition, the charter companies employ about 20 people ashore.

Several longliners were based in Port Vila in the 1990s, the last being the Marine Princess (departed December 1997) owned by Vanuatu Fishing Investments Limited. According to Naviti (2002), two US longliners were based in Port Vila in early 2002, but apparently these vessels only maintained an office in Vanuatu and carried out fishing in the Vanuatu zone, with all offloading and provisioning done in Suva 80.

Fisheries officials, fishers, and export data all indicate that there have not been any tuna exports from Vanuatu since the last locally-based longliner ceased operation in late 1997.

Other Indicators of Development

Amos (2002) gives tuna catches in the Vanuatu zone: Longline Vessels of Longline Vessels of Total Tuna Catch Fiji (mt) Taiwan (mt) (mt) 1998 38 142 2178 1999 377 568 2944 2000 1,308 1,380 4,688 2001 370 420 2791

A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economies of the Pacific Island countries. The study stated that there was no locally-based offshore fishing in Vanuatu in 1999. This can be compared to other Pacific Island countries and to foreign-based offshore fishing as follows:

80 This does not seem to fit into the definition of a locally-based foreign fishing vessel as given in the tuna management plan: Any foreign fishing vessel which uses land-based facilities in Vanuatu to support fishing, including location of the home port of the vessel, processes or tranships all its catch for export through an approved export facility in Vanuatu, and bases its operations in Vanuatu while operating in the fishery waters of Vanuatu. 153

Value of Catch of Value of Catch of Locally-Based Foreign-Based Offshore Vessels Offshore Vessels Vanuatu $0 $253,087 All Pacific Islands $178,400,000 $478,625,000

VanuatuCountries % of All P.I. 0% .05 % UnitsCountries – US$

Chapman (2000) provides additional information on tuna industry development in 2000: · There are three slipways in Vanuatu, one in Port Vila, one in Luganville and the other associated with the Palekula Base. · In Port Vila there are three producers of ice, although most of this is used by the companies themselves. In total around 5 t of ice is produced per day by the three companies · There are two main airports in Vanuatu, Port Vila and Luganville. Both of these airports are to be upgraded with the runways extended, with work commenced on the Port Vila airport. When completed, the Port Vila airport will be suitable for 747 and 767 aircraft, while the Luganville airport will be suitable for 737 aircraft to land. The Port Vila airport also has a cold storage facility for storing perishable goods entering and leaving the country.

The last tuna transhipments in Vanuatu appear to have taken place about two years ago. According to Fisheries Department (2001), 15 Vanuatu licensed longline fishing vessels transhipped 80.3 tons of tuna of cannery grade tuna in Mele Bay in July 2000.

There are plans for longline transshipment bases in Vanuatu. Willie (2002) reports that the Chinese government through the China National Fisheries Corporation (CNFC)81 will construct in early 2003 a facility in Vila and another one in Santo. According to Fisheries Department officials, a preliminary agreement has been reached with CNFC, but many of the details of the arrangement have yet to be worked out.

Changes from Previous Studies

Government of Vanuatu (2000), Chapman (2000), and FFA (1996) give information on the South Pacific Fisheries Company (SPFC): · The Mitsui Company of Japan established the SPFC at Palekula on Espirutu Santo in 1957. Using the former US Navy base built in the 1940s, SPFC conducted longline tuna transhipments supplying tuna to canneries in Hawaii. · Over the years, many longliners from different countries worked out of the Palekula Base. At its height of activity between 1971 and 1973, it was estimated that as many as 100 different longliners could visit the base in one year. The average unloading from 1971 to 1973 was around 14,000 t. In the early 1980s, the number of vessels working to the Palekula Base dropped greatly, with around 4,000 t of fish unloaded in 1981. · Tuna-related activity ceased in 1986, when the remaining vessels relocated to American Samoa to take advantage of incentives offered by processors there.

81 CNFC is associated with longlining operations in Palau, Yap, Pohnpei, and Majuro. 154

The facility was turned over to the Government and during the following years the facility deteriorated. · The National Fishermen’s Cooperative, Consumer and Marketing Society Limited, was established in 2000. The government subsequently gave the SPFC facility to this group.

The condition of SPFC facilities has declined further since the takeover by the cooperative, and they are presently unusable. According to Fisheries Department officials, SPFC is actually a liability for tuna development as it signals to investors potential problems.

Nichols (1996) gives the following information on tuna industry development in the mid- 1990s: · The domestic fishing fleet is limited to two small longliners, which undertake both pelagic longlining for tuna and bottom-set longlining for deep-water bottom fish. Other longliners are chartered by two local joint ventures, but these vessels do not base their operations in Vanuatu. A small fleet of sport fishing charter boats operate game fishing charter tours for tourists, and also undertake commercial fishing when not on charter. These vessels contribute significant quantities of fish to the Port Vila fish market. · A small number of local longliners also operate, and interest seems to be increasing. Export marketing of sashimi-grade tuna through Vanuatu Fish Investments Ltd. commenced in February 1996, ending a long period of decline in the Port Vila -based marketing centre, Natai. Since the loss of the SPFC fleet from Palekula on Espiritu Santo in 1986, the domestically-based tuna industry has been moribund. · The development of the national fleet is at a rudimentary stage. Currently 3 commercial longliners; MFV’s Toho Vanuatu no.1, Marine Princess, and Oiseau Bleu, and two purse seiners; Chance no. 1 and Chance no. 2 are licensed to fish in Vanuatu waters. A fish collection vessel, MFV Azur, has recently arrived, but has yet to commence operations

FFA (1996) gives information on the operations of the three locally based operators involved in off-shore fisheries in 1996: · International Tuna Services Ltd. (ITS) is a locally incorporated company with an office in Port Vila. A local shareholder has 49 per cent shares in the company while the foreign shareholder has 51 per cent. The company operates two purse seiners flagged to Vanuatu - Chance 1 (GRT1,174) and Chance 2 (GRT1,000), and one longliner freezer - Chance 803 (GRT440) flagged to Korea. The three vessels are licensed to fish in the Vanuatu waters for VT500,000/vessel/year. Both purse seiners are also licensed under individual licensing arrangements in the FSM, Kiribati and PNG, and in the Solomon Islands by a charter arrangement to the Makira -Tuna Services technology transfer agreement. Although they are considered local-based vessels, they practically base their operations off-shore. The vessels conducted transhipments in the Solomon Islands. · TOHO Vanuatu Ltd (TOHO) operates one low temperature tuna longliner -TOHO No.1 (GRT284) previously active in the waters of New Caledonia under the ownership of Caledonie TOHO SARL. The vessel now operates under TOHO Vanuatu Ltd., a company based in Vanuatu but owned by a Japanese firm - 155

Matsuya Co. Ltd. of Osaka. The vessel was built in Japan in 1978. According to the Fisheries Department, the vessel is operating under a trial/experimental fishing licence paying VT20,000/month for such a licence. The vessel has been in Vanuatu before the end of 1995 and operated since, completing several 20 day trips in 1996. The vessel targets yellowfin and bigeye for the frozen tuna markets in Japan and albacore for canning. The vessel is transhipping in Noumea for onward shipments. The local agent quoted the average catch at around 15-20 tonnes per trip. It was further reported that the vessel conducts providoring (minor maintenance, provisioning, portage), in Port Vila but refuel in Noumea when conducting catch transhipments. · Vanuatu Fishing Investment Ltd (VFIL) In November 1995, an agreement was entered into between the Government of Vanuatu, the Port Vila Fisheries Ltd., and Vanuatu Fishing Investment Ltd (VFIL) a locally incorporated private foreign company to lease the Natai premises consisting of a refrigeration plant, chillers, 500kg/day ice-making plant and processing space. Four commercial licences were issued issued, one longliner - Marine Princess (GRT64), has been operating since February 1996 completing two relatively short trips (1-3 days) and two longer trips (4-6 days). It conducted two types of longlining - bottom- fishing and tuna longlining.The VFIL operation markets locally and export to Japan, New Zealand and Australia by Air Vanuatu which flies twice a week to Auckland. Yellowfin, bigeye and some bottom species are the main export catches. According to the data submitted to the Fisheries Department, approximately 3,000kg had been exported since commencing business in February 1996. By-catches of mahi-mahi, wahoo and shark are sold on the local market.

FFA (1996) developed a financial model of longlining. The results indicated that a longliner based in Vanuatu may return around 13.6 to 14.0 million vatu to the private sector in employment, provisions, electricity, water and air freight benefits. This is about 21 per cent rate of return on the value of the landed catch.

Gillett (1997) estimated that in the mid-1990s, tuna-related employment accounted for .9% of all formal jobs in Vanuatu. Fisheries Department (1997) reports that the Vanuatu Fishing Investment Ltd. operation “has created 20 employment opportunities on board the vessel and it the shore base.”

Other Considerations Concerning Domestic Tuna Industry Development

With respect to industry representation, there is no established association at the national level to represent the interests of tuna industry stakeholders. A Vanuatu Fishermen’s Association (VFA) exists but this body represents the crew of foreign fishing vessels. VFA’s main issue appears to be obtaining compensation related to past employment.

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There have been recent attempts by the Fisheries Department to organise participants in the various fisheries sub-sectors (sportfishers, exporters, and aquarium fish collectors) but these efforts have not yet resulted in the formation of associations. At the provincial level, there are fishers associations in SHEFA and TAFEA but their involvement in tuna issues is minimal.

Apart from associations, there are other possibilities for the tuna industry to have a formal dialogue with the government: · The Fisheries Act requires that management plan process involve wide consultation with all relevant stakeholders. · The Vanuatu Tuna Management Plan states that the Minister responsible for Fisheries will establish a permanent Tuna Management Advisory Committee (TMAC) for implementing all aspects of the Tuna Management Plan. The membership of the committee will include various representatives (Fisheries Division, Vanuatu Maritime Authority, Police Maritime Wing, and State Law Office). The TMAC may invite other members of government, industry and the general public to assist the committee with its deliberations from time to time as required.

Government participation in commercial activities related to the tuna industry is presently limited to operation of the boatyard in Santo. In the past the government was involved in several endeavours, including the South Pacific Fisheries Company, outboard repairs, and fishing gears sales. Changes in government policies, especially those promoted by the Comprehensive Reform Program, (CRP) was responsible for much of the divestment.

According to managers of several fishing businesses, the quality of the business environment has improved in recent years and the CRP is credited for many of the positive changes. ADB (2002) states that “one of the fundamental tenets of the CRP is the dominant role to be played by the private sector in economic growth and development. This also applied to fisheries”.

With respects to the financial aspect of the business environment, Vanuatu still has high costs of doing business (even by Pacific Island standards), and the availability of credit is relatively poor.

Reviews of the foreign investment situation, including that by the Foreign Investment Advisory Service (FIAS) in 1996, have resulted in favourable policy changes. According to the Vanuatu Investment Promotion Authority, progress is still required to address problems related to the speed of responding to major investment proposals, the independent investment policies of the provinces, and administrative barriers.

With respect to business conditions specifically in the fisheries sector, there are two initiatives which would create a more stable and predictable business environment. These are the Fisheries Policy Statement drafted for the Vanuatu government by FAO in 1996 and the Tuna management plan drafted for the Vanuatu government by FFA in 2000.

Constraints in Domestic Tuna Development

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Perceptions of constraints which are commonly expressed by government fisheries officials include: · High costs of doing business, especially the cost of fuel · Relatively high rates of taxation · Lack of air freight capacity and high costs of air freight · Sudden changes in government policies · Lack of incentives for investors · Likelihood of increasing fuel taxes · Low abundance of tuna; seasonality of tuna

Perceptions of constraints which are expressed by fishing companies include: · High costs of doing business · Poor availability of credit, high cost of credit · Sudden changes in government policies · Low longline catch rates · Poor performance of past tuna longline ventures · Low government support to FAD programmes

In general, the views of the government and of the fishing companies concerning constraints are not very different. It appears that informal dialogue between the Fisheries Department and the fishing companies is a major factor in the lack major differences.

Several other studies have commented on the constraints facing the development of a tuna industry in Vanuatu: · The Offshore Fisheries Review (FFA 1996) gives several constraints to the development of a domestic tuna industry, including the high cost of fuel, limited mooring/unloading space, and limited air cargo capacity. · Chapman (2000) gives the major constraints as being financing, current licensing policy and the costs of electricity and even duty free fuel. He states “the options available for ni-Vanuatu to get funding for small-scale or medium-scale tuna fishing projects is very limited in Vanuatu. To start, there is no Development Bank in Vanuatu. There are four commercial banks, however, they were not really interested in lending money to fishing ventures as it is considered high risk”. · The Vanuatu Tuna Management Plan states there is currently a lack of basic infrastructure to support the development of a larger scale tuna fishing industry in Vanuatu. · ADB (1997) states that Vanuatu is a high cost producer that undermines its international competitiveness. Wage rates are relatively high and internal transportation and energy costs are amongst the highest in the region. The study cites three major constraints to ni-Vanuatu participation is private sector development: a lack of commercial/entrepreneurial skills, lack of credit, and indigenous culture. 158

· ADB (2002) indicates that lack of credit is serious problem in all productive sectors of economy. “Credit facilities for ni -Vanuatu farmers, fishermen, or entrepreneurs are essentially non-existent”. · The 2001 Fisheries Department Annual Report (Amos 2002) states that “Many constraints on the economic development of the sector remain. Most of these are in the form of inappropriate policies and regulations hatt have the effect of distracting of even penalizing the effective development of the sector”

The largest domestic tuna industry project presently under consideration is the initiative to establish a longline base for Chinese vessels in Vila harbour. Aside from the impediments given above (which presumably have been considered and factored into the plans), opposition from the tourism industry to the project (mainly over pollution), could be a major constraint against the project coming into fruition.

The relative high costs of production in Vanuatu, in conjunction with duty free access to Vanuatu markets though Melanesian Spearhead Group arrangements have a constraining effect on tuna development targeting the domestic market. Tuna products from Fiji, Solomons, and PNG could conceivably be cheaper in Vanuatu than those produced locally.

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The types of views expressed by government offi cials include: · Servicing overseas vessels · “Piggy-backing” onto the operations and infrastructure of foreign investors · “Tightening the screws” on foreign fishing activity and encouraging them to land and base in Vanuatu · Spin -offs from the Chinese transshipment project · Encouraging the existing small-scale commercial operators to expand

The views expressed by individual fishing companies were quite different; they basically were looking at what could be done to enhance their present operations, most of which are very small in scope. · The use of FADs to catalyse interest in tuna fishing · Establishment of a scheme to finance FAD deployments by contributions from FAD users · Establishment of a revolving credit fund for tuna fishing boats/equipment

The Vanuatu Tuna Management Plan represents, to a large degree, a consolidation of ideas from a wide range of stakeholders in the tuna industry. The plan gives the following opportunities: · Small artisanal vessels catching tuna and tuna like species around FADs. · Medium size multi-purpose vessels that engage in tuna fishing in addition to other forms of marine harvesting and other maritime activities such as cargo transportation. 159

· Charter sportfishing vessels that in addition may act as commercial vessels and sell some of their catch to the local market. · The development of a small locally based and owned fleet targeting tuna and focussing on the export market with some local sales. · The development of larger, locally based, tuna fishing operations where appropriate investment can be found to develop a long term sustainable operation.

Chapman (2002) examined a large number of tuna development options. These included transhipment of tuna catches from other fleets, use of stevedores, observer programme and port sampling, fish aggregating devices, promotion of small-scale tuna fishing methods, promotion of small to medium scale tuna longlining, catching bait, value-adding processes as development options, tuna farming or ranching, tuna cannery, tuna loining, fishmeal plant, arabushi smoking/processing plant, other value adding processes. He concluded: · Small-scale tuna fishing activities using mid-water fishing techniques around FAD is the most likely first step in domestic development into tuna fishing. The success of this though will depend on there being an ongoing FAD programme. · Medium-scale tuna longlining is the main method of tuna fishing with promise for domestic participation by ni-Vanuatu.

ADB (2002) examined the entire fisheries sector and concluded that the main opportunity in fisheries is in commercialisation of village level fisheries. With respect to the tuna industry, the report appears to dismiss the potential for domestic industry development, advising the government to focus on maximising rent from foreign fishing activities.

This seems to be contrary to the advice dispensed by Wright (2000); ‘the Fisheries Department’s resources would be more productively focused on co-ordinating the implementation of a strategy to attract fresh sashimi operators to base in Vanuatu rather than the likely unproductive exercise of engaging KFA in re -negotiation of the bilateral agreement”.

Some of the comparative advantages of Vanuatu with respect to tuna industry development include long-term access to land (ADB 1997), reasonably high historical tuna longline catch rates (Polacheck 1987), and linkages with tourism for air transport and domestic markets. It also should be noted that Vanuatu may be able to take advantage of the opportunity afforded by restrictions on entry into the chilled tuna longline fisheries of neighbouring countries; due to various conditions it may be difficult for a new entrant to participate in the fisheries in Fiji, New Caledonia, or the Solomon Islands.

Interventions to Promote Domestic Industry Development

The commonly expressed views of government officials concerning desirable interventions to promote domestic industry development include: · An assessment of options and opportunities for domestic tuna industry development 160

· A FIAS -type evaluation of Vanuatu situation, focusing on those factors which attract/discourage investors in the fisheries sector. · A visit by the management of a successful fisheries association to encourage local fisheries firms to form an association · Industry intelligence on prospective overseas investors · A study focused on improving the fisheries credit situation

The most commonly expressed views of fishing companies are the need for assistance dealing with: · Assistance in promoting a sustainable FAD programme · Assistance in the establishment of a revolving credit fund for tuna fishing boats/equipment

The Vanuatu Tuna Management Plan gives strategies and activities for domestic tuna fishery development:

Strategy Component Activity Programme funded from Ensure development sub-account in Fisheries Management fees and penalties that are Fund created with necessary revenue stream part of the Tuna Management Plan Initiate development of FAD programme with support from FFA; Development of an FAD Consider the use of local development sub account to place programme additional VHF repeaters to increase safety for small boats in general and specifically around the FADs Expansion and clarification Produce a leaflet that explains the duty exemptions available to of duty exemptions fishermen and the requirement for licensing Information and support for Produce a leaflet describing the opportunities for investment in tuna fishery development tuna fishery development Legislation to facilitate fish Work with FFA to determine required legislation exports Ni Vanuatu crew Ensure crewing requirements are included in bilaterals and/or requirements in license license terms and conditions terms and conditions Crew support and training Promote training programmes provided by Maritime College programmes

ADB (1997) states that “large fisheries development projects are no longer seen as appropriate, with the role of government now directed to information, resource management, and regulatory functions. However, there is an on -going need for technical assistance, training, and institutional building support. In some cases this is best provided vis the regional organization concerned with the fisheries sector (FFA or SPC)”.

ADB (2002) makes several recommendations relevant to the development of a domes tic tuna industry. It indicates that preparation of a fisheries policy framework should be a priority. It also states that making credit available on reasonable terms should form cornerstone of fisheries commercialisation scheme.

In Chapman (2000) suggests several types of SPC assistance important for tuna industry development. These include requesting SPC for: 161

· Conducting of FAD site surveys, and the construction and deployment of FADs · Providing information on suitable vessels or vessel parameters and fishing gears for tuna longlining, which can be passed on to the private sector. · Training up a Fisheries Extension team to operate a “super alia” if they purchase such a vessel. · Advising new entrants in the private sector who undertake tuna longlining ac tivities, including the rigging of vessels and gear. · Conducting one or two workshops for training in on board handling, processing and chilling of tunas for sashimi markets.

Some Considerations on the Suggested Interventions

For both domestic and foreign investors in the tuna industry, a stable policy environment is critically important. After studying the tuna industry development situation in many Pacific Island countries in the mid-1990s, Pollard (1996) states that studies by FIAS and other development agencies have repeatedly found that a stable, reliable set of policy measures and trading environment is much more attractive to investors than financial concessions. Several fisheries -focussed reviews of the situation in Vanuatu and discussions with both government officials and the private sector support this concept.

There have been two recent initiatives which have attempted to provide the much- needed policy stability in the fisheries sector. These are the Fisheries Policy Statement drafted for the Vanuatu government by FAO in 1996 and the Tuna management plan drafted for the Vanuatu government by FFA in 2000. The difficulty is that neither one has been approved by the Council of Ministers. Although principles promoted in the two documents have been accepted by the Fisheries Department at the working level, the fact that they have not been accepted at the highest level means that the Policy Statement and the Tuna Management Plan fall short of their potential for improving investor confidence.

If private sector investment is to be a key element of tuna industry development in Vanuatu and if the lack of policy stability is presently a major deterrent to investors, it would appear that activities leading to increased policy stability should be a priority in development efforts. Measures to encourage the adoption of, and adherence to, the Policy Statement and the Tuna Management Plan should be prominent in any programme for tuna industry development in Vanuatu.

Although there may be some sentiment that outside agencies have taken these two initiatives as far as appropriate, the reality is that the Fisheries Department has been subjected to major downsizing in the CRP and has not been able to focus on the Policy Statement and the Tuna Management Plan due to their non-crisis nature. The required assistance leading to approval may include identification of contentious issues for possible modification, sensitising senior leaders to the importance of tuna industry 162 development and associated policy stability, producing summaries of the two documents appropriate for use at the highest levels of government, and translating the documents into the two additional languages used by members of the Council of Ministers.

Aside from measures dealing with the two policy documents, other opportunities exist for increasing investor confidence. The World Bank’s Foreign Investment Advisory Service (FIAS) provides advice to countries that wish to attrac t foreign investment. FIAS has already done substantial work in Vanuatu and it appears that it has had positive impact on the investment situation. However, that work has been general in nature and has not focussed on the fisheries sector. One possibility for improving the attractiveness of the fisheries sector to foreign investors is to carry out a FIAS-type exercise specifically targeting the fisheries sector: a thorough analysis of the features of Vanuatu’s tuna fisheries situation from the perspective of the overseas investor. This would require the insight of a foreign investment specialist combined with the technical knowledge of a tuna industry expert.

Historically, much of the effort in Vanuatu tuna industry development has gone into revitalizing South Pacific Fisheries Company (SPFC) facility at Palekula on Santo. This has included several studies by FFA since the early 1980s 82, reviews and a major project by FAO, a feasibility study by a major tuna industry firm, and investigations by several development agencies. The unsuccessful nature of those efforts together with the present condition of the facility appear to have produced a consensus that this avenue of development should not be further pursued.

The lack of positive results dealing with SPFC and the failure of several locally-based longline operations in the 1990s appear to have a major negative impact on the Vanuatu business community’s feeling towards the viability of a Vanuatu tuna industry. This situation may strengthen the argument for the need to attract foreign investors. It also may emphasize the need for an appraisal of the financial and technical viability of the development options being considered by the Fisheries Department. Although the department has world -calibre expertise in many aspects of fisheries (eg. reef reseeding, gastropod aquaculture, village-level fisheries management, etc.), the Department’s experience in the tuna industry is more limited. Assistance in support of tuna industry development appears to be required on two levels: · Industry intelligence on foreign investor proposals that are periodically received by the government. The primary objectives would be to (a) eliminate those proposals by investors with bad reputations and proposals that are inherently not feasible, and (b) obtain some insight on present/past operations by the proposing company83 . A secondary objective would be to demonstrate the process for similar evaluations in the future. · A technical and economic assessment of the various options for domestic tuna industry development, with the view to establishing the Fisheries Department’s priorities and long-range strategy in tuna industry development. This exercise should encompass resolving the conflicting advice received (e.g. the difference of opinion on duty exemptions), as well as assessing the fuel tax situation and the economic trade-offs where there is interaction with the tourist industry.

82 FFA (1982). Report on the operations of the South Pacific Fishing Company 83 Present efforts to evaluate the proposal to establish substantial Chinese transhipment facilities in Vanuatu could be enhanced by knowledge of related operations in several Micronesian countries. 163

Although much tuna industry development is likely to arise from the efforts of foreign investors , local initiatives should also be supported. Interventions that may result in lasting impact include: · Assessment of options for improving credit availability to commercial fishers. · Establishment of a scheme for a user-supported FAD programme. Although this has been attempted in other countries, conditions in Vanuatu may be more favourable: small commercial fishing community, substantial amount of sport fishing, and some past success at securing contributions for FADs · Promotion of a commercial fishers association. This may have positive implications on the policy environment for fisheries, responsiveness of the Fisheries Department to the private sector, and relevance of government fisheries development efforts. It may also serve as the implementing body for the user-supported FAD scheme.

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Marshall Islands

Inventory of Domestic Tuna Industry Development

The major components of the tuna industry in The Marshall Islands are PM&O Processing, Marshall Islands Fishing Venture, Koo Fishing Company, and Edgewater.

PM&O Processing operates a tuna loining facility in Majuro. According to the General Manager, the facility is entirely owned by PM&O Line of San Francisco which obtained a loan guarantee from the government of the Marshall Islands for construction. The loining plant presently employs 400 people (including 5 expatriates) and about 80% are females. Starkist is responsible for providing the raw material and all of the loins produced are for the Starkist cannery in Pago Pago. According to MIMRA (2002) the plant has a 42% recovery rate and the production details of the first two full years84 of operations are: Year 2000 2001 Total vessels 15 16 Raw product (mt) 10,296 9,632 Exported (mt) 4,118 3,852

Marshall Islands Fishing Venture Inc. (MIFV) is a subsidiary of the Hong Kong -based company Luen Thai Fishing Venture Ltd. which has operations in Pohnpei, Palau, Guam, Taiwan, and Japan, in addition to that in Majuro. MIFV occupies the Majuro Tuna Longline Fish Base85 , vacated by Ting Hong in 1998. The firm’s operations in the Marshall Islands began in October 2001 with the arrival of eight vessels. The first exports occurred in November 2001. The company is affiliated with Asia Pacific Aviation whose aircraft transports MIFV’s fish to both Guam and Hawaii. The company presently manages about 49 longline vessels operating out of the Fish Base: 8 of its own boats, 24 other Chinese vessels, 12 Taiwanese vessels, 4 vessels owned by an FSM company, and one Japanese vessel. Fish is usually picked up about 5 times per week, but this can be increased to 7 times per week86, plus dedicated charter flights from Guam by the same aircraft. The company exported only a limited amount of fish in 2001 due to the fact that operation commenced late in the year: 62 mt of fresh tuna to Japan, 14 mt of fresh tuna to USA, and 80mt of frozen tuna and by-catch to Taiwan. From the beginning of 2002 to mid-December, MIFV exported 446 mt of fresh tuna to Japan, 659 mt of fresh whole tuna to USA, 16 mt tuna loins to USA, and 1,210 mt of frozen tuna and by-catch to Taiwan. On the 49 vessels associated with MIFV, about 430 people are employed, all of whom are non-Marshallese. Ashore, MIFV has 48 staff, including 10 expatriates.

Koo Fishing Company operates five purse seine vessels87. These vessels were formerly registered in Vanuatu but were re -flagged as Marshallese vessels in 2001. The company maintains an office in Majuro. According to officials of the Marshall Islands Marine Resources Authority (MIMRA), most if not all of Koo’s tuna catch is transshipped in Majuro and is considered an export of the Marshall Islands. According to SPC data

84 Annual data in the Marshall Islands is often expressed in terms of the financial year: October 1 to September 30. 85 The Fish Base facilities are described in a section below. 86 The aircraft’s main business is the contract to carry mail but is able to pick up fish for shipment either east or west from Majuro. 87 It is reported that another Koo seiner has been commissioned and is soon to come to the Ma rshall Islands. 165

(Lawson (2002), Koo vessels caught 36,598 mt of tuna in 2001. It is reported that some of the Koo tuna is used by the local loining plant. The company employs four Marshallese staff ashore and one Marshallese on each of its six seiners.

The Edgewater Fishing Company operates five Chinese flagged longliners from a base close to MIFV. The company has an air export packing facility and freezers but relies in MIFV for ice. Edgewater started its Majuro operations in late 2001 and consequently did not export fish until early 2002. One of its vessels ran aground in early 2002, but four additional longliners arrived in November 2002. About 45 men are employed on the five vessels (no Marshallese) and 22 people are employed ashore (20 Marshallese).

Tuna is also landed by small-scale commercial fishermen in the Marshall Islands. Data on these landings are not available but some indicative information is: · King (1997) estimated that 7000 pounds (3.2 mt) of tuna are captured per week in Majuro · Gillett et al. (2002) estimated that 444 mt of fish are taken annually by small - scale commercial fishermen. MIMRA officials feel that tuna make up between five and ten per cent of these landings.

Other Indicators of Development

Recent catches by longline and purse seine gear in the Marshall Islands zone (both locally and foreign based) are:

YEAR Total Longline Catch in Total Purse Seine Catch in Marshall Islands Zone (mt) Marshall Islands Zone (mt) 1997 2738 494 1998 2206 72,102 1999 4613 25,853 2000 2176 21,654 Source: OFP and MIMRA records

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A recent Asian Development Bank study on the contribution of fisheries to the economies of Pacific Island countries calculated the contribution of “locally-based offshore fishing” to the economies of each country. For the Marshall Islands, the report the of study stated: “At various times in the past large numbers of foreign fishing vessels, notably Chinese, have operated out of RMI. While these vessels were operating out of RMI it was appropriate to include them in the fishing estimated contribution to GDP. At present there is no locally-based offshore fishing activity in RMI”. It was therefore concluded that the contribution of locally-based offshore fishing to the economy of the Marshall Islands was zero in 1999.

The value of exports related to tuna fishing are given in Statistical Abstract (Office of Planning and Statistics, 2000)88:

Year Total Chilled Frozen Shark Exports fish fish Fins 1995 23,071,000 12,671,000 0 0 1996 18,919,000 13,172,000 746,000 104 1997 12,665,000 11,855,000 564,000 5 1998 8,774,000 0 0 89 1999 7,662,000 0 0 0 Units - US dollars (FOB)

The Majuro Fish Base is the most substantial investment in the tuna industry in the Marshall Islands. Various studies provide information on the facility: · FAO (2002) states: “Using technical assistance funds the government established a longline fishing base, comprising vessel provisioning and fish processing facilities, on the capital island of Majuro in the early 1990s. The operation of the base was then leased out to private operators, first a US company and subsequently a Chinese firm, both of which made charter arrangements with foreign vessel operators to establish a Majuro -based longline fleet. At the height of the fishery more than 150 Chinese longliners based their operations in Majuro, with catch being exported fresh to Japan. A main beneficiary of these arrangements was the RMI national airline, which provided much of the air cargo service to the base in the early years of the base’s operation. The operations of the fish base declined in the mid -1990s due to a combination of worsening economic conditions, resource considerations, and disputes between the government and the base operators. The operations of the Chinese firm at the Majuro longline base ended in 1998.” · MIMRA (2002) states: “In early 2001, the company Marshall Islands Fishing Venture (MIFV) was established, and became the third operator of the Fish-Base. MIFV agreed to renovate and restore the Fish-Base to service tuna longline fishing vessels. The ice-making machine and the cold storage rooms were basically dead. In order to run these, the company brought in the original supplier of the equipments to re-service with necessary parts to restore the machines.” · FFA (1998) contains an inventory of the facility. Important items include 200 ton per day ice plant, airport reefer, processing rooms, compressors, management

88 The tuna loining plant began operation in Majuro in October 1999 but the loins are not listed under tuna exports nor under re -exports in the Statistical Abstract. 167

apartments, flat bed trucks, rubbish dump truck, office, locker rooms, 5 restrooms, technician apartments, and a 25,000 gal desalination plant.

Transhipment is major source of economic benefits to the Marshall Islands. Transshipment of purse seine-caught skipjack and yellowfin tuna began in Majuro during late 1998. In 1999 118 transshipments involving 69,373 tonnes of tuna were made. In 2000 there were 192 transshipments involving 98,440 tonnes. MINRA (2002) reports that in 2001 there were 286 purse seine and 9 longline transhipments.

There are several firms that provide agency services to fishing vessels. These agents tend to specialize by nationality of vessel and gear type (e.g. Taiwanese purs e seiners). One agency (Ting Hong) indicated there are perhaps six fishing vessels agents in Majuro. Ting Hong indicated that they handled about 40 different vessels in 2002 and have a staff of four people, including one expatriate.

Changes from Previous Studies

Pollard et al. (1995) gives tuna industry information from the early and mid -1990s: · The Marshall Islands Development Authority (MIDA) became a joint venture partner in two purse seine ventures with American counterparts, one operating the F.V. Koorale, and the other operating the F.V. Bold Fleet . Both purse seiners employed a few Marshallese and created some revenue from fish sales. A report by the RMI Auditor General to the Nitijela documents the substantial losses incurred by the two purse seiners. For the period 1992 and 1993 the F.V. Bold Fleet, which was recently sold, incurred a net loss of $1.7 million. While the F.V. Koorale lost $910,000 in 1993 which was an improvement over the 1992 losses of $1.1 million. · MIDA extended loans to Marshallese to purchase and operate five longline vessels. From both a financial and economic perspective the private/ MIDA longline vessels have continually lost money. According to MIDA average catch rates have been so low that even operating costs could not be recovered let alone overhead costs. · The Kwajalein Atoll Development Authority (KADA) has been involved in formulating the plans for fisheries-related development on Ebeye Island. A fish base is currently under construction funded under a concessional (low cost) loan from the ADB. The fish base will consist of processing plant, cold store, ice making facility, and loining plan · Mehau, the RMI, and Goto Group (MMAG) purchased five longline vessels in the US and brought them to Majuro to supply the fish base. One of the five vessels subsequently sank. The base manager reported experiencing a highly seasonal fishery with the highest catch rates in the summer months where boats averaged five to six tons per month as opposed to about two tons per month in the fall. · Ting Hong requested 100 licenses from MIMRA, and a total number of 70 were approved. However to date Ting Hong has activated 40 vessels in the fishery pending their possible base take-over and expansion. These discussions as of October 1994 consisted of negotiating with MIDA and the government of RMI to rent and to operate the Majuro fish base, to utilize AMI air freight, to consider 168

establishing a fish base at Enewetak, and to employ Marshallese and utilize other RMI resources as much as possible. · Zhong Yuan are a subsidiary of the China National Fishing Company. They have been operating in Majuro since December, 1993. Zhong Yuan requested 65 licenses, however they are now supporting only 21 vessels, all of which are from the PRC. · Increased tuna purse seine fishing within relative proximity to the RMI, coupled with a lack of onshore processing in the region, caused the RMI government to look closely at the potential for a tuna cannery in Majuro in 1991. The study concluded that there were no major technological hurdles to the building and operation of a cannery in Majuro. Two concerns cited were the availability of a suitable site and a reliable supply of fresh water; neither of which was insurmountable.

FFA (1998) gives tuna export information from the Fish Base in the mid-1990s: Product 1995 1996 1997 Air freighted tuna 1321 1704 2436 Total tuna exports 1455 2047 2988

Employment information related to the tuna industry is fragmented. Studies that covered the subject include: · Gillett (1997) who estimated jobs directly related to tuna fishing and processing: Foreign fishing vessels: 14 jobs; Artisanal fishing vessels: 80; Tuna jerky manufacture: 6; Sashimi handling/processing: 20. It was stated that these 120 jobs represented .9% of all formal jobs in the country. · Gillett et al (2001) who made a similar estimate three years later: Foreign fishing vessels: 14, Artisanal fishing vessels: 75; Tuna loining plant: 410; On-board transshipment labour: 20 · The 1999 Census (Office of Planning and Statistics, 2000) which indicated that of the 10,141 people employed in the Marshall Islands, 84 people were employed in the category “deep sea fishermen”.

There were several analyses of aspects of the tuna industry in the 1990s: · Kawai (1990) concluded that a 59 gt Japanese longliner using ice transhipping from Majuro would not be profitable. · World Bank (1995) stated that 11 longliners ranging from 62 to 90 ft have been brought in from the southeast United States at an average cost of $400,000. Breakeven analysis indicates the vessels were not able to cover operating costs. · FFA (1998) stated that estimates of the likely benefits from a long line fleet operating from the Fish Base or similar facility were prepared in late 1996 as part of an ADB Technical Assistance Programme with MIMRA. The main conclusions from this work were that a fleet of 100 vessels producing about 10,000 mt of sashimi-grade tuna annually would produce economic benefits (defined as the proportion of expenditure accruing to domestic factors of production) of about US$17.34 m annually. 169

· OFCF (1998): states that the RMI government has invested around $12 million through the Marshall Islands Development Authority for tuna industry development. There has been however implementation difficulties including insufficient and unskilled staff for management of such investment.

Other Considerations Concerning Domestic Tuna Industry Development

With respect to associations, there is presently no organization in the Ma rshall Islands to represent the interests of industrial-scale tuna operations. According to MIMRA officials, an attempt was made to establish an association in the mid -1990s when there were several locally owned and operated longliners. Due to a lack of enthusiasm the association did not flourish. Some of the larger firms in the tuna industry such as PM&O Processing and MIFV belong to the Chamber of Commerce and indicate this organization could be used to discuss with government any major issues affecting their businesses. According to the Marshall Islands Visitors Authority, there is a newly formed Marshall Islands Charter Boat Association with 10 members.

The government’s involvement in commercial aspects of the tuna industry is presently minimal. MIMRA operates the Outer Island Fish Market near the MIMRA office and another retail outlet in Rita. MIMRA also operates a transport vessel which brings fish to Majuro and sells ice to fishermen from a machine that can produce up to 5 mt per day. The government owns the drydock but the facility is operated by the private sector.

The quality of the business environment in the Marshall Islands appears relatively good. Two anecdotes support this impression: · An MIFV internal report sighted during the visit compares important factors affecting fishing business success in the three Micronesian countries where the parent company operates: Marshall Islands, FSM, and Palau. These factors are (1) cost of ice, (2) cost of fuel, (3) requirement to re -clear immigration/customs after in-zone fishing trips, (4) cost of cold storage, (5) cost of offloading labor, (6) cost of packing material, and (7) number of court cases against company vessels for fishing-related violations. MIFV considered that for each of these factors, the Marshall Islands was better than FSM. The Marshall Islands also rated better than Palau for most of the factors. · An FSM citizen with substantial experience in the tuna industry in Pohnpei presently operates a fleet of four longliners. This individual has chosen to base the vessels in Majuro, rather than in an FSM port.

Pollard et al. (1995) commented on the quality of the business environment. The report stated that neither the RMI legal system nor its government seem to be hostile or unnecessarily restrictive regarding private business activity, including foreign business activity. Indeed, there appears to be a significant foreign business sector and foreign expatriate community, together with a substantial Marshallese private sector. The RMI 170 does not have, however, a comprehensive commercial code. Although RMI does have a law of sales and the commercial code, while desirable, may be difficult to administer.

FFA (2001) notes that a review of investment policies was carried out in RMI, particularly with respect to improving access to land, streamlining business licensing procedures, and re -defining the role of foreign direct investment. The report indicates that the initiative should result in an improved business environment.

Constraints in Domestic Tuna Development

Constraints to domestic industry development which are commonly expressed by government officials include: · Availability of land close to the lagoon for dock construction · Creeping fees imposed by the Ports Authority · Cost of air freig ht · Increasingly stringent immigration requirements due to past problems · Exclusive arrangements for sea freight into Majuro

Constraints which are expressed by the private sector: · Unreliable labour; absenteeism and high turn -over · Inadequate dock space · Unce rtainty over assigning responsibility to vessels for pollution · Poor condition of drydock · Difficulty of obtaining Guam transit visa for travel to/from Marshall Islands for Asian staff · Ability of Asian fishing company to do deals with government to undermine opportunity for local companies; lack of protection for embryonic local tuna industry companies · Lack of preparations to meet HACCP requirements

In general, the views of the government and private sector on constraints are not remarkably different. The local Marshallese companies are understandably more sensitive to the problems of competing with large experience Asian fishing companies.

A number of studies have also commented on the constraints to the establishment of a tuna industry. Pollard et al (1995) noted the following constraints: · The development of a market for leased land and therefore the development of a domestic capital market is possibly the greatest constraint to domestic investment in RMI. Few Marshallese currently have the credit capacity to invest in the tuna industry · According to a World Bank study, Majuro infrastructure is largely sufficient. However, as the “ADB construction team” comment, the Majuro port requires much improved overall management. Complex systems of traditional land tenure and a lack of commitment to clarify tenure, land lease, and land transfer limit access to prime industrial sites. 171

· Complex systems of traditional land tenure and a lack of commitment to clarify tenure, land lease, and land transfer limit access to prime industrial sites. The Marshall Islands has an elaborate environmental protection statute and its enforcement is reported to be effective, but occasionally selective. · Government and foreign ventures tend to displace any potential for local private sector involvement. · RMI wages are now among the highest in the Pacific region and are not generally competitive internationally, most especially given the prevailing levels of productivity.

Joseph (2000) stated that the Marshall Islands experienced a decline in the fresh chilled longline vessels from Taiwan and mainland China. This is as a result of a lacking of a shore based management regime. The same fleets operate in the nearby FSM and have indicated their interest in fishing in the Marshall Islands when a proper and adequate shore management is available.

Opportunities in Domestic Tuna Development

Questions related to opportunities resulted in a wide variety of responses. The views expressed verbally by government officials include: · Good return on investment in fisheries infrastructure · Marshallese involvement in medium-scale longlining · “Alia” type nearshore longlining developed by MIMRA doing demonstration fishing and selling the catch to cover part of the operation costs

More formal articulations of the government perception of opportunities in the tuna industry are given in various MIMRA document and can be inferred from MIMRA programmes: · MIMRA (2001) states the establishment of a competitive and competent service sector and appropriate insti tutional fisheries management capacity may lead to the development of a domestically-owned fleet. · MIMRA (2002) states that one of the government’s policies is to promote sound foreign investment in the Marshall Islands and the fishery sector continued to be an area of interest by the foreign fishing operators. This is because of the geographical situation of the RMI, in terms of the migration of tuna and tuna like species. In other words, the RMI EEZ is quite relatively productive in terms of the availability of tuna in its waters. · The three categories of the present MIMRA tuna fisheries development programme are also indicative of the thinking of where major opportunities lie: (a) Promotion of medium-scale longlining through SPC masterfishermen demonstration, (b) Encouragement of increased activities at the Fish Base, and (c) Deriving benefits from servicing vessels.

The views expressed the private sector on opportunities in the Marshall Islands tuna industry include: · The demand for more infrastructure and associated investment opportunity (e.g. wharf area) 172

· The tax holiday provided as incentive for development of major facilities · Development of albacore fishery in the north of the country · Catering to the Taiwanese and Korean purse seine fleets who will be in the area for the long -term future · Fish meal manufacture based of fish rejected from the longline and purse seine fleets · Operation of Taiwanese-style purse seiners

Studies and reports by outside agencies have also commented on the opportunities in the tuna industry in the Marshall Islands: · Pollard et al. (1995) identified some opportunities: (a) One area where further benefits from tuna industry activities might be realized is through the better utilization of lower grade sashimi fish including the processing of by-catch. (b) There also appears to be some scope for further economic benefit in the form of increasing the number of licenses and raising license fees. (c) It is important to recognize RMI’s geographic position in relation to the apparen t concentration of resources, particularly those targeted by the longline fishery. Plans for a longline base at Enewetak should be given serious consideration. · FFA (2001) indicated (a) Further processing of reject fish into loins, steaks and related products offers good prospects for increased benefits providing, of course, that this can be done in a cost-effective way without the need for subsidies and other special arrangements; and (b) that it is appropriate to at least give some further consideration to a rights based system as its introduction will take some time. Given the uncertainty in the WCPO allocation process, there appear to be substantial risks involved in having catches and effort in the EEZ recorded as catches and effort by foreign flag ves sels, because these might in some form be attributed to, or claimed by, the foreign flag state for allocation purposes. The best defense against this risk is to have the tuna resources of the zone as fully exploited as possible by domestic flag vessels, adding a new imperative to domestic development by Marshall Islands’ flag vessels · McCoy and Hart (2002) state that a commercial tuna longline fleet in Majuro produces significant quantities of relatively low value incidental catch, including marlin and shark. This could be made available at attractive prices to potential local jerky producers if markets were established.

In some respects, the Marshall Islands is competing with neighbouring countries in the tuna market and in attracting foreign investors. The comparative advantage of The Marshall Islands with respect to its competition should be considering when evaluating tuna industry opportunities. These include: · Client and industry orientation of MIMRA and other government departments · Proximity to fishing grounds · Government incentives, including tax breaks · Fisheries infrastructure · “Less bad” than its neighbours: “Guam too strict on everything”

In another respect, the actions of a major fishing company speak for the comparative advantages of the Marshall Islands. MIFV feels that Majuro is a better place to operate 173 from than Palau or Pohnpei, and is backing up this sentiment by action in the form of basing more vessels in the Marshall Islands than in the other two locations.

Interventions to Promote Domestic Industry Development

The commonly expressed views of government officials for assistance include: · Assistance to comply with HACCP requirements, especially that of the EU · A thorough economic analysis of perceived opportunities, such as a net repair facility · A more comprehensive assessment of the economic benefits of transhipment, focussing on local government revenue (if this is not carried out by the South Pacific Project Facility)

The most commonly expressed views of the private sector for assistance in the development of a tuna industry are: · A close examination of the future of some of the major fleets now producing benefits for the Marshall Islands · Study of the need for pilotage vessel · Analysis of mechanism to increase reliability/productivity of factory labour, including learning from the experiences of tuna canneries in the South Pacific. · Feasibility study for a new fisheries dock · Development of a scheme for the effective use of the Korean-donated vessels · Study of the infrastructure needs for development of the northern albacore fishery, including need for a frozen albacore holding freezer.

Other agencies have commented on required development assistance: · FFA (2001) indicates that the Marshall Islands should seek assistance to develop a comprehensive national tuna management and development plan which would build on the work already undertaken as part of the ADB funded Fisheries Management Project in 1998-1999. · MIMRA (2002) states that in order to develop the export of quality yellowfin and deep sea bottom fish, a master fisherman from the SPC is required. This person will assess and undertake a determination of suitable vessel type and size. At the present time, the vessel size that’s being considered is between 25 feet to 30 feet, with probably a 3 to 4 crewman. · ADB (2001): The approach being taken by the Marshall Islands is not only through licensing but also encouraging spending by foreign boats in the local economy by making Majuro an attractive transshipment port as well as the establishment of onshore fish processing and other support facilities. This is well under way. It will be timely now for an assessment to be carried to determine the economic and social impact of this policy to date, and to recommend how to minimize the costs and maximize the benefits to the economy.

Some Considerations on the Suggested Interventions

174

The Marshall Islands has made substantial progress in recent years in deriving domestic benefits from industrial-scale tuna fishing operations. Majuro is now perceived as being a relatively industry-friendly location from which to tranship purse seine tuna and to base longliners for exporting chilled tuna. Because of the recent tuna-related activity in Majuro, there appears to be considerable interest on the part of local businesses for investing in opportunities related to foreign fleet activities in Majuro. These opportunities (dock construction, net yard, etc.) are all highly dependent on the various fleets using Majuro. These fleets are, however, constantly changing with respect to numbers of vessels, operation patterns, and options they have for transhipping/basing. Although there is not much information presently available to businesses in the Marshall Islands on these changes, they are critically important to opportunity and potential profits form providing services and facilities.

It would seem that it would be very timely to provide to the Majuro private sector an analysis of the likely developments in the fleets important to Majuro: current status, possible future of the fleets, and the factors that may control their destiny. In this way, Deleted: and the local investors will be more aware of opportunities, and conversely, more conscious of uncertainties associated with investments related to the foreign tuna fleets.

MIMRA places very high priority on assistance to help with compliance with both US and EU HACCP regulations. This perceived need seems well-founded. They have recently had a visit from an experienced consultant under an FAO regional HACCP project, but have not yet received a report of the mission. Any future HACCP assistance, whether targeted at US or at EU requirements, should be formulated in careful consideration of the FAO report. MIMRA should be well -aware that the HACCP situation may require long-term commitments, including changes to organizational aspects and work programme of MIMRA; a visit by a consultant or a series of such visits will not resolve the important issues related to HACCP requirements.

In the meantime, there appears to be an urgent need to inform the local businesses planning on exporting fish to Guam, Kwajalein, Hawaii, or the US mainland of the HACCP requirements and of possible strategies for addressing them. MIMRA may need some short-term assistance for this.

A national fisheries policy was drafted in 1996 with the assistance of an ADB project. The policy was adopted by cabinet in 1997 (McCoy 2001). Much of the fisheries policy consists of attracting foreign fleet into Majuro and profiting by their expenditure. MIMRA has been quite diligent in following this policy and many of the envisaged benefits are being realized. It should, however, be noted that the policy was formulated five years ago and there have been many changes in the fisheries situation since the policy’s adoption, most notably issues surrounding the Convention on the Conservation and Management of Highly Migratory Fish Stocks in the Western and Central Pacific Ocean. The Marshall Is lands is one of the few Pacific Island countries not to have formulated a formal tuna management plan. Because of the dated nature of the present fisheries policy and because of the different considerations associated with the new convention, it 175 seems timely that MIMRA consider the formulation of a tuna management and development plan89. Additional advantages of such a plan are that it would strengthen and clarify the linkages between management of the tuna fisheries (both national and regional aspects) and measures to promote domestic tuna industry development, including the advantages of rights -based management approaches. The FFA has assisted several member countries in formulating tuna management plans.

MIMRA, like the government fishery agencies of many other Pacific Island countries, is striving to assist small-scale commercial fishermen to obtain benefits from the country’s tuna resources. MIMRA officials feel that demonstrating small-scale longlining to Marshallese fishermen using the Samoan model would be appropriate. It should be noted, however, that many aspects of small-scale longlining in Samoa are not directly applicable to the Marshall Islands, including wages, species composition of the catch, and marketing of the catch. There would be considerable merit in carrying out a preliminary economic and technical analysis of small-scale longlining in the Marshall Islands before the major expense of equipping a vessel with the required gear and before raising the expectations of small-scale fishermen. Such analysis should include a review of past experience in other Pacific Island countries of the proposed concept of selling the catch to defray some of the operating expense of the demonstration vessel.

A related subject is the issue of Marshallese working on longline vessels. The reality is that the Marshallese labour costs are quite expensive. Pollard et al. (1995) stated that “RMI wages are now among the highest in the Pacific region and are not generally competitive internationally, most especi ally given the prevailing levels of productivity”. There is a distinct possibility that a longline vessel manned by Marshallese may not be competitive or profitable. This contention reinforces the need for an economic and technical evaluation of some of the proposed development projects.

In view of the above, the priorities for tuna industry development assistance appear to be interventions related to improving the availability of information on the future of the fishing fleets presently important to the Marshall Islands, subjecting development plans for small-scale tuna fishing to economic and technical scrutiny, assisting with a strategy for HACCP requirements, and formulating a tuna management plan.

89 Once MIMRA authorizes a fishery as a designated fishery, the Director is required under the MIMRA Act to develop a plan for management and development of that fishery and is responsible for its implementation and review. To date, there has not been any fishery in RMI authorized as “designated” and consequently there have been no plans for management and development of specific fisheries (McCoy 2001). 176

Information on Palau, Nauru, Niue, Kiribati and the Cook Islands

Ideally, a study of domestic tuna industry in the Pacific Islands would entail a visit to each country. Unfortunately, funding constraints dictated that only a sub-set of the FFA member countries could be visited. It was subsequently decided that those countries selected should represent the full range of levels of domestic tuna industry development. Five countries were originally chosen, but due to practical reasons and to the desire for coverage of a variety of development conditions, five additional countries were actually visited.

Although it was not possible to include Palau, Nauru, Niue, Kiribati and the Cook Islands in the consultant’s field visits, information on those areas was collected by a variety of means. This included telephone conversations with key individuals, published reports, documents related to tuna management plans, and recent work in those areas by FFA staff, SPC staff, and consultants. Kiribati was visited by the FFA Project Economist in early December and information was collected for this study while working on the Kiribati tuna management plan.

Inventory of Domestic Tuna Industry Development

Palau

Palau International Trading Incorporated (PITI) is associated with 42 longliners (24 Taiwanese, 18 Chinese) based in Palau. PITI is affiliated with the Hong Kong -based company Luen Thai Fishing Venture Ltd. which has operations in Pohnpei, Majuro, Guam, Taiwan, and Japan, in addition to that in Palau. The company has a facility for packing fish for air freighting. According to Palau government data, PITI exported 1,041 mt of fresh tuna in 2001 and about 135 mt of frozen tuna. No Palauans work on PITI vessels but 5 Palauans work for the company ashore.

Palau Maritime Industries Corporation (PMIC) is associated with 22 Palau -based longliners (21 Taiwanese, 1 Palau-owned). The company has a facility for packing fish for air freighting. According to Palau government data, PMIC exported 705 mt of fresh tuna in 2001 and about 79 mt of frozen tuna. No Palauans work on PMIC vessels but 2 Palauans work full -time for the company ashore, along with 8 Palauan staff who work part-time in the packing facility.

Kuniyoshi Fishing Company (KFC) is associated with 7 Taiwanese longliners and one locally-owned pole-and-line boat. The company does not have a “packing facility” but rather packs fish for export on the wharf under a portable canopy. According to Palau government data, KFC exported 147 mt of fresh tuna in 2001 and about 20 mt of frozen tuna. No Palauans work on the KFC longliners, but one Palauan works on the pole-and- line vessel. No Palauans work for KFC ashore.

Nauru

The Nauru Fisheries Corporation (NFC) undertakes some commercial fishing. NFC has two catamaran longliners: an 18 m vessels which arrived in Nauru in 2000 and a 15 m 177 vessel which arrived in October 2002 but has not yet commenced operations. According to an official of NFC, in 2001 some of the tuna catch of the larger vessel (“500 kg per week for a few months”) was exported to Japan via Brisbane. There was not much fishing by this vessel in 2002. The vessel has a crew of six, including one expatriate. Ashore NFC employs about 10 people, including those in the fish market.

Niue

There are no locally based offshore fishing vessels in Niue. Recen t work by the FFA and SPC in Niue suggests there are about 100 small motorised boats, many of which fish within one km of the island for coastal pelagic species. FAO (2002) states “in recent times the largest fishing vessels in Niue have been several 8.5 m aluminium catamarans of the Samoan alia design. These vessels are stored on land at Niue’s only wharf at Alofi, and are lifted into and out of the water by a small crane”. The annual catches of coastal pelagic species is estimated to be between 150 and 180 mt. A senior official of the Department of Agriculture, Forestry and Fishery indicated there are probably about five or six fishermen on Niue who sell most of their catch. There were no exports of tuna in 2001.

Kiribati

Central Pacific Producers Ltd. (CPP) is a government owned corporation. The company was incorporated in May 2001 and is an amalgamation of three companies or projects: Te Mautari, KMEL on Christmas Island and the Outer Islands Project (OIP). CPP is involved in several fisheries activities, including buying fish from the outer islands and selling it at the local market in Tarawa, and operates a locally-built longline vessel at Christmas Island. It also has a 450 t refrigerated carrier and cargo vessel. The company also had a 20 GRT fibreglass pole -and-line vessel, but it was converted to a tuna longliner. This boat is mostly used for bringing in undersize tunas, damaged fish, and by- catch from transhipping tuna boats. CPP has a new processing facility, complete with ice plants and gene rators. CPP exported about 2 mt of tuna and other pelagics (value at US$5,438) to Hawaii in 2001. CPP employs about 80 staff: 15 crew at sea and about 40 of its shore -based staff could be considered directly related to the tuna industry.

Kiribati and Otoshiro Fishing Company (Kao) is a joint venture between the Government of Kiribati and the Otoshiro Gyoko company of Japan. The company has one purse seine vessel. The vessel is currently operating under the FSM Arrangement for regional access. The management of the vessel is carried out at the Japanese based office. The Permanent Secretary for the Ministry of Natural Resources and Development is the Secretary for the company. Because the transhipment of tuna occurs outside of Kiribati, this is not considered an export of Kiribati for the purpose of this report. There are currently 20 I-Kiribati national working as crew on the vessel.

Teikabuti Fishing Company operated several local fishing vessels using vertical longlining gears from 1992 to 1994. Much of the catch was processed into tuna jerky. Currently, the company buys from local small-scale vessels and focuses on processing tuna jerky. In 1996, one mt of tuna jerky was exported to Australian duty-free outlets targeting the Asian tourists. Difficulties were encountered following the Asian crisis and the market was lost. From September 2001, the company starting exporting to the Fijian market and a total of 200 kg of jerky were exported that year. Presently about 50 kg per 178 month are being exp orted to Fiji. The company employs 8 people in the processing plant, including one expatriate.

The Fisheries Division of the Ministry of Natural Resources and Development operates a small tuna longline vessel. The vessel has a crew of four people.

Cook Islands

In late 2002 there were 10 longliners based in the Cook Islands90 and three tuna packing facilities. The domestic tuna industry in the Cook Islands has greatly expanded in the year 2002; at the beginning of the year there were just two locally-based vessels. According to a senior official of the Ministry of Marine Resources, about four to six Cook Islanders are employed on each vessel. It is estimated that the companies operating longliners directly employ about 15 people ashore as a result of heirt tuna-related activities. In 2001 less that 10 mt of fresh tuna was exported from the longlining operations.

Summary of Some Indicators of Domestic Development Active Canneries Air Local Local Frozen Fresh Cases Locally- and Export Jobs Jobs at Tuna Tuna Canned Based Dedicated Packing on Shore Exports Exports Tuna Tuna Loining & Value vessels Facilities 2001(MT) 2001(MT) Produced Vessels Facilities Adding 2001 Facilities Palau 71 L/L 0 2 1 11 234 1893 0 1 P/L Nauru 1 L/L 0 0 5 10 0 6 0 Niue 100 0 0 5 0 0 0 0 Skiffs Kiribati 2 L/L 0 2 39 47 0 2 0 1 P/S Cook 10 L/L 0 3 50 15 0 5 0 Islands December 2002, unless otherwise noted

Some information is available on small-scale commercial tuna fishing in these countries:

In Palau, Gillett (1999) indicated there are about 20 to 30 boats from Koror which occasionally troll outside the reef. It was also stated that there are about 10 vessels which occasionally participate in commercial sportsfishing, but only a few vessels are employed primarily in this business

In Nauru: · Rodwell (1999) describes two of the most common fishing techniques: trolling around the ship mooring buoys (average tuna catches predicted to be 20 kg/boat/day) and dropstone fishing (average tuna catches predicted to be 115 kg/boat/day). · Nauru Fisheries Corporation officials state there are presently three Nauruans who could be considered full time commercial fishermen.

90 In addition, there were three Cook Islands longliners based in Samoa. 179

· OFCF (1998) indicates the ownership and number of fishing vessels: Nauruan fishers – 130 powered skiffs; fish are mainly for own consumption with surplus for relatives; Non-Nauruan fishers – 88 powered skiffs, 128 one-man canoes; surplus catch sold at landings and to restaurants. · Mwinoangan, the Nauru fisheries newsletter gaves the following pelagic catches: May 1998 – 9.5 mt; April 1998 – 11.9 mt; June 1998 – 14.9 mt; July 1998 – 8.9 mt

Small-scale commercial tuna fishing in Niue is described above.

In Kiribati, FAO (2002) states there are approximately 200 to 250 small, motorized skiffs based in South Tarawa trolling for tuna and other large pelagic species. Surveys by the Fisheries Division show that weekly landings of tuna in Tarawa by these small-scale fishers is about 33 mt, or about 1650 mt per year. The weekly production for the other islands of Kiribati ranges from .5 mt to 20 mt per island, averaging 8 mt per island.

According to the website of the Cook Islands Ministry of Marine Resources, catches of tuna and related species by nearshore Rarotonga local fishermen were 35 tonnes in 1998 and 59 tonnes in 1999. The website also gives information on the number of FAD fishers on Rarotonga: · The number of full-time FAD fishers (those that earn about 90% of their income from fishing) increased from 7 in 1980 to 20 in 1999 · The number of part-time FAD fishers (those that fish once per week) increased from 7 in 1980 to 35 in 1999

Other Indicators of Development

A recent Asian Development Bank study calculated the contribution of fisheries to the economies of Pacific Island countries. In that study, the value added from locally-based offshore fishing ( = contribution to GDP) was determined to be: · Palau (1999): US$7,600,000 · Nauru (1999): US$125,000 (A$ 193,500 @ 1.55) · Niue (1999): US$0 · Kiribati (1999): US$0 · Cook Islands (2000): US$170,000 (NZ$375,000 @ 2.2012)91

Gillett et al. (2001) gives the 1999 catches by the various fleets in the zones of the five countries:

91 The contribution of offshore fishing to GDP in the Cook Islands was not specifically given in the study report but can be calculated from the data provided. 180

Fishing Nation China FSM Japan Kiribati Korea PNG Solomon Tonga Taiwan USA Vanuatu ®

EEZ ¯ Cook Is. 0 0 0 0 19 0 0 0 0 197 0 Nauru 0 1,009 6,712 140 10,465 0 18 0 15,212 6,407 1,435 Niue 0 0 0 0 0 0 0 2 0 0 0 Kiribati 0 960 10,199 0 10,512 183 484 0 38,826 56,167 15,060 Palau 995 0 46 65 0 13 0 0 1,249 0 0 Units: metric tonnes

Changes from Previous Studies

Gillett (1997) and Gillett et al. (2001) made estimates of tuna-related employment in the four countries during two different periods:

Country Source/Number of Source/Number of Jobs mid-1990s Jobs in 2000 Cook Foreign fishing vessels: 6 Local longline vessel: 7 Islands Artisanal vessels: 40 Artisanal vessels: 70 Nauru Artisanal fishing vessels: 20 Longline vessel: 6 Smaller commercial vessels: 15 Niue Artisanal tuna vessels: 5 Commercial skiffs: 12 Semi-commercial skiffs: 35 Kiribati Foreign fishing vessels: 226 Te Mautari: 35 Te Mautari: 120 Tuna jerky manufacture: 8 Tuna jerky manufacture: 8 Artisanal vessels: 800 Artisanal vessels: 600 Palau Foreign fishing vessels: 1 Foreign fishing vessels: 1 Artisanal fishing vessels: 30 Artisanal f ishing vessels: 25 PITI, PMIC, KFC: 31 Local pole/line vessel: 10

Gillett et al. (2001) also estimated the number of locally-based tuna vessels in 2000:

Country Type and Number of Total Vessels Tuna Vessels Cook Islands Longliners: 1 1 Nauru Longliners: 1 1 Niue 0 0 Kiribati Longliners: 2 3 Purse seiners: 1 Palau Longliners: 80 81 Pole/line: 1

181

Palau – Information from past studies on level of tuna industry development

FAO (2002) stated that from 1964 to 1983 Van Camp Seafood Company operated a shore base and freezing facilities at Malakal near Koror, supplied by a locally-based pole-and -line fleet which produced from 3,000 to 8,000 mt of tuna per year. The base, made redundant by the successful introduction of purse seining into the region, was sold in 1986.

PCS (1999) gave information on tuna industry development in Palau in the 1990s. The report stated that Palau’s locally based longline fishery had an average annual gross (wholesale) value of about $28 million from 1993 through 1997. The number of locally- based longliners was also given for each year and company:

1993 1994 1995 1996 1997 1998

PMIC 135 156 75 85 80 95 PITI 133 66 8 62 19 13 KFC 28 48 100 72 90 24 TOTAL 296 270 183 219 189 132

With respect to tuna exports: · Republic of Palau (1992) gave sashimi exports to Japan for the early 1990s: 1990 - 1,816 mt; 1991 - 2,835 mt; 1992 - 2,581 mt · PCS (1999) stated that tuna exports peaked at about 4,000 metric tons mt in 1992. After 1993, the catch and value of both the locally based and distant water longline fisheries in Palau decreased substantially. Average annual exports by Palau’s locally based fleet from 1993 through 1997 were about 2,500 mt. The fleet exported about 1,800 mt in 1997, and preliminary data indicate about the same amount for 1998

With respect to tuna-related employment: · Pollard et al. (1995) stated that in September 1994, PITI employed 19 Palauans, PMIC employed 12, and KFC employed no Palauans. · PCS (1999) indicated that employment of Palauans in the tuna industry decreased from a peak of about 80 in 1988-1989 to five to ten in 1997-1999.

Nauru – Information from past studies on level of tuna industry development

A 1992 survey (Dalzell et al.,1992) recorded 130 powered skiffs owned by Nauruans, and a further 88 powered skiffs and 128 paddling canoes owned by expatriate workers. The report stated that skipjack and yellowfin accounted for about 98% of the landings from these craft.

FAO (2002) stated: · Nauru has previously owned and operated two small purse seine vessels which fished in Nauru’s EEZ briefly. One of these vessels sunk and the other later chartered to a Philippines-based fishing company. 182

· A series of fish aggregating device (FAD) deployments has been undertaken since the mid-1980s. The first units were based on the Philippines payao style of FAD, and were deployed to support domestic purse-seining in local waters. These FADs soon came to be used by local skiff fishers and proved to be effective in improving the productivity of troll and mid -water tuna ishing.f FAD deployments, assisted by SPC, took place in 1997 and in 2000

Niue – Information from past studies on level of tuna industry development

There are studies over the last two decades which comment on the level of development: · Mead (1980) states that the largest fishing boat in Niue is the 8.3 m Nukulafalafa. There were also several 3 to 3.7 m wooden and aluminium boats. · Anon (1981) states that Cyclone Ofa hit in 1979 and caused the destruction of “the fishing boat, freezers, and a wide range of fishing gear and equipment”. The report stated that fishing operations did not resume until February 1980 when one alia arrived from Western Samoa. Two more alia arrived in June 1980 under a UNDP scheme. · Dalzell et al. (1993) state that in July 1990 “only four men on Niue could be truly regarded as full-time fishermen. Two or three other individuals are serious part- time fishermen”. · FFA (1997) states that a small-scale fishery utilising dinghies and small canoes targets pelagic species including tuna. The Fisheries Division issued approximately 40 licences for dinghies in 1997 and estimated that approximately 50 canoes are involved in the fishery. · The Niuean National Management and Development Plan for the Tuna and Billfish Fishery (Department of Agricul ture, Forestry and Fishery, 1998) indicates there were 40 locally owned and operated fishing boats in that year.

Kiribati – Information from past studies on level of tuna industry development

Cambell and Miria-Tairea (1995) indicate the level of development in three categories of fisheries: · Domestic artisanal tuna fisheries - Domestic artisanal tuna harvesting is widespread and plays a major part in both subsistence and traded catches around all the islands in Kiribati. Harvesting is done from traditional and introduced outrigger canoes using both traditional and introduced fishing gear. Fish aggregating devices have been used extensively in the past and the Fisheries Division deploys them at the request of Island Councils. · Domestic industrial tuna fisheries - The domestic industrial fishery revolves around Te Mautari Ltd (TML). This was started in 1981 as state-owned company which targeted tuna using the pole and line fishing method. The company has had a disappointing history in terms of production and profitability and is currently operating below full capacity. TML currently has four industrial tuna fishing vessels, a carrier ship, shore freezer and cold store facilities. · Joint-venture tuna fisheries - In November 1993 the Kiribati Government formed a joint venture company with the Otoshiro Gyoko Company of Japan. The joint 183

venture company is called the Kiribati and Otoshiro Fishing Co. Ltd. The joint venture has purchased a $6 million purse seiner from the Japanese partner. The vessel is capable of carrying 750mt of catch. The joint venture has secured fishing access to the waters of Papua New Guinea, FSM, and Tuvalu, and is in negotiation within Nauru.

Cook Islands – Information from past studies on level of tuna industry development

Campbell and Miria-Tairea (1995) gave information about past locally-based longline fishing in the Cook Islands: · In 1986 a locally based vessel, operating out of Penrhyn, attempted to fly out fresh sashimi grade fish to overseas markets. This project failed and little further has been attempted there since. · In June 1994 Cook Islands Sealords Ltd. was formed to carryout a commercial feasibility of commercial exploitation of tuna using longlines. The company consists of local entrepreneurs who have formed a join t venture with a New Zealand based company Southern Ocean Trawlers. For three months the company operated the vessel Southern Progress in Cook Island waters and transported fresh/chilled sashimi grade yellowfin and bigeye tuna to the markets in Los Angeles and Japan. The vessel was 35 m long with chill storage and ice making facilities onboard. Having successfully completed the three month trial, the company has requested licences for a further two vessels.

Ministry of Marine Resources (2001) gives the catches by locally-based foreign fishing vessels in the Cook Islands 1994 to 1997:

Year No. Tuna Hooks Cpue Days Kg/day Vessels Catch (kg/100 (kg) hooks) 1994 1 75324 149353 50.4 149 506 1995 2 117241 417860 28.1 355 330 1996 3 55151.2 224890 24.5 204 270 1997 1 330 1600 21 2 165

Ministry of Marine Resources (2001) also gives some background on the fishing companies: · There have been two locally-based foreign fishing operations based in the Cook Islands since 1994. These were Cook Islands Seafoods Ltd., and Prime North Pacific Inc. These companies operated several large tuna longliners, and fished predominantly in the southern part of the Cook Islands. Several benefits were evident from the operations of these companies. First of these was the employment of local crew (some of which were retained when the companies eventually moved away), as well as fish handling personnel. Second, the development of onshore infrastructure such as packhouses, chill stores, and ice- making facilities. Third, the scientific information gained from these vessels and vessel unloadings data was invaluable for assessing the stock dynamics in the southern region of the Cook Islands EEZ. Lastly, the direct revenue to Government through taxes, import levies, and license fees. 184

· In 1996 a local business venture started up with the purchase of a single small longliner, which initially piggybacked on the operations of Cook Islands Seafoods. However when the foreign partner departed, this company was left with extremely high overheads, particularly with maintaining the chillstore and ice plant. This coupled with the unsuitability of the vessel, and poor fishing season, meant the venture was ultimately unsuccessful.

Other Considerations Concerning Domestic Tuna Industry Development

There is some information from recent studies on associations relevant to fisheries in three of the countries: · Cartwright et al. (2002) indicates that a Chamber of Commerce exists with membership open to all the business people on the island. The report states “The Niue Fishermen’s Association and the Canoe Fishermen’s Association are both members of the Chamber of Commerce. Given the small private sector, the Chamber of Commerce is somewhat limited, although it is relatively active in terms of meetings and communication with members.” · An SPC report (Tuara 1997) indicates that the Nauru Fishermen’s Association was set up by fishermen to address issues of interest and concern to them. The association is actively involved in a number of areas, including the lobbying of government for assistance in providing training and equipment to fishermen, acting as technical advisors to government of fisheries issues, and coordinating local fishermen in search and rescue operations”. · ADB (2001) indicates that a national Fishermen’s Association was established in the Cook Islands in 1998, which was active for a period in working with MMR to re-establish the FAD program, but has subsequently done little. The report states “Fisheries organization varies between islands but is generally weak. Fishing clubs operate on all southern group islands. A strong industry association is necessary to develop the local longline fishery in Rarotonga, to protect the interests of local fishers and ensure balanced development. A representative industry association should be able to contribute to policy development and form an equal partner with MMR in the establishment of the necessary regulatory framework.”

Constraints in Domestic Tuna Development

There are several different views on the constraints to the development of a domestic tuna industry in Palau: · A senior Palau government official with responsibilities in the fisheries sector indicated that the major constraints are the lack of fisheries-oriented entrepreneurs, lack of capital/credit, lack of managerial talent, and the present government’s attitude towards industrial development. · The manager of a Chinese fishing firm associated with a Palau tuna exporter stated the largest constraints to be (a) problems associated with the longline by- catch, including the government’s policies on shark catches, and (b) excessive charges for customs clearance for fishing vessels. · An SPC masterfisherman stated that the low tuna catch rate in 2002 year was the major problem of the three tuna companies in Palau. 185

In an earlier period, Pollard et al. (1995) articulated the major Palau constraints: · An economy and institutional environment that inhibits the employment of domestic resources; · A fiscal regime that incorporates strong disincentives to investment; · A protective, highly regulated, discretionary, non-confidential, and uncertain environment for foreign investment, where existing laws have been circumvented. This policy tends to discourage appropriate, longer term investment and is attractive to shorter term exploitative foreign investment; · Inadequate enforcement of some laws and regulations, and confusing responsibilities in the management of the industry; · Inadequate supporting infrastructure; and · A lack of institutional coordination and cooperation both within national government and between the government and the private sector, and between the executive government and potential foreign investors.

An official of the Nauru Fisheries and Marine Resources Authority cites two major constraints to the development of a tuna industry in Nauru: · Lack of fisheries infrastructure, including ice makers and port facilities · Poor availability of fuel and bait

Recent FFA and SPC work on Niue suggest the following are major constraints: · Unknown catch rates · High costs of operation · Marketing difficulties · Lack of harbour facilities · Lack of ice, processing and fish storage facilities · Lack of trained personnel

Previous FFA work on Niue (FFA, 1997) on Niue also commented on constraints to the development of a tuna industry: · There is no natural protected harbour or anchorage, and the craggy coastline has only limited access. The port at Alofi consists of a jetty without breakwater protection · The airfreight capacity out of Niue is very limited and quite expensive. · No suitable storage facilities are available · Currently there are no commercial suppliers of bait in Niue. · The one ice machine on Niue produces only 400 to 500 kg per day · Bulk supply of fresh water is not possible · Labour may prove difficult to obtain at an internationally competitive wage rate.

The FFA project economist collected information on constraints in Kiribati during a trip to Tarawa in December 2002. From the government’s perspective, the constraints are: · Lack of adequate infrastructure 186

· Water shortages · Availability of electricity and technology · Transportation problems, especially freight capacity · High costs of materials · Lack of transparency with respect to policies From the private sector’s perspective, the constraints are: · The sentiment that CPP is the answer to everything · High operating costs – import duties · Inequitable tax system · Public Enterprise involvement in areas where the private sector operates · High freight costs · Lack of markets · No clear indication of legality of some of the costs imposed. e.g. local councils charge fees for fishing and selling fish · Limited implementation of Government policies, particularly private sector development · Lack of vision (local investors) · Lack of exposure · Perceived discrimination against foreign investors when local investors enter the industry · Lack of direction.

According to a senior official of the Cook Islands Ministry of Marine Resources, the major constraints to further development of a tuna industry in the Cook Islands are: · Air freight capacity; reductions of flights to USA are planned · Limited port facilities · The long distance from Rarotonga to the fishing grounds in the north of the Cook Islands zone · High cost of fuel

The 1995 FFA/ADB Cook Islands Tuna Industry Development Study commented on three categories of constraints: · Artisanal tuna fisheries: The domestic artisanal industry in the outer islands is limited by inadequate access to appropriate levels of skill in the preservation and marketing of product, poor transport, lack of access to credit due to collateral limitations and liquidity problems, lack of credit management skills, and lack of entrepreneurial skills. · Domestic industrial fisheries: The domestic industry has been slow to develop also due to the lack of commercial fishing skill in the Cook Islands and to a lack of local capital to invest in high levels of fishing equipment. This has necessitated the formation of joint ventures with foreign operators. · Joint venture operations: The joint venture industrial fishery has been slow to get off the ground due to the administrative difficulties in getting appropriate clearances. This is a result of the novelty of the development and many of these 187

delays have been sorted out now. The first company has carried out fishing for three months with considerable success and has now applied for additional licences.

Chapman (2001) identified several constraints to the futher development of a tuna industry on Rarotonga. These included: · High cost of electricity · The congestion of port facility at Avatiu Harbour · Lack of protection in the Avatiu Harbour from cyclonic seas

Opportunities in Domestic Tuna Development

A senior Palau government official with responsibilities in the fisheries sector indicated that the major opportunities are in transhipping, producing novel tuna products for the tourist trade, and (using Palau’s exemption from US tariffs) the establishment of a tuna cannery. The official believed that any of the larger prospects (transhipment, cannery) would probably not occur during the present administration, due to government attitudes on industrial development. Palau’s National Tuna Fisheries Management Plan indicates that the production of value-added tuna products may offer the best tuna-related opportunity.

An official of the Nauru Fisheries and Marine Resources Authority expressed the opinion that the major opportunity for Nauru is having a larger number of small locally-based longliners. The official added, however, that an external analysis of opportunities would be appropriate.

The Nauru National Fisheries Development Strategy (Department of Fisheries and Marine Resources, 1997) states “purse seine fishing operations will be considered for operation under the FSM Arrangement, operating nationally owned purse seine fishing vessels or in joint venture with foreign fishing enterprises”.

FFA (1997) identified several opportunities for Niue, including: · The most immediately apparent advantage that Niue has compared to some small Pacific island countries is its relatively close proximity to American Samoa, with its canneries and servicing facilities. It might be possible for the private sector in Niue to go into some form of joint venture with foreign interests to operate a vessel fishing primarily in the Niue EEZ, but offloading its catch in Pago Pago. · The fishermen indicated that lack of suitable anchorages and limits on the size of vessels that can be lifted in and out of the water by the winch at the jetty effectively prevent them from moving into larger size vessels. However, one possibility might be the use of a vessel such as the “alia” catamarans.

Recent FFA and SPC work on Niue suggests that one of the major opportunities, or at least something that may give more information on opportunities, is to support trial longlining on some of the local boats. The work also indicated that, as surrounding regions become increasingly crowded with developing domestic fleets, interest in the 188

Niue EEZ is likely to grow and this may present an opportunity for joint ventures and stand-alone offshore -owned operations.

FAO (2002) indicated that it is likely that some further expansion of commercial fishing at the current scale is possible on Niue, given the relatively high local prices and low cost of entering the fishery. At the same time, the number of fishers who might profitably engage in commercial fishing is small because a significant increase in landings could quickly result in oversupply. The report also stated that the difficulties of exporting fishery products from the island suggest that the local market (residents, tourists) will be the basis of any future commercial development. Commercial sportfishing is likely to become an important activity.

Kiribati the current thinking is that longline fishing for the sashimi market is the major opportunity. The government-owned company, CPP, feels that value -added products such as Tataki hold promise. The frozen tuna market is not considered an opportunity as the canning price is lower than the local market price.

According to a senior official of the Cook Islands Ministry of Marine Resources, the major opportunities for the future are associated with enticing overseas -based boats to base in the Cook Islands, and private sector marketing of albacore in the U.S. The large zone of the Cook Islands is seen as a major advantage.

Other opportunities as perceived by the Ministry are: · Exporting high quality, high value fish by air, especially bigeye and yellowfin, principally to Japan, and to a lesser degree the US, Europe and regional mar kets · Exporting frozen tuna, mainly albacore for canning, especially to American Samoa · Supplying the local domestic and tourist markets · Generating economic opportunities in Outer Islands, where success depends heavily on improving infrastructure and transport services; and · Servicing the longline fleet

Interventions to Promote Domestic Industry Development

The Palau government official contacted indicated that the priority for external assistance would be for a market study of tuna novel products which could be sold to Palau’s tourists. Subsequently, there would be a need for training to produce these items.

The Nauru official contacted stated that Nauru’s immediate external assistance need is for training longliner vessel skippers. In the longer term, an analysis of government fisheries development policies may be an important external intervention.

A senior official of the Department of Agriculture, Forestry and Fishery stated that the recent work on tuna industry development in Niue (Cartwright et al., 2002) accurately reflected his department’s views on required development assistance. That report stated “it became clear to the team that while small sector operators (canoe and commercial fishermen’s associations) were keen to be involved with longline fisheries development, 189 there was a limited ability to do so without some form of start-up assistance”. Some assistance was suggested, including: · Provide tax concessions on inputs into the tuna industry to reduce initial (and possibly longer term) as sistance to the tuna fishing industry · Assist with the construction of infrastructure to facilitate tuna fisheries development · Tie cash grants to fit-out suitable vessels in existing fleet with longline gear for exploratory fishing · Assist exploratory fishing by subsidising fishing costs to attract fishers from outside Niue to base locally and undertake trail fishing. Larger, non -locally based vessel could be also assisted. · Subsidise the purchase of a 12 m fishing vessel, for exploratory fishing · Provide access or other concessions to would -be offshore/ foreign investors to encourage the establishment of shore based infrastructure · Establish a fish processing and storage facility to encourage fishers to invest in fishing ventures by assuring a market for their catch

Discussion with government officials and the private sector in Kiribati in December indicate that assistance dealing with the following topics is important in developing a tuna industry: · Tax and tariff reforms · Expansion of the baitfish fishery · Exposure to outside world through study tours – to promote local investor interest · Exploration of the merits of using Tarawa as a freighter hub · Subsidisation of freight cost

According to a senior official of the Cook Islands Ministry of Marine Resources, the priority assistance needs for the further development of the Cook Islands tuna industry are help with: · Identification of market opportunities (especially in the E.U.) and streamlining access to these markets · Business planning for fishing vessel operators · Provision of advice to financial institutions on tuna industry credit · Appraisal of the types of tangible assistance the Ministry can provide to the private sector · Options for improving the fisheries fuel situation

Chapman (2001) gives views on interventions to develop the tuna industry. Some of the schemes mentioned are: · “Having one or two larger longline vessels in Rarotonga for fishermen to see and fish on may be the best step in getting fishermen to move up to the next level, as they can gain experience on the training vessel and make up their own mind if this is what they want…..To progress, it would probably be best for government to support the purchase of one or two vessels, especially safe and stable vessels that are suitable for small -scale tuna longlining”. 190

· “Setting up a collection vessel, which would operate between Rarotonga and selected islands in the southern group. The collection vessel would bring ice to the island for use (sold to fishermen or covered in the purchase price of the fish), with the catch being purchased by the collection vessel and properly iced for the trip back to Rarotonga for sale.” · “One way to quickly gain tuna longlining skills is to attach people to a commercial fishing vessel in a neighbouring country where this method is well established. The vessels that people are attached to should be similar to those to be used in the Cook Islands. MMR could send one of their staff, and/or sponsor one or more people from the private sector.”

In the Asian Development Bank’s review of the economy Cook Islands (ADB 2001) suggestions are made on interventions to promote tuna industry development: · Further trials with mini-longliners are merited to assess the economics of operation from Rarotonga. · Further study is merited of longlining license conditions and infrastructure needs.

Some Considerations on the Suggested Interventions

With respect to Palau’s expressed need for assistance related to the production of novel tuna products, there have been tourist-oriented marketing studies for these items in Fiji and New Zealand. There is also considerable expertise in the commercial production of tourist-type tuna products (e.g. jerky, smoked product) in countries in the South Pacific, including Fiji and Kiribati. Prior to formalizing any assistance dealing with novel tuna products, the development model to be used to commercialise the products should be clarified; whether this would be a government-led demonstration exercise or if there a private sector entrepreneur ready to take advantage of the opportunity.

Some comment should be made on the perceived opportunity for a tuna cannery in Palau. The prospect is apparently based on Palau’s qualified exemption from US tariffs on canned tuna. It should be noted that Puerto Rico has exemptions greater than what Palau would enjoy and yet all the canneries but one cannery there have closed in the previous decade. Another point is that one of the major advantages of a tuna cannery is the large number of jobs created. Considering the labour situation in Palau, there is doubt that Palau would benefit from cannery employment. Conversely, a major disadvantage is the associated pollution, which could create major difficulties for the important tourism industry in Palau.

With respect to Nauru’s expressed need for assistance related to external analysis of opportunities, it should be noted that FFA’s work on Nauru (Rodwell, 1998) contains a section titled “Options for the Development of the Domestic Tuna Fishery”. The advice should be carefully considered and any requests for further assistance dealing with opportunities should take account of the recommendations.

Little can be added to the tuna development advice contained in the Niue Longline Feasibility Study (Cartwright et al. 2002). That focused study made use of highly qualified fisheries specialists, spent considerable time studying the various options, and undertook consultations with the entire range stakeholders.

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With respect to perceived development assistance needs in Kiribati, many other countries feel a need for tax reform. Two countries have recently had ADB review the fisheries taxation situation. This topic is covered in Section 5.12 of this report. Any assistance focused on expansion of baitfishing should be preceded by an assessment of the future of pole-and -line tuna fishing. As an alternative to overseas study tours to generate the interest of domestic investors in the tuna industry, an in-country seminar (as was successfully done in PNG in 1995) should be considered. Fe w donors are likely to be interested in subsidizing freight costs.

Many of the perceived assistance needs of the Cook Islands Ministry of Marine Resources have also been expressed by other countries during the course of this study. This includes the subjects of credit, fuel, and E.U. marketing. It may be more efficient to address these needs through a programme of regional assistance.

Some comment should be made on the suggestion for a fish collection vessel. Fish collection vessel schemes have not enjoyed much success in the Pacific Islands. This includes the Cook Islands in the early 1980s (Crescent Gypsy), as well as Tonga, Fiji, Tuvalu, and other countries.

Although the need for business training is not disputed, it may be appropriate, or at least interesting to note an observation made in several countries during the present study: there appears to be greater success when established businessmen move into the tuna industry than when established small -scale fishermen are encouraged to become the operators of tuna longline businesses. 192

Appendix 2: Persons Contacted During the Study

Solomon Islands: · Solomon Islands Fisheries Department: Nelson Kile, Albert Wata, George Boape, Robert Maniera · Soltai: John Bosco, Godfrey Manebosa, David Byrom · NFD: Maurie Williams, Adrian Wickham · Solco: Kazuo Nagasawa · Tradco: Gerald Stenzel · Investment Corporation of Solomon Islands: John Maneniara · EU Rural Fisheries Project: Rory Stewart, David Russell · Chamber of Commerce: David Quan · Foreign Investment Division, Ministry of Commerce: Derick Aihari

Papua New Guinea: · National Fisheries Authority: Tony Lewis, Jonathan Maneiva, Oliver Teno, Welete Waruru, Ronald Kuk, Leka Pitoi, Valona Baker · Latitude 8 Fisheries – Maurice Brownjohn · Neptune Fishery Company Ltd. – Henry Chow · Department of Trade and Industry – Jonathan Soten, Paul Martin · Investment Promotion Authority: Simon Peter · FairWell Fishery (PNG) Ltd: Francis Houji · RD Tuna Canners Ltd.: Pete Celso [by telephone] · Frabelle (PNG) Pty. Ltd.: Nestor Defensor [by telephone] · Investment Promotion Authority: Simon Peter · Coco Enterprises Ltd.: David Mai [by telephone]

Fiji: · Fisheries Division: Malakai Tuiloa, Apalosi Turaganivalu, Anare Raiwalui, Nomai Ravitu, Alice Leewai, Jone Amoe · Fiji Fish Marketing Group Ltd.: Graham Southwick, Russel Dunham · Pacific Fishing Company Ltd: Mitieli Baleivanualala · Solander (Pacific) Ltd.: David Lucas · Ocean Trader Ltd.: Robert Stone, Lisa Stone · Great Ocean Enterprise (Fiji) Ltd.: M.Park · Jiko Fisheries Co. Ltd.: Se Jung -Kim · Celtrock Holdings Ltd.: Ian Chute · Voko Industries: Narend Narayan · Eagle Ridge Investments: Beywa Peirei · Tripacific Marine Ltd.: Gabriel Titili

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Federated States of Miconesia: · National Oceanic Resource Management Authority: Bernard Thoulag, Eugene Pangelinan, Tim Park, Patricia Jack · Pohnpei State Economic Development Authority: Alfonso Ada, Mike Abraham · Pohnpei State Legislature: Silas Henry, Peter Lohn · Pohnpei Office of Economic Affairs: Yalmer Helgenberger · National Fisheries Corporation: Peter Sitan, Marion Henry · Micronesia Longline Fishing Company: Isao Nagata · Caroline Fisheries Corporation: Milan Kamber · Micronesia Fishing Venture: M.Tong, Liang Zongxing · Pohnpei Fisheries Corporation: Pius Roby · Clearwater: James Movick · Pohnpei Marine Services: Tim Ehsa · Trimarine: Nick Solomon · Pohnpei Port Authority: Nelperson Etse · Pohnpei Transfer and Storage: Joe Vitt · Nieseset Management Company: Andrea Hillyer · ADB Economic Management and Policy Advisory Team: Jim Billings · Mobil Micronesia: Jason Edward

Samoa: · Fisheries Division: Tanielu Sua 92 , Peter Watt, Savali Time · Apia Export Fish Packers: Oloialii Koki Tuala, Chris Hewson · Albacorp: Robert Ripley · Tradewinds Fishing Company: Kim Levi, Beverly Levi · Riverside Marine: Mike Banner-Smith · CJ Exports and Imports: Tala · F/V Courier du Bois: Keith Morgan

Tonga: · Ministry of Fisheries: Mafi ‘Akau’ola93, Ulunga Fa'anunu, Vilimo Fakalolo, Coco Haunga · AusAID Tonga Fisheries Project: Gerry Russo · ‘Alatini Fisheries Company Ltd.: Bill Holden, Tricia Emberson · Friendly Island Fishing Company: Ronal Nair, Koli Kakala · Maritime Projects Tonga Ltd.: Lennie Niit, Leonhard Niit · Sea Star Fishing Company Ltd. and Maui Pacific: Chin Choe · South Seas Fishing Company (Tonga): Mike Won · Fung Shing Fishing Company: Raymond Yu

92 Telephone discussion 14/12/02 93 Telephone discussion 14/12/02 194

· Farm Service: George Nakao

Tuvalu: · NAFICOT: Satalaka Petaia, Tatu Tefau, Tima Talapai, · Fisheries Department: Sautia Maluofenua, Malaki Tihala, Tapulaga Polasi, Falasese Tupau · Parliament of Tuvalu: Bikenibeu Paeniu · Alpha Pacific Navigation: Captain John Hensford · Funafuti Fishermen’s Association: Soloseni Penitusi · Part-time commercial tuna troller: Taoa Vaisua · Newly privatised marine engineering company: Ioapo Tapu · Ministry of Natural Resources Development: Lutelu Faavae · Secretary of Finance: Solofa Uota

Vanuatu: · Vanuatu Fisheries Department: Moses Amos, William Naviti · Vanuatu Investment Promotion Authority: Johnny Koanapo · Department of Economic and Social Development: David Hopa · Department of Industry and Trade: Roy Mickey-Joy · Fisheries consultant: Francis Hickey · Fisheries consultant: Richard Kaltongga · La Touque a Poissons: Augustine Pheu · Commercial fisherman: Eric Puyofesta · Charter boat operator: Remy Frouin

Marshall Islands: · Marshall Islands Marine Resources Authority: Danny Wase, Glen Joseph · PM&O Processing: Eugene Miller · Starkist Seafood: Mitsukuni Saito · Ting Hong: Jiang Yonghui · Pacific International: Jerry Kramer, Kenneth Kramer, Daniel Kramer · Marshall Islands Fishing Venture: Jason Rui, Kazumasa Koshi · South Seas: Neal Milne · Kiribati and Otoshiro Fishing Company: Kingo Hanamura

Others countries: · Palau Bureau of International Trade: Ramon Rechebei · Palau International Trading Inc: Jason Rui · Nauru Fisheries and Marine Resources Authority: Charleston Deiye · Niue Department of Agriculture, Forestry and Fishery: Brendan Pasisi · Cook Islands Ministry of Marine Resources: Josh Mitchell 195

· Kiribati Ministry of Natural Resources and Development: Tukabu Teroroko, Tetoaiti Tabokai · Kiribati Central Pacific Producers: Barerei Onorio · Kiribati Teikabuti Fishing Company: Mike Savins

Agencies and Individuals: · Forum Fisheries Agency: Len Rodwell, Josie Tamate, Les Clark, Barbara Hanchard · Secretariat of the Pacific Community: Tim Adams, Steve Beverly, Lindsay Chapman, William Sokimi · South Pacific Regional Environment Programme: Andrew Wright · Forum Secretariat: Josua Mile · Foreign Investment Advisory Service: Sean Duggan, Andrew Proctor · Asian Development Bank: Thomas Gloerfelt-Tarp · GPA: Garry Preston, Mike McCoy, Hugh Walton · Pelagic Fisheries Research Program: David Itano · Other: Sam Pintz (economist), Don Aldous (FFA consultant) 196

Appendix 3: The 1995 FFA/ADB Tuna Industry Development Study

The Forum Fisheries Agency implemented a project with ADB funding in late 1994 and 1995 to identify the key issues affecting the development of locally based tuna industries in the Pacific island countries.

According to Pollard (1995), the study was intended to develop options to encourage the development of sustainable tuna enterprises beneficial to the local economies of FFA member countries. In-country reports were prepared by three teams of consultants for nine FFA countries. These countries were: the Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Palau, Papua New Guinea, Solomon Islands, and the Kingdom of Tonga. Later a regional report drew together common themes identified in the individual country reports. The aim of that report was to identify the key factors currently constraining the development of the domestic tuna industry in the region and the options and implied changes required to overcome these constraints.

The results of the work, as given in “Tuna Industry Development Study – Regional Report”, indicated that a wide range of constraints deter investment and locally-based industrialisation. The particular nature of the tuna industry provides the perspective that must guide future investment and this calls for commercial, private sector led investment. Two themes or issues were common to the analysis of constraints: · The excessive and direct involvement of government in domestic industry to the detriment of sustainable, locally-based industrialisation, and · The protective nature of domestic economies, resources, and business interests with economies oriented to serving government rather than government serving wealth -creating loca lly-based industry.

The study concluded that, if the countries of the region want to establish viable, sustainable, locally-based tuna industry then their joint experiences to date dictate that this should be led by private sector investment. A fundamental reordering of the complementary roles and operations of government and private sector is required and the region’s economies need to be restructured in support of investment. Given the nature of the industry and the status of the region’s domestic private sectors, initial direct foreign investment is essential. Previous experience suggests that the development of the industry should be gradual and phased, direct foreign investment could be employed to initiate this development but past experiences of joint ventures can be improved upon by more careful planning.