The Commercial Feasibility of Bottomfishing in Tuvalu: Final Economic Evaluation

P-1 51 94-08 THE COMMERCIAL FEASIBILITY OF BOTTOMFISHING IN TUVALU: FINAL ECONOMIC EVALUATION Pacific Islands Marine Resource Project Tuvalu Component Project No. 879-0020 Prepared by RDA International, Inc. under Contract No. 879-0020-C-00- 1231-00 with USAID/RDO/South Pacific Prepared by Dr. John T. Rowntree Senior Economist December 1994 RDA INTERNATIONAL, INC. 801 Morey Drive Placerville, California 95667-4411 Telephone: (916) 622-8800 Facsimile: (916) 626-7391 This report was made possible through support provided by USAID under terms of Contract No. AID- 879-0020-C-00-1231-00. The opinions expressed and conclusions reached here are those of the author and do not necessarily reflect the views of USAID. oIII Acknowledgements The author owes particular thanks to RDA Marine Resource Advisor/Team Leader Satalaka Petaia for providing outstanding leadership to the conduct of the field operations of the project for 3 years, from the beginning of the project until 1 October 1994, when he left the project to join SPC in Noumea. He generously shared his invaluable insights and views with the author, and reviewed and commented on an early draft of this report. During many hours of conversation, the author gained detailed insights into bottomfishing operations in Tuvalu from RDA Master Fisherman Loto Pasefika, Tuvalu's most experienced sea captain who was skipper on the government vessel, the Manaui, for all of the test fishing and most of the commercial bottomfishing trials. He participated in every aspect of the catching and export marketing of bottomfish during the project and prepared the project report identifying desirable vessel characteristics for bottomfishing in Tuvalu. The RDA Field Office Secretary Takalo Teii provided valuable assistance in sorting through the project records on shipping and other costs of the export marketing trials. RDA Mrine Biologist W. Haight, who prepared the project's resource assessment report, and RDA Marine Biologist M. King, who prepared the project's bottomfishing mnagement plan recommendations, shared their views with the author on numerous topics related to bottomfishing potentials in Tuvalu. The author is particularly thankful for the many insightful discussions held with M. King during a joint visit to Tuvalu during late October-early November 1994. RDA Marketing Advisor P. Bartram provided the author with a practical understanding of the Hawaii fresh fish markets, introduced the author to several Hawaiian fresh bottomfish importers and wholesalers, and generously spent many hours discussing bottomfish marketing issues. Thanks to P. Bartram and D. Cheney for reading and commenting on an early draft of this report. The author also wishes to thank all the others, not mentioned by name, who contributed to his understanding of the bottomfishing industry and its prospects. iv f\ LOCATION MAP KIRI A T NAUn[I ... eJo NANUMEA 'AURL: ,'PUA~j isk NEW' GUINEA SSOLOMON IS 61 V"NTUVALU NIUTA M r, cuz " on"A. NANUMANGA ,,;. VANUATU FIJI'Z$. AUSTRALIA- CALEDONW\ NUI1 %VAITUPU o so io kilmoves NUKUFETAU 176- 178' PAVA FJUFeXE MULFTEFALA FUNAFUTI TFPUKA5?2 P(JALOPA/_-" VAFU7\ FUNAFU1 1, FUNAFUTI (C FUAFA TU Fongafel NUKULAELAE FA TATO VASAFUA FUNAi'GON.O '" FLINAA*ANU FVAGEA k' 'FALE.A,, rEFALA MA TEIKA ITV F MFALA NIULAKITA AVALAU . TELELE "=-MOTULOA Figure 1. Tuvalu ABBREVIATIONS A$ Australian dollar C Centigrade CPUE Catch per unit effort GOT Government of Tuvalu IRR Internal rate of return kg Kilogram km Kilometer I Liter m Meter MSY Maximum sustainable yield mt Metric ton NAFICOT National Fishing Corporation of Tuvalu nm Nautical mile Degree PIMAR Pacific Islands Marine Resource RDA RDA International, Inc. RDO Regional Development Office SP South Pacific SPC South Pacific Commission USAID United States Agency for International Development US$ United States dollar vii CURRENCY EQUIVALENTS Tuvalu currency unit = A$ A$1.00 = US$0.74 US$1.00 = A$1.35 viii TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY 1-1 2.0 INTRODUCTION 2-1 3.0 RESOURCES, CATCH PROJECTIONS AND FISHING COSTS 3-1 3.1 Bottomfish resources 3-1 3.2 Catch projections 3-7 3.3 Fishing Costs 3-8 3.3.1 .Vessel considerations 3-8 3.3.2 Fuel Cost 3-9 3.3.3 Ice 3-11 3.3.4 Bait 3-13 3.3.5 Crew provisions 3-14 3.3.6 Crew wages 3-14 3.3.7 Gear replacement and miscellaneous costs 3-18 3.3.8 Summary running costs for a representative fishingtrip 3-18 3.4 Summary of resources, catch projections and fishing costs 3-19 4.0 MARKETING POTENTIALS, REVENUES AND COSTS 4-1 4.1 Exportable and locally marketable fish catches 4-1 4.2 Local marketing and expected prices 4-1 4.3 Export marketing and expected prices 4-2 4.4 Marketing costs 4-6 4.4.1 Local marketing costs 4-6 4.4.2 Export marketing costs 4-6 4.4.2.1 Packing costs 4-7 4.4.2.2 Shipping costs 4-7 4.4.2.3 Other marketing costs 4-8 4.4.2.4 Summary of export marketing costs 4-8 4.5 Summary of marketing revenues and costs 4-9 5.0 COMMERCIAL FEASIBILITY OF BOTTOMFISHING IN TUVALU 5-1 5.1 Investment and fixed costs of bottomfishing in Tuvalu 5-1 5.2 Profitability of bottomfishing in Tuvalu 5-3 5.3 Summary 5-10 6.0 DEVELOPMENT CONSIDERATIONS AND CONCLUSIO'IS 6-1 6.1 Development considerations 6-1 6.2 Conclusions 6-5 7.0 References 7-1 ix LIST OF TABLES Table 3-1 The islands and seamounts of Tuvalu and their respective 3-3 distances and steaming times from Funafuti, and the 200m isobaths and MSY's of the seamounts Table 3-2 Fuel use and cost for an average bottomfishing trip 3-11 Table 3-3 Standard Manaui crew wages 3-15 Table 3-4 Fishing cruise wages on the Manaui 3-16 Table 3-5 Summary running costs for a typical 5-day fishing trip 3-18 Table 4-1 Names, marketability, and expected prices of bottomfish 4-4 species in the Hawaii market Table 4-2 Expected fish prices for export shipments with a higher 4-5 and lower proportion of higher-valued species Table 4-3 Export marketing costs 4-9 Table 5-1 Initial investment costs for a bottomfishing operation in Tuvalu 5-2 Table 5-2 Annual fixed costs 5-3 Table 5-3 Rates of return on investment in bottomfishing in Tuvalu 5-5 Table 5-4 The sensitivity of rates of return on investment in 5-8 bottomfishing in Tuvalu LIST OF FIGURES Figure 1. Map of Tuvalu's EEZ v Figure 3-1. Map of the islands and seamounts of Tuvalu 3-3 xi THE COMMERCIAL FEASIBILITY OF BOTTOMFISHING IN TUVALU: FINAL ECONOMIC EVALUATION 1.0 EXECUTIVE SUMMARY This report provides a final detailed economic evaluation of the commercial feasibility of developing a bottomfishing industry in Tuvalu. The industry would be based on fishing Tuvalu's unexploited distant seamounts and selling the higher-valued export species in international markets. The report has been prepared b,"RDA International, Inc. (RDA), as part of the Tuvalu Component of the Pacific Islands Marine Resource (PIMAR) Project, Project No. AID 879-0020-C-00-1231-00, funded by the United States Agency for International Development (USAID/RDO/SP/Suva). Fuvalu has a promising opportunity to develop a small but profitable and sustainable export-oriented bottomfishing industry. Successful exploitation of this opportunity will require a high degree of cooperation between the GOT and the private bottomfishing operators. Tuvalu has small but commercially exploitable bottomfish resources available on the deep submarine slopes of its atolls and distant seamounts. A commercial bottomfishing operation fishing on Tuvalu's distant seamounts can expect to generate an internal rate of return on investment over cost of 20% to 25%. This is sufficient to justify an investment in a bottomfishing operation since the current rate of interest on development loans charged by the Tuvalu Development Bank is only 8%. However, high fishing costs, because of the long distances to the fishing grounds, and high marketing costs, because of the required transhipment of exports th"ough Fiji enroute to the Hawaii market, both constrain the profitability of this very high-valued export. Accordingly, sustained profitability of commercial bottomfishing on Tuvalu's distant seamounts will require that the number of fishing vessels be limited and fishing effort be carefully monitored to ensure that catch rates remain relatively high. Tuvalu's distant seamount bottomfish resources are sufficiently modest that the number of commercial vessels allowed into the fishery should be limited to 3 or 4 until it is proven that catch rates can remain high at that level of exploitation. Too great an expansion of the fishery will reduce catch rates and undermine the profitability for all bottomfishing operations, forcing some oi all into bankruptcy. According to the project's resource assessment reports, the maximum sustainable yields (MSYs) of bottomfish on Tuvalu's distant seamounts are estimated at about 84 mt annually. More than three-quarters of these resources are located on two distant seamount areas, one about 130 miles and the other about 225 miles from Funafuti, the landing site for export quality bottomfish. If the fishery were optimally managed, the average or typical fishing trip would involve traveling 178.5 miles to and from the fishing grounds. Based on actual fishing experience by project trials, catch rates per 1-1 line hour of effort for high-valued export quality bottomfish range from 4 kg to 5 kg. While these catch rates are sufficient to warrant the development of a commercial bottomfishing industry in Tuvalu, the high running costs of commercial fishing operations constrain profitability and suggest that fishing vessels must be relatively small and fuel efficient.

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