The Economics of a Tragedy at Sea Costs of overfishing of cod from the North Sea and the Baltic The Economics of a Tragedy at Sea Content 1. SUMMARY............................................................................................................................................................................. 3 2. INTRODUCTION ................................................................................................................................................................... 3 3. FUNDAMENTALS ................................................................................................................................................................. 3 4. MODEL COSTING ................................................................................................................................................................. 6 4.1. Baltic Cod.................................................................................................................................................................... 6 4.2. North Sea Cod ............................................................................................................................................................. 9 EXAMPLE OF THE ECONOMIC EFFECTS OF OVERFISHING......................................................................................... 12 LITERATURE AND WEBSITES USED.................................................................................................................................. 13 FURTHER LITERATURE ON THE ECONOMICS OF THE FISHING INDUSTRY............................................................ 13 A report prepared for WWF-Germany, October 2002 Authors: Ralf Döring and Henning Holst LedA: the agency for agriculture and nature conservancy Fischstr. 20-21 17489 Greifswald Germany Telephone: +49 3834 88 45 22 Fax: +49 3834 88 45 24 2 WWF Germany The Economics of a Tragedy at Sea 1. Summary 2. Introduction Overexploitation of fish stocks represents not only Seldom has fishing been the subject of such ex- a major ecological problem, but a major economic tensive public discussion. After 30 years of EU problem as well, because low stocks mean the loss fisheries policy we are still far from a sustainable of catch possibilities. This produces high opportu- use of stocks. Nor is it only the recovery plan for nity costs, from the global economic viewpoint. North Sea cod – long overdue and constantly de- On the one hand there is the revenue loss, on the layed for two years already – that has shown how other hand the knock-on cost of the necessary serious the situation has become. The EU Com- departure of fishermen from the industry. In addi- mission has had to state the sobering fact that tion, the fishing technology employed frequently many fish stocks in EU water present a biomass of brings about external costs, which can lead to a mature fish of just 10% of the level of the early reduction of catch possibilities in the future. 1970s (European Commission 2001). The fol- We cannot continue to afford the further loss of lowing study sets out to make clear, with the help revenue potential in Europe’s fisheries. Every year of simple economic calculations, the magnitude of the EU pays out around € 1.4 billion in subsidies the financial loss not only for fishing enterprises, (IEEP 1999) for a sector that itself loses millions but also and in particular for the overall economy. upon millions of euros every year through overex- ploitation of its stocks. Simple model costings 3. Fundamentals have shown the high costs of overfishing in both Exploiting a renewable resource always involves the Baltic and North Sea cod fisheries. Merely for arbitrating between short and long-term returns. the two stocks examined here, a cautious estimate The problem for fish stocks is that, in the absence suggests a loss of around € 400 million. On top of of individual ownership rights, short-term profit this come the costs that cannot be expressed in maximisation is the optimal solution for the user. monetary terms, like the negative consequences For fishermen this means: “Catch the fish today, for the ecosystem, which among other things will or someone else will catch it tomorrow”. Even so reduce future productivity. this fundamental economic problem does not ap- Overfishing and the loss of revenues is not only ply today to the full extent, as the state has taken ecologically problematic, but also produces major over management of fish stocks and issued rules social problems. The arguments put forward stat- governing how much can be withdrawn from ing that consistent stock protection measures rep- stocks. Since the 1950s, attempts have been made resent a danger for fishing carry little weight in to regulate the exploitation of individual stocks, the light of the above scenarios. On the contrary: with fishery biologists calculating stock sizes and it is repeated decisions not to sufficiently reduce then setting catch amounts. In the opinion of catch volumes that have produced today’s prob- Pauly and others this attempt has failed for four lems. If we do not wish to totally lose certain fish- reasons (Pauly et al. 2002): eries in the coming years, it is once and for all 1. The results of scientific assessments that could time to act. have helped conserve fish stocks were often ignored on the excuse that they were not pre- cise enough to serve as a basis of tough eco- nomic cuts. WWF Germany 3 The Economics of a Tragedy at Sea 2. The assessment methods (models) have in a of the individual countries. Hannesson (1996) few key cases totally failed. For example, with writes of Norwegian fisheries policy: The amount respect to the inclusion of natural rapid de- of the subsidies has much more to do with the clines in stocks. The assessment has led in state’s ability to pay than with any perceived need particular to a situation where the severity of for support. Currently the EU is paying out around the decline and the growing influence of fish- € 700 million of subsidies a year (Myers and Kent ing during this process of decline were badly 2001). underestimated. For this reason, despite the apparently optimal 3. No short-term regulatory systems were devel- solutions frequently found in models, fishing pol- oped or introduced, which could have served icy to date (national management) has not pre- to achieve the objectives. vented excessive use of the resource. Through 4. Our understanding of the marine ecosystem is intensive investment support over the past 30 still too incomplete, leading us to inaccurately years the EU has built up major overcapacities in estimate the recovery potential of fish stocks. the fishing fleets. Fisherman are now forced by the loans they have taken out to continue fishing Today it is clear that earlier fisheries policy – at any cost, thereby further harming the already aimed at short-term economic successes – has acutely threatened stocks even further in order to produced undesired results. Worldwide fish stocks be able to service their loans. Fishing enterprises are limited – the number of fishing vessels, on the end up seeking to maximise short-term revenue, at other hand, can be increased “endlessly”. The EU the expense of long-term revenue security, in or- has for 30 years provided subsidies for the build- der to secure the continued existence of their en- ing and modernisation of fishing vessels – but the terprises. Hence it was frequently argued in public statistics show no investments for the conserva- that it was the decisive measures to maintain tion and increase of fish stocks. However, it is stocks that imperilled the existence of fishing en- vital that the use of fish stocks be subject to regu- terprises. This argument was frequently followed lations that first of all follow the objective of per- in the bodies tasked with setting fishing volumes, manent maintenance of the resource and only sec- which set excessively high maximum fishing vol- ondarily national political or individual economic umes. In fact this did not secure the existence of goals. the enterprises in question. In the following years, The goal of state “management” has until now, as stocks continued to fall, further enterprises and in particular between 1950 and 1990, not been went out of business and fishermen left the indus- the sustainable and sparing use of fish stocks, de- try, helped on their way with expensive and subsi- spite declarations to the contrary. The objectives dised wrecking programmes. have borne the stamp – and continue to do so – of From the economic viewpoint the question has short-term national interests. Appropriate terms therefore to be raised how the current situation of for describing fisheries policy are – in analogy to overexploitation can be modified, in order, for agricultural policy – increasing efficiency and example, to achieve higher returns in the longer productivity, securing the wage structure or term, as would be desirable from an economic maintaining jobs. It comes therefore as no surprise viewpoint (see illustration 1, page 5 ) that the amount of financial support has depended in the first instance on the economic possibilities 4 WWF Germany The Economics of a Tragedy at Sea extensive environmental requirements and the Benefit to society term - “polluter-pays” principle have been introduced short revenues Until leading to a situation where (at least theoretically) now the washing plant is required to make good the Future consequential costs of the death of the fish. At the same time attempts are