InstitutionalInstitutional StructureStructure andand ProfitProfit MaximizationMaximization inin thethe EasternEastern BeringBering SeaSea FisheryFishery forfor AlaskaAlaska PollockPollock

James Strong Keith Criddle

School of Fisheries and Ocean Sciences

Background

• 1960’s ‐ Foreign fishing • 1976 –Fisher y Conservation and Management Act • 1981 ‐ Joint ventures • 1985 ‐ End of TALFF • 1990 ‐ End of joint ventures • 1990s‐ Inshore/offshore battles • 1998 –America n Fisheries Act (AFA) Background

• Pollock TAC apportionment – Split into A and B seasons – Allocated to sectors • Catcher processor • Mothership • Shoreside • Community Development Quota • Shoreside sector left 37,991 metric tons, or 10.36%, unharvested in 2007 B season 2000‐2009 Production

Volume Value 1% 3%2% 5% 5% 11% 4% 4% 31% 33% 5% 25% 32% 39%

Surimi Head & gut Fillets Minced fish Fish meal Other products Source: National Oceanic and Atmospheric Administration Alaska Pollock Product Quantities

Pre‐AFA Post‐AFA 250 s 200 Fillets ton

150 Roe metric

100 H&G

1,000 50 Other

0 1995 1997 1999 2001 2003 2005 2007 2009

Source: National Oceanic and Atmospheric Administration Alaska Pollock Product Values

Pre‐AFA Post‐AFA 600 500 Fillets 400 Surimi 300 Roe (million) H&G $ 200 100 Other 0

7 3 001 007 1995 199 1999 2 200 2005 2 2009

Source: National Oceanic and Atmospheric Administration Fillet

• Markets – Europe – U.S. • Products – Pin bone out (PBO) – Deep‐skinned fillets – Individual quick frozen (IQF) • Substitutes in the market – Other whitefish – Especially Russian pollock Surimi

• Markets – Japan – U.S. – Europe • Products – Primary, secondary, and recovery grades • Substitutes for U.S. pollock surimi – Threadfin bream, lizard fish, big eye – Pacific whiting, hoki, blue whiting Roe

• Markets – Japan • Product – Skeins – Salted – Spicy • Substitutes in the market – Russian – Other roe Operational Differences

• At-sea sector can spend longer on fishing grounds • At-sea produces higher grades of surimi and roe and comparable grades of fillets • At-sea has consistently out-bid shoreside for CDQ pollock Statistical Model of Pollock Markets

• Four allocation (supply) equations • Five inverse demand equations • Monthly data from 2000‐2008 • 27 exogenous variables • 108 seasonal variables • Jointly estimated using iterated 3 SLS Model Performance

Coefficient of Thiel Inequality Equation Variable Correlation Variation Coefficient 1 U.S. fillet allocation 13.0% 0.98 0.10 2 European fillet allocation 47.0% 0.90 0.31 3 Japanese surimi allocation 32.3% 0.90 0.24 4 U.S. surimi allocation 34.6% 0.94 0.24 5 U.S. fillet demand 3.7% 0.94 0.03 6 EU fillet demand 8.0% 0.88 0.07 7 Japanese roe demand 23.2% 0.87 0.20 8 Japanese surimi demand 11.2% 0.90 0.10 9 U.S. surimi demand 26.2% 0.75 0.22 10 Total revenue 14.2% 0.97 0.12 Comparative Static Simulation

• At‐sea sector maintains operational advantages • 2007 season – Recovery rates – Most recent year before financial crisis • Allocation of pollock to flesh • Scenarios – Variations in product prices – Rising fuel costs • Performance measures – Revenue – Allocation of pollock meat to fillet and surimi Results

• European and U.S. fillet allocation – More sensitive to changes in at‐sea production • Japanese surimi allocation dependent on fillet price • European pollock prices moved in response to imports of Russian pollock • Surimi indicated behavior consistent with an inferior good • Japanese roe prices highly sensitive to changes in Japanese inventories Pollock Revenue Curve

Range of Historical Pollock Harvests $3,000 $2,500 illions) $2,000 $1,500 $1,000

$500

Revenues (m $0

0 2,000 4,000 6,000 8,000 10,000 BSAI Pollock TAC MT (millions) Sector Revenue Curves

$1,000

$800

$600

$400

$ million $200 Shoreside At-Sea $0 0.0 0.5 1.0 1.5 2.0 Harvest (million mt) Change in Total Revenues Potential Shoreside B Season Loss Discussion

• Increasing costs of production – Growing input prices – Increased travel distances • Macroeconomic factors – Exchange rates – Interest rates • Value of product – Substitutes – Consumer preferences Conclusion • Overall fishery revenues are maximized when harvests are fully utilized • In the future, if costs increase relative to prices, there is a possibility that portions of the TAC will go unharvested • Changing the AFA to allow leasing of quota shares between sectors would reduce the likelihood that underharvesting would occur Acknowledgements • Saltonstall‐Kennedy Grant Program • North Pacific Research Board • University of Alaska Fairbanks • Major Advisor – Dr. Keith Criddle • Committee Members – Dr. Gordon Kruse – Dr. Milo Adkison