Margins of error
In the last article of 2001 we tried to explain why sustainable fishing is not sufficient for a harvesting regime to be classified as biologically safe or responsible. Neither does it imply that a fishery is productive or profitable. The reason that sustainable resource utilization is not necessarily biologically safe or responsible is linked to the observation that most of the world’s fish stocks have been depleted well below their pristine levels. Therefore in the majority of cases the resource biomass is small, and even though the management regime may in theory be sustainable, this presents little buffering against adverse and unexpected environmental events, even if these are only short lived. It also leaves little room for error, either in terms of the quantitative assessments of stock size and productivity, or in terms of the control of catches and other fishing regulations. In short, it is prudent to aim to maintain a minimum resource size to create resilience against natural variation and human error or mischief, despite the theoretical argument that extremely depleted resources will yield a particular level of sustainable yield.
A small resource biomass level is usually associated with a small amount of surplus production or sustainable yield. You may recall from an earlier description of the relationship between sustainable yield and resource biomass that sustainable yield increases as resource biomass is reduced, up to a particular biomass level. That is, over a range of biomass levels below the pristine level the resource becomes more productive as it is depleted. However beyond the point of maximum productivity, which occurs at a resource biomass level referred to either as “the MSY level” or “BMSY”, further reductions in resource biomass lead to a decline in annual sustainable yield. In many fisheries the maximum productivity of the resource is thought to occur at resource biomass levels of between 30% and 50% of the pristine biomass level.
Most fisheries in the world are managed “sustainably” at resource levels well below MSY levels, and therefore very considerable quantities of potential productivity are lost every year. Add to this the increased cost of fishing depleted resources, and it should be clear that a sustainable resource management regime is not necessarily consistent with an economically sensible approach to resource utilization.
Economic rent and profit margins
The reason that sustainable fisheries are not necessarily profitable is that, as with any other production operation, in order for fishing to be profitable the value of the catch has to exceed the cost of fishing. Fisheries economists prefer to use the term “Economic Rent” to describe the difference between the value of the catch and the cost of fishing. Economic rent is a term in economics which allows one to talk about the economic viability of an industry without using the word "profit". Profit itself is a complex quantity calculated on the basis of a large number of variables for a variety of motives. In addition, the overall profits of a fishing company may be of passing interest for this article because the company may have other fishing related operations (e.g. fish processing, marketing operations) not concerned with the harvesting process itself, but which contribute to the profit margin. The economic viability of the harvesting process would therefore not necessarily be reflected in the company's declared profits.
From a fisheries management point of view one is really most interested in the value of the catch at its first point of sale, minus the variable costs incurred in landing this quantity of fish. To analyse this situation, it is necessary to express the value of the catch, and the variable costs, in common units, either tons of fish or monetary value, so that one can relate sustainable yield directly to cost. The difference between the value of the catch and the variable costs incurred in producing that catch, is known as economic rent. This is a quantity which can usefully be compared from one situation to another for a particular fishery. Sustainable economic rent is the economic rent that is obtained by harvesting the sustainable yield from a fishery, i.e. it is the difference between the sustainable yield and the harvesting costs.
The bioeconomic optimum and optimum sustainable yield
Figure 1 shows an x-y plot of harvesting cost and sustainable yield, expressed in common units, versus fishing effort. Because variable costs are proportional to fishing effort, the costs increase along a straight line as fishing effort increases. This figure also shows where the sustainable economic rent reaches its maximum value. The effort level which generates maximum sustainable economic rent is denoted “EMER”. From Figure 1 it is clear that the effort level where the maximum sustainable economic rent is achieved is smaller than the effort level where maximum sustainable yield (MSY) occurs. In order to maximize the economic rent from the fishery it is necessary to keep the biomass of the resource at a particular point which is larger than the biomass which generates MSY.
Another term used in fisheries management which is relevant at this point is the optimum sustainable yield, abbreviated OSY. This term has its roots in fisheries management legislation drafted in the USA. It refers to a sustainable yield level for managing a fishery which takes into account a wide range of economic and social factors. The variable costs of harvesting addressed in the definition of economic rent is just one such factor. We have seen from the above that consideration of harvesting costs implies that to maximise the economic rent, slightly less than the MSY should be harvested to keep the resource biomass larger than the MSY biomass level. Consideration of yet additional factors (e.g. the need to maintain high levels of employment) would further change the value of OSY considered appropriate for a fishery. Because there are so many factors that could have a bearing on what the value of OSY should be, it is not possible to give it a precise definition. It is important to appreciate, however, that MSY is not necessarily the only goal for fisheries management. It does nevertheless provide a basis for comparing different management options.
The tragedy of the commons and the dissipation of rent
The concept of economic rent presented in Figure 1 gives additional insight into the processes leading to the tragedy of the commons and/or overfishing in marine fisheries. Suppose that a fishery is being exploited at the effort level at which maximum sustainable economic rent is achieved, as shown in Figure 1. If there are no restrictions or regulations on fishing activity, then anyone can engage in fishing, and the total harvest is not regulated. This situation is referred to as open access fishing.
At the point of maximum economic rent on Figure 1, a certain fishing effort is required, and this can be translated into a particular number of fishermen engaged in fishing over an average fishing season. If one considers the perceptions of potential fishermen who have not yet joined the fishery, then it is clear that there is an economic impetus for the number of active fishermen to increase. This is because the rate of profit that is achieved at the point of maximum economic rent in marine fisheries is almost invariably larger than in other sectors of the economy.
Fishing on such an optimal basis would therefore be preferable to most other economic ventures. However, in the open access situation, as more fishermen are drawn into the fishery, harvest levels increase and the resource biomass is depleted. The resource moves beyond the point of maximum economic rent towards the point of average economic rent in the economy, or towards the economic breakeven point or perhaps beyond to a negative economic rent. This process has been referred to as the dissipation of economic rent, and illustrates the tragedy of the commons in a manner which is specific to commercial fisheries. An important aim of the numerous fishing regulations and management approaches in any country is to prevent this process and maintain the profitability and viability of the nation’s fisheries.
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