APPLYING RIGHTS-BASED MANAGEMENT TO DEVELOPING FISHERIES - Chairman: Ulf Wijkstöm, Food and Agriculture Organizations, Rome

Efficient Access Right Regimes for Exploratory and Developmental Fisheries - A. Cox and A. Kemp
Developing New Fisheries in Western Australia - J. Borg and R. Sellers
Incorporation of a Fish Property Right: a Hypothetical Example - W. Zacharin and R. Edwards

Efficient Access Right Regimes for Exploratory and Developmental Fisheries - A. Cox and A. Kemp

A. Cox and A. Kemp
ABARE - Fisheries Economics Section
PO Box 1563, Canberra, ACT 2601 Australia
< [email protected]>

1. INTRODUCTION

The development of new (that is, undeveloped or previously non-commercial) fishery resources is best viewed as an evolutionary process from the initial exploration of a fish resource through to the full development of the fishery. While the various stages in the process are often considered as discrete steps, the process is in fact continuous. From initial exploration onwards, the fishery resource may be effectively managed, with the form of management varying considerably as the fishery evolves. Under current Australian Fisheries Management Authority (AFMA) policy, specified management arrangements are implemented during the exploratory phase as part of an exploratory fishing programme. Fishing concessions take the form of Fishing Permits, which are granted to eligible operators for a limited period. As knowledge is gained, and assuming that fishing activity can be sustained, there will be a shift from the exploratory phase towards a point where a statutory management plan, complete with Statutory Fishing Rights, is in place.

There is significant risk involved in exploring for new fish resources as there is uncertainty about the biological characteristics of potential stocks in prospective fishing grounds. The focus of exploratory fishing is to gather information about the likely commercial viability of any new resources. Commercial viability depends on a number of factors applying at a given time, including the market conditions, the available fishing technology, the size of the fish biomass and the management arrangements in place. A number of these factors may change over time, such that a resource that is not commercially viable at one time may become viable at another.

The problem facing fishers who are considering undertaking exploratory fishing is how to evaluate the expected net returns from exploratory fishing (accounting for the risk associated with exploration) and from any ongoing fishery. Society also has an interest in the relationship between the risks and reward from exploratory fishing. It is important that governments encourage fish resources to be developed (or conserved) in ways which maximise the benefits to the community at large. The incentive for fishers to act privately in ways that are consistent with maximisation of community benefits will depend heavily on the type of fisheries access-rights offered and the means by which they are allocated.

The issue of efficient exploration where there is uncertainty as to the existence and extent of a resource has been well developed in the literature for non-renewable resources such as for oil, gas and gold (e.g. Industry Commission 1991, Hogan et al 1996). In the case of renewable resources however such as fisheries, there has been little economic discussion, despite significant policy debate in recent years. The paper by Campbell et al (1993) is one of the few attempts to discuss the policy options for exploratory fishing from an economic perspective. But there is a considerable scientific literature on the development of biological criteria for the sustainable development of new fish resources (Walters 1998, McAllister and Kirkwood 1998).

The purpose in this paper is to examine the economic efficiency effects of the access-rights regime prevailing for exploratory fishing in waters managed by the Commonwealth government. Emphasis is given to the type of access-rights being offered to fishers and the mechanisms by which they are allocated. Alternative access-rights regimes that may improve economic efficiency in the exploration and exploitation of Australia’s fish resources are also discussed. No attempt is made here to examine the impact of these alternative access-rights regimes on other policy goals of the government and the AFMA.

2. MANAGEMENT OF EXPLORATORY FISHING

Ideally, management of fish stocks should be based on accumulated information concerning the abundance of fish in the stock, the distribution of fish, the impact of fishing on the stock and other aspects of the marine environment and the effect of different harvesting strategies. In practice, at the exploratory stage of fishing, little information is available to enable fisheries managers to define a total allowable catch (TAC). In the initial stages of fishing a new stock, therefore, the major concern is to protect the integrity of the stock from overfishing.

The fish-down phase associated with exploiting a newly found resource provides a buffer against rapid overexploitation as it can withstand higher catch rates in the short term without unduly affecting the longer-term sustainable catch rates. The size of the buffer varies according to the size of the initial biomass and the biological characteristics of the species. The larger the biomass, the greater are the quantities that can be taken in the fish-down phase. For slow growing species (such as orange roughy), the maximum economic yield is lower and the fish-down phase is shorter.

However, the presence of this safety buffer does not mean that the initial catching phase should be free of management control. Given the lack of information about the stock size, the management focus is essentially short-term as information is gathered to enable an assessment of the sustainable catch level to take place. To facilitate this, the most appropriate form of short-term management may be to impose tight catch and operating restrictions on those vessels undertaking the exploratory fishing. Management arrangements involving more informed TAC levels may be introduced once additional information is collected. Indeed, this could occur quite quickly as it is not necessary to know the absolute stock size with a great degree of certainty in order to set a TAC (Arnason 1990). Experience with exploratory fishing in the Heard Island and the McDonald Islands fishery and the Macquarie Island fishery has demonstrated that it is possible to quickly establish a TAC for new fisheries.

3. EXPLORATORY FISHING IN AUSTRALIA

In recent years the policy debate in Australia has focussed on the exploratory and developmental fisheries around Heard Island and the McDonald Islands (HIMI) and Macquarie Island. There are also exploratory fisheries currently being considered in the waters surrounding Norfolk Island, Christmas Island and the Cocos and Keeling Islands. AFMA has also released a new policy on the exploration of fish resources (AFMA 1999a), which represents a substantial revision of the earlier exploratory fishing policy.

Commercial activity in the HIMI fishery commenced in March 1997 following a series of promising random stratified trawl surveys targeting Patagonian toothfish and Mackerel icefish in the early 1990s (AFMA 1998a, p. 9). An interim management policy for the exploratory fishery was in place from November 1996 to August 1997, during which time Scientific Permits were granted to two operators. The boats operated under a number of conditions designed to minimise the impact of fishing on the environment and to collect data on the fishery.

The HIMI Fishery Management Policy was issued in February 1998 as AFMA considered the fishery to have evolved beyond the exploratory stage (AFMA 1998a). Under the management plan, a limit of two boats was placed on the fishery, with a three year limit on the Fishing Permits (subject to annual review). A restricted individual transferable quota (ITQ) system was introduced. Each operator was granted 50% of the total allowable catch (TAC) for Patagonian toothfish and Mackerel icefish and is allowed to transfer quota units to the other operator, but not to third parties outside the fishery. It is expected that a statutory management plan will be developed for the fishery at the expiry of the current management policy.

Exploratory fishing around Macquarie Island was conducted by a single Fishing Permit holder between November 1994 and April 1996 (AFMA 1998b, p. 3). During this exploratory phase, the major target species was Patagonian toothfish. In November 1996, AFMA issued the Macquarie Island Developmental Fishery Management Policy which permitted access by a single boat until June 1999. As with the HIMI fishery, the boat operated under strict conditions regarding the environmental impact of fishing activity (due to the environmental significance of the area) and the collection of data for stock assessment. The Macquarie Island Interim Management Policy (AFMA 1999b) was released in June 1999 and essentially provided for a continuation of the previous policy regime until the introduction of a statutory management plan, expected in June 2001.

Under the interim management policy, only one Fishing Permit is granted and only one vessel is permitted to operate in the fishery. There is only a limited right to transfer the permit (subject to AFMA approval). The successful applicant was to be selected by a panel convened by AFMA according to selection criteria laid down in the interim management policy. The interim policy also stipulated that, in the event of the fishery operating beyond 2001 under a statutory management plan, a minimum of 50% of the ongoing rights in the fishery will be allocated to the operator(s) who participated in the fishery up to that point. The remainder of the rights will be allocated by an auction or competitive tender. Furthermore, AFMA may make available information on catches, effort and other information relevant to the fishery to prospective participants in the allocation process.

There are also a number of applications for exploratory fishing in the waters surrounding Norfolk Island, Cocos Islands and Christmas Island. At the time of preparing this paper, these applications had yet to be assessed and permits issued. The issue of exploratory fishing in these areas is complicated by the fact that there are established fisheries in the regions and the exploratory fishing is aimed at developing new species not currently under management arrangements.

4. CURRENT MANAGEMENT ARRANGEMENTS FOR EXPLORATORY FISHING

4.1 Development objectives

The management arrangements for exploratory fishing in Commonwealth waters are detailed in AFMA (1999a). The policy takes as its basis the legislated objectives contained in the Fisheries Administration Act 1991 and Fisheries Management Act 1991. The key objectives are to pursue:

i. optimum utilisation of the living resources of the Australian Fishing Zone

ii. maximum economic efficiency and

iii. ecologically sustainable development.

The following sections describe the AFMA exploratory fishing policy.

4.2 Exploratory management report

The AFMA will prepare an Exploratory Management Report as a prerequisite to the granting of a Fishing Permit(s). The report will be prepared if there are any applicants for exploratory fishing in an area or at the AFMA’s initiative. The report will state the AFMA’s policy and management arrangements in relation to the proposed exploratory fishing programme. It will detail any existing knowledge about the potential resource including, where known, the geographic area and a description of the supporting environment. It will also specify such things as: the expected number of participants in the exploratory programme; the fishing method(s) that participants will be authorised to use; any restrictions on the configuration and quantity of fishing gear; any known environmental issues affecting the programme; the conditions to be imposed on any permits granted; the data that participants will be required to provide; and, where possible, the quantity and nature of any ongoing rights that will be granted (should an ongoing fishery eventuate). Where there is to be a public call for applications, the report will also indicate the number of participants being sought for the exploratory fishing programme.

4.3 Allocation of fishing permits

Fishing Permits are a form of access-rights that the AFMA allocates for exploratory fishing. These permits are not generally transferable except under strict conditions set by the AFMA. Where there is a single applicant for a Fishing Permit, then that applicant will be given access-rights for the duration of the exploratory fishing programme. These rights are conditional on the fisher demonstrating that the conditions specified under the Exploratory Management Report can be met. This is not an exclusive access-right as the AFMA reserves the right to grant additional Fishing Permits allowing others to participate in the exploratory fishing programme. This may occur if the initial permit-holder is unable to meet the conditions of the Exploratory Management Report (for example, if they do not have sufficient capability to collect adequate data for stock assessment purposes). In this case, the AFMA may issue a public call for additional participants.

Where more than one application is received for the same exploratory fishing programme, access-rights are allocated on a ‘first-come first-served’ basis. Once again, the successful applicant must meet the conditions specified by the AFMA in the Exploratory Management Report. If it is deemed necessary to have more than one operator in the exploratory programme, the applicants will be ranked according to their suitability against criteria set out in the Exploratory Management Report.

It is also possible that the AFMA may initiate and prepare an Exploratory Management Report and publicly call for applications in relation to a specified exploratory programme. The allocation of access-rights is determined by the AFMA against criteria specified in the Exploratory Management Report.

4.4 Duration of access-rights

The AFMA may grant a Fishing Permit for a period of up to five years. A number of factors are to be taken into account when determining the period of access including: (a) the time likely to be required to obtain suitable data for stock assessment purposes; (b) the potential impacts on the environment over time; (c) the cost of specialised equipment needed to undertake the exploratory fishing; and (d), the degree of interest in the exploratory programme.

4.5 Ongoing access-rights

It is the AFMA’s aim that more formal management arrangements be put in place for the end of the exploratory phase, should an ongoing fishery be identified. In the event that an ongoing fishery is identified, participants in the exploratory programme will be given first offer of participating in the ongoing fishery. A minimum percentage of the ongoing rights in the fishery will be divided and a proportion will be offered to each participant in the exploratory fishing phase. As was noted above, this minimum was 50% of the rights in the case of the Macquarie Island fishery. The minimum percentage to be offered will be decided by AFMA and specified in the Exploratory Management Report. The proportion offered to each participant will be based on an amount for each year or part year of participation and will take account of each participant’s level of risk, cost and effort associated with undertaking the exploratory fishing programme. The proportion of ongoing rights granted will also depend on the need to provide suitable incentives to those contemplating investing in such programmes. Ongoing rights will be transferable unless otherwise determined by AFMA.

4.6 Cost recovery

The full costs of assessing applications for access to exploratory fishing programmes are charged to the applicants. The costs include an application fee, a non-refundable fee for service associated with assessing the applications (including the cost of preparing the Exploratory Management Report, consultation with external agencies and gathering of any additional information) and the management costs during the exploratory programme (including the costs of data collection and analysis, observer coverage, the grant of the Permit and licensing and compliance programmes). Cost-recovery will also apply to any ongoing fishery following the exploratory phase.

5. EVALUATION OF THE EXPLORATORY FISHING PROGRAMME

At the end of the exploratory fishing programme, the AFMA will prepare an evaluation that will provide the basis for determining the future direction of the fishery. The report will consider whether sufficient data are available for stock assessment, the environmental impact of fishing, whether the fishery is sustainable and whether ongoing management would be cost effective. There are options that the AFMA may pursue as a result of the evaluation: (a) extending the exploratory fishing phase; (b) ceasing exploratory (and all) fishing; or (c) move to a formally managed fishery with longer-term access-rights.

In summary, the current AFMA policy covering exploratory fishing can be characterised as a system allocating highly conditional access-rights for a limited duration on a first come first served basis. The degree of exclusivity of the access-rights is uncertain as the AFMA reserves the right to issue additional permits, and the right has only limited transferability. Moreover, holders of exploratory access-rights have only the guarantee of a minimum percentage of the ongoing rights in any fishery that eventuates. Such a policy regime provides only limited incentives to undertake exploratory fishing and cannot be regarded as an economically efficient mechanism for allocating access-rights.

6. ECONOMIC EFFICIENCY AND EXPLORATORY FISHING

The economic efficiency of exploratory fishing policy will be influenced by the type of access-rights granted to participants and may be affected by the way they are allocated. While these aspects are dependent, they can be considered separately from a conceptual perspective. It is necessary however, to first consider what is meant by economic efficiency in the context of exploratory and developmental fishing.

Efficiency in marine resource allocation arises when rights of access are allocated so that use provides the greatest value to the community. Value in this context refers to commercial, non-commercial (for example, recreational fishing) and non-use (for example, conservation concerns) values. Such decisions on allocation need to be made at several levels. At one level, there is competition for access to resources between commercial and recreational fishing sectors, and between conservation and other non-use interests. In the commercial sector, there may be competition between individual fishers for share of the resource. At another level, resource allocation has a temporal dimension - the amount of resources harvested in any particular period will influence the amount available in the future.

Fisheries managers therefore need to decide on the allocation of marine resources across sectors and use, and providing a framework that determines how individual fishing firms compete for the resource within the commercial sector. For example, managers have a range of options for regulating access by commercial operators to fish resources. In theory, instruments which establish tradable property-rights for the fish resource (such as a system of individual transferable quotas) provide the greatest likelihood for an efficient allocation of a given level of harvest (assuming that the TAC is optimally set with respect to the maximum economic yield). The ability of operators to buy and sell access-rights to the fish resource under such a system should facilitate the allocation of the resource to those who value it most. An efficient outcome can also be achieved through the granting of sole ownership rights to exploratory and ongoing fishing, where the single owner cannot influence the market price for either inputs or outputs. Such an option would also reduce management costs in many cases as these costs could be privately met by the operator. Alternative regulatory instruments, such as input controls or individual vessel quotas, all affect, to varying degrees, the efficiency of resource allocation within a commercial fishery.

The cost of fishing is also be an important determinant of the economic efficiency of resource use. Productive efficiency is achieved when a given amount of output (fish) is extracted at least cost given the available technology and price of productive inputs. Commercial fishermen face a range of choices about technologies to use in fishing and the amount of, and combination of, inputs such as fuel, labour and bait. The ability of fishing operations to achieve efficiency in production is influenced by the experience and skill of operators, the availability of inputs, the scale of their operation and so on. The regulations determining the conditions of access to the resource can also be important. Restrictions on the use of certain inputs, seasonal closure of fishing grounds and output restrictions all affect, to varying degrees, the ability of fishing operators to best utilise available inputs and technologies to produce a given amount of output.

The main objective underlying the pursuit of efficiency in resource allocation and productive efficiency is to maximise the economic-rent from the fishery for the benefit of society as a whole. Economic-rent can be defined as the returns over and above the costs of operations. These costs include all normal cash expenditure plus depreciation, a margin for the risks involved and a return for the investment in exploring and developing the fishery over time.

In the context of exploratory and developmental fisheries, pursuit of the economic efficiency objective is complicated by the considerable uncertainty that will surround the existence and extent of new fish resources. The objective for managers in establishing an exploratory fishing regime for a given area or species then becomes one of maximising the expected economic-rent from prospective fisheries. In this regard, the management regime for exploratory fishing has the same basic objective as a regime for an established fishery, except with a higher degree of biological uncertainty.

The decisions made by fisheries managers about the conditions to be met by prospective operators in an exploratory fishery will affect the decisions made by these operators in responding to the risks and the expected net returns of exploratory fishing. In principle, it is the biological uncertainty that will be the major influencing factor in private sector decisions about the risk-reward relationship - regulatory measures which affect the degree of uncertainty surrounding exploratory fishing will also influence the perceived riskiness of exploration. Therefore, one of the primary concerns in the management of exploratory fishing should be to provide a regulatory environment in which the process for determining and allocating access rights to exploratory and ongoing fisheries is clear and certain. It may, of course, be difficult to achieve as knowledge about new fish resources and the supporting environment gathered during exploration may alter the premises on which the exploratory regime was based at the outset.

7. EFFICIENT EXPLORATORY FISHING RIGHTS

7.1 Defining features

The extent to which improving the system of access-rights will encourage increased efficiency in exploratory fishing depends on how the rights are defined. There are five characteristics of an exploratory fishing right that define the rights held and facilitate productive efficiency in the fishery. This definition applies more generally to fisheries resource use, rather than solely to exploratory fishing. They are a right:

i. of access to the fishery and take fish during the exploratory phase (access and withdrawal right)

ii. of divisibility of the permit (divisibility right)

iii. to transfer the permit (transferability right) and

iv. to exclude others from access to the fishery and withdrawal of fish (exclusivity right).

Access and withdrawal rights require a clear definition of the fishery for which exploration is about to commence. Fisheries can be defined in terms of species of fish and, or, geographic region. From an efficiency perspective, whether a fishery is defined in terms of fish species or geographic region is inconsequential.

The access and withdrawal rights can also be defined in terms of duration and timing for conservation reasons. These restrictions can be used to set the bounds of sustainability for the fishery. So long as rights of divisibility, transferability and exclusivity exist, these restrictions will not influence the ability of the system to lead to efficient exploration within sustainability constraints.

7.3 Divisibility

Divisibility allows an operator with an exploration permit to subcontract other operators to explore the fishery. For example, if an operator wished to use their exploratory entitlement at a certain time of year, they could hire another operator to engage in exploratory activity for the rest of the year. This could occur due to the seasonal nature of some fish species. Divisibility allows the operator to reduce the costs associated with exploratory fishing, which in turn leads to more efficient exploration.

7.4 Transferability

Transferability is an extension of divisibility and allows the firm to transfer or sell permanently all or part of the right to exploration to other operators. This right allows the permit to be owned by the most efficient operators for its duration. The lowest-cost explorer at any given point would be prepared to a pay greater may amount for the right to explore than any other operator. Restrictions on the transferability of the rights may reduce the efficiency with which exploration is done.

7.5 Exclusivity

The level of exclusivity of access and withdrawal will affect the level of investment by an operator in exploration of the fishery. From an efficiency perspective, there is no reason to allocate more than a single exploratory right, as long as the holder of the right is free to choose the number of boats in the exploration phase and to transfer the right when desired. These rights allow the market to determine the efficient number of boats engaged in exploration. While there may be efficiencies associated with collaborative action of operators in exploration, this decision is best left to market mechanisms rather than to central authorities to make. From a fisheries management perspective, fewer exploration rights issued may be more cost-effective as compliance may be easier to ensure and enforce.

7.6 Duration

The duration of the exploratory right needs to be sufficient to provide incentive to private operators to invest in exploration of the fishery. The duration should also be long enough not to distort the decisions of exploration operators. Short time-limits may encourage investment in exploration now, or result in no exploration occurring, whereas it may be efficient to explore at some other time in the future. Long-duration permits allow operators to decide the most efficient time to explore. With rights of transfer and divisibility, if other operators consider it more appropriate to explore now, there are opportunities to transfer the rights, which will lead to an efficient investment in exploration.

Short-term access-rights may give better control over fishing capacity than do access-rights for long periods, as it is possible to reduce capacity quickly by not renewing rights or increase it by allocating additional rights (Commonwealth of Australia 1989). However, this argument is weaker where the fishery is managed with output-controls such as a TAC. The allowable output can be increased or decreased in response to new information, leaving decisions on capacity and effort to the private sector. Moreover, limited tenure rights are likely to discourage operators from investing in exploratory activity. As in general operators are not prepared to invest when there is a low possibility of long-term benefits.

Another issue affecting the duration of the exploratory right is the relationship between the exploratory right and any ongoing rights in the fishery (should one eventuate). It is clear that the share of any future fishing development that is assigned to the exploratory right will have a major influence on the expected economic-rent associated with exploratory fishing. From an economic efficiency perspective, there is no reason why the rights to all the future catch should not be allocated with the exploratory fishing right, provided the other aspects of efficient access-rights (divisibility, transferability and so on) are incorporated. The distinction between exploratory fishing and fishing carried out under a statutory management plan is artificial given that there is effectively a continuum in the phases of a fishery’s development. Indeed, creating two regimes - one for exploratory fishing and one for a managed fishery - may exacerbate efficiency concerns associated with the duration of access-rights and their allocation.

However, some sectors of the community may consider the allocation of 100% of a community-owned resource to one, or several, private operators to be inequitable. This is an equity question that may be taken into account by government together with the efficiency impacts of decisions.

7.7 Certainty of process

Significant uncertainty can be reduced through the definition and allocation of rights to exploration of a potential new fishery. Maintaining the stability of any property-rights regime is important for minimising uncertainty. The possibility of changes to the rules after the issuing of exploratory licences can have significant effects if risk premiums are built into the investment decisions of private operators (often referred to as ‘sovereign risk’). Upon the issuing of an exploratory permit that defines these rights, no changes should be made for the duration of the permit.

8. ASSESSMENT OF ACCESS RIGHTS UNDER CURRENT AFMA POLICY

8.1 Conceptual background

When considered against the requirements for efficient access-rights for exploratory fishing, it is clear that there are some important shortcomings in the way the access-rights are defined under current AFMA policy on exploratory fishing.

First, the right of divisibility is not explicitly addressed in the general AFMA policy. However, under the management plans for the HIMI and Macquarie Island fisheries, the right of divisibility is explicitly ruled out. These plans do not permit two or more companies, with two or more boats, to jointly use a single Fishing Permit on a rotational basis. This lack of flexibility is partly due to the specialised nature of fishing in the environmentally sensitive regions and partly to the need for the AFMA to be sure that vessels operating in the areas meet environmental and safety guidelines. However, given that both the fisheries are managed under a TAC, it is not clear why more than one boat should not be permitted provided they meet environmental and safety standards. This would increase the ability to operate in the most efficient manner.

Second, while current AFMA policy states that exploratory rights are generally transferable, this has not been the case for the HIMI fishery. The rationale for this restriction is that the successful applicants for the permits have special experience, skills and reputation, as well as commitments made personally under the Fishing and Research Plans and these factors cannot be readily transferred. Similar restrictions apply in the Macquarie Island fishery, although the management plan does provide the AFMA with some discretion in allowing transfer but under restricted conditions.

Third, the fact that the AFMA reserves the right to admit other participants to an exploratory programme, primarily at its discretion, reduces the exclusivity attached to an exploratory right, and thereby reduces the efficiency of exploration.

Fourth, exploratory rights are currently short-term. The AFMA policy provides for a maximum of five years duration for an exploratory permit. The permit in the Macquarie Island fishery is issued on an annual basis, while the permits in the HIMI fishery are valid for three years, (the length of the management policy), subject to annual review. While these fisheries have ostensibly progressed beyond the exploratory phase, they are not yet managed under a statutory management plan, which provides for longer-term statutory rights. From an efficiency perspective however, there is no reason why access rights need be of such a short duration. Indeed, it is not clear that there needs to be a distinction between exploratory and ongoing rights in the fishery.

Last, one of the features of the AFMA exploratory policy is the considerable administrative discretion available to the fisheries managers. While a degree of flexibility is required for managers to be able to respond to changing circumstances and new information, it needs to be recognised that there is a cost associated with this discretion. This cost is an increase in the perceived risk associated with investment decisions. The major source of uncertainty in exploratory fishing should ideally relate to the characteristics of the fish stock, rather than to any current or future management arrangements. While the Exploratory Management Report is designed to provide such certainty with respect to current and future management arrangements, many of the discretionary powers reserved by the AFMA relate to management decisions which have a potential impact on economic efficiency. Examples include the limited rights of divisibility, exclusivity and transferability currently attached to exploratory permits, with the AFMA approval required before the exercise of the limited rights.

8.2 Economic efficiency and allocation mechanisms

The existence and transferability of properly-defined rights is sufficient to ensure efficiency in exploratory fishing (and, indeed, in any fishery). The method of allocation of the rights will have only a limited impact on economic efficiency, provided that transactions costs are negligible. The choice of allocation mechanisms will primarily have distributional effects - that is, determine who receives the economic rents from fishing - and therefore could be used to achieve equity goals of the government and the AFMA.

As a result, the most important criteria in choosing the most appropriate method for allocating rights are that transactions costs are kept to a minimum and that the costs of conducting the allocation process are recovered. A third criterion could also be added - to achieve an appropriate return to Australian society as owners of the fish resource for the right of access to the resource (Commonwealth of Australia 1989). The current Commonwealth government has a policy of not introducing a resource-rent tax on the fishing industry (Liberal Party 1999).

The allocation process must be able to deal with two issues: (a) the initial allocation of the exploratory right; and (b), the assignment of ongoing rights. To achieve these, two broad classes of allocation mechanisms can be identified. The first class is one-stage mechanisms in which all of the rights to both the exploratory phase and the managed phase are allocated at the same time. The second class can be termed two-stage mechanisms where there is an initial allocation of exploration rights and a subsequent allocation of managed-phase rights.

The objectives implicit in the use of each class of mechanism differ considerably. From an economic efficiency perspective, it is only necessary to allocate rights once, provided the rights are well defined in terms of transferability and so on. The rights then have value and may be traded through market mechanisms to those operators who value them the highest. Therefore, a properly designed one-stage allocation mechanism is all that is required to meet the efficiency criterion.

Two-stage mechanisms may also meet the efficiency criterion, although there are a greater number of considerations to be addressed in their design to ensure efficiency. Moreover, the transactions costs associated with such an allocation and subsequent reallocation of rights may be considerable. Two-stage mechanisms also have an implicit revenue-raising objective. The primary reason for conducting a second stage in the allocation process is to redistribute a greater share of the expected economic-rent in a fishery between the government and the private sector. Uncertainty about the biological characteristics of the resource will (hopefully) have been reduced as the result of exploration, and current and prospective operators will have more information on which to base their evaluations of the expected economic-rent available in the fishery. At this stage that the distribution of the economic-rent between the government and private operators does not affect economic efficiency.

The concept of maximising economic-rent is not new in fishery’s management in Australia (e.g. Campbell and Haynes 1990). For example, the use of individual transferable quotas (ITQs) in existing fisheries ensures that the economic-rent is maximised. As the allocation of the initial quotas is usually on the basis of historical catch considerations, the economic-rent is given to the existing operators without returns being extracted by the government, except through normal taxation means. Irrespective of the allocation of economic-rent between government and private operators, the ITQ system will maximise the economic-rent for society as a whole.

8.3 One-stage mechanisms

8.3.1 Main objectives

The primary objective in a one-stage allocation process is to allocate the access-rights for a fishery between prospective operators. While considerable uncertainty may surround the extent and size of the potential fish stock at the stage of this allocation, this uncertainty does not affect the ability to achieve optimal investment in exploration, so long as the rights of divisibility, exclusivity and transferability exist. The risks associated with the potential fishery are borne exclusively by the private operator(s). The operator(s) is also in a position to secure a return from the information obtained about the characteristics of the fish stock and the commercial viability of fishing operations.

The two most common methods for allocating rights are - a first-come first-served system, and auction or tender. Other methods are used, such as administrative discretion and ballot, but they are not addressed as they can be quickly dismissed on efficiency and cost-effectiveness requirements.

8.3.2 First-come first-served

Under a first-come first-served (FCFS) system, the rights to fish in a particular area, or for a particular species, are allocated to the first operator who applies. Such rights are also referred to as finder’s rights or pioneer rights. If the rights are transferable and divisible, then they may find their way to the most efficient operator. Such a system provides an incentive to fishers to undertake exploratory fishing, and so, would encourages greater exploratory fishing than might currently be the case.

It can be argued however that a FCFS system can be inefficient in that it can encourage excessive exploration. This may be the case if the rights are seen as having value. This is presently not the case as the exploratory rights under the current AFMA policy are heavily encumbered and of short duration. An FCFS system creates an incentive to acquire exploratory permits for areas which are considered promising before someone else does. Individual explorers would be expected to be willing to spend up to the expected value of the discounted future stream of rents from exploration.

As a result, there is an incentive to undertake preliminary exploration, even when there is only a small probability of positive returns from exploration when actual exploration is linked to the right to exploit. It can lead to situations such as in the minerals area of ‘gold rushes’, where the effort expended in exploration by many participants is greater than socially optimal (Industry Commission 1991, pp. 41-3). While the returns to successful explorers are significantly greater than their costs, this should be offset against the many unsuccessful exploration attempts and subsequent losses. This process - rent-dissipation - is where the expected gains from exploiting the fishery resources in an area are dissipated by losses associated with exploration in other areas, by the industry as a whole. Such dissipation of rent may be economically inefficient from society’s perspective, while being quite rational from the viewpoint of individual fishers. This highlights the need to consider the incentives and losses in other areas of the industry, against the gains in any single exploration programme.

Against this, an advantage of the FCFS system is that the administrative costs may be lower than for other mechanisms discussed below in Section 8.3.3. These cost-advantages however, may be outweighed by potential efficiency-losses associated with rent-dissipation.

8.3.3 Auctions and tenders

Cash-bidding uses competitive market mechanisms to auction the rights to exploration of a potential fishery. The term 'auction' is used here to describe both public auction processes and sealed tenders. In terms of economic efficiency, the form of auction has no significance, though it can affect the administrative costs of the process. Auctions allows potential bidders in the market to assess the risks associated with exploration of the new fishery and incorporate these assessments into their bid price.

Auctions can be either a public process, where bids are taken from the floor, or a sealed-tender process, where bids assessed against a set of criteria that may include other operating considerations than price. As a one-stage mechanism, the auction may give the successful bidder 100% of the TAC if the fishery is developed to the managed phase. Alternatively, a number of rights to a potential fishery could be auctioned, e.g. two permits each granting 50% of the TAC.

In theory, where there is a competitive bidding system with a number of operators, the same information and no collusion, then the highest bid will reflect the best assessment of the potential value and risks associated with the fishery. The result will lead to efficient investment in exploration, given the risks. The operator becomes free to determine the pattern and timing of exploration and subsequent development given the sustainability conditions attached to the rights.

But, problems arise if operators collude on bid prices and violate the competitive nature of the system. This might still result in an efficient outcome although the rents would accrue to the colluders rather than to the community. Information asymmetries can also lead to inefficiencies in the auction process, although bids should reflect the information available to each operator. To avoid speculative bids sealed-bid auctions may be considered more appropriate. Further, small numbers of potential market participants can restrict the competitive nature of the auction process creating inefficiencies.

The rules associated with auctions need to be clear and nondiscretionary. All available information should be made available to all potential market participants when bids are called for. The process could be triggered either by an application or directly by the AFMA with the same rules applying for either trigger. A basic requirement of the auction is that the highest bid at least recovers the cost of conducting the auction (the reserve price).

One of the issues in the use of auctions is that the bids will be based on the expected economic-rent. If this valuation is based on little information about the commercial viability of the fishery, the bids offered may prove to be significantly below or above the true realised rent (Munro and Parkes 1999). The provision of additional information by government to improve the quality and quantity of the information available to prospective bidders is likely to reduce the distribution of bids, but may or may not increase the expected bids. This may be appropriate if the costs associated with obtaining the information are relatively small.

The major difference between a FCFS system and auctions lies in the distribution of rent in the allocation of the initial right. Under the FCFS system, the initial holder of the right receives the bulk of the economic-rent from the fishery and this will be incorporated into the price at which the rights are transferred in the future. Under an auction, the government will be the recipient of a share of the expected rents that would otherwise have gone to the private sector.

8.4 Two-stage mechanisms

The major objective underlying the use of two-stage mechanisms for rights-allocation is to extract a proportion of the economic-rents generated by a developing fishery. This is done in the second stage of the allocation process by using the information gained during the exploration. There are likely to be significant distributional issues associated with the design of any two-stage mechanism. The primary issue concerns the sharing of risk and economic-rent between the government and the private sector. In terms of efficiency of the system, however, the difference between the one-stage and two-stage mechanisms are minimal. Arguably, one-stage mechanisms are administratively easier and may therefore be less expensive to operate hence more efficient if the benefits are similar.

The relative efficiency of alternative two-stage mechanisms depends on how the information gathered during the exploratory phase on the location and abundance of fish stocks is treated. This information is potentially a valuable commodity and there are likely to be conflicting opinions on whether and how it should be disseminated prior to the second stage allocation. The incentives to invest in exploration will be influenced by the extent to which explorers can realise the benefits from the information they generate.

The current AFMA policy on the allocation of exploratory and ongoing rights is a two-stage mechanism. The initial allocation of exploratory rights is done on a first-come, first-served basis. The second stage comprises the allocation of a specified minimum proportion of the ongoing rights to the first stage participants. The remainder is allocated by an unspecified method (although the Fisheries Management Act 1991 allows for the distribution of rights under a statutory management plan to take place by auction, ballot or tender).

This mechanism is being used in the HIMI and Macquarie Island fisheries where a portion of the managed phase rights are to be auctioned. Such a system may lead to rent-dissipation if explorers are not required to share information with other participants in the auction. The explorers will be able to make a more informed bid at the auction. This does not necessarily mean however that they will be the successful bidder.

Alternatively, operators in the exploratory phase may be required to provide any information regarding the commercial viability of fish stocks to the government, who then make it available to all prospective participants in the auction. In this case, there may or may not be private incentives to explore at the socially optimal level. Unlike minerals exploration, exploratory fishing generates a return from the fish caught during exploration. This return may offset the reduced benefit of information generated by exploration due to having to provide the information to all other prospective participants. If the returns offset the lost information benefit, then the private level of exploration will also be socially optimal. If not, then the private level of exploration may be socially sub optimal, hence there may be a role for government provision of information.

An alternative mechanism might involve two auctions - one for the exploratory rights, followed by one for the managed-phase rights. Such a mechanism may result in an economically-efficient outcome although there are more complexities that must be addressed in the optimal design of the process. These complexities relate primarily to generation and distribution of information and the timing of the two auctions. For example, to make the second auction competitive, it would be necessary to pool the information gathered during exploration.

It is beyond the scope of this paper to address these complexities in detail. It is worth noting however that an auction-auction process will provide government with a greater share of the economic-rent than other one-stage and two-stage mechanisms. If this is to be an explicit objective in the allocation of rights, then there are a number of alternatives e.g. combining an auction with some form of charge or tax on economic-rent.

9. CONCLUDING COMMENTS

It is unclear why there is a distinction between an exploratory fishery and a managed fishery. It is not feasible to draw a distinct line beyond which fishing is no longer exploratory and becomes an ongoing concern. Rather it is best represented as a continuum, along which fisheries managers exercise varying degrees of control over fishing activity. Indeed, it is possible to argue that exploratory fisheries have been managed more tightly than many of the established fisheries.

One solution, therefore, may be to abandon the distinction between exploratory and managed fishing. In terms of economic efficiency, it is only necessary to allocate access-rights at the initial stage, provided those rights are fully and efficiently defined (with respect to transferability, durability and exclusivity). The question of the allocation of ongoing rights then becomes irrelevant. The ability to transfer access-rights ensures that they go to the most efficient operators and the longer duration of the rights provides a better incentive to pursue an efficient exploration programme.

The choice of allocation mechanism is dependent on the requirements of the AFMA and the priorities of the Commonwealth government. If the primary objective is to allocate rights to those who value them most, then an auction system is preferable to the current system of first-come first-served. Auction processes reduce the potential for rent-dissipation that exists under a FCFS system. They also fulfil equity objectives, by giving all industry operators the opportunity to engage in the exploratory process. If there is however a desire to extract a return to the community for the use of publicly-owned resources, then some form of two-stage mechanism (involving either an auction-auction or an auction-tax process) has merit.

10. LITERATURE CITED

AFMA (Australian Fisheries Management Authority) 1998a. Heard Island and McDonald Islands Fishery Policy, Canberra, February.

AFMA (Australian Fisheries Management Authority) 1998b. The Future of the Macquarie Island Developmental Fishery, Canberra, December.

AFMA (Australian Fisheries Management Authority) 1999a. Exploration of Fish Resources, Fisheries Management Paper Series, FMP No. 5, Canberra, April.

AFMA (Australian Fisheries Management Authority) 1999b. Macquarie Island Fishery Interim Management Policy, Canberra, June.

Arnason, R. 1990. ‘Minimum information management in fisheries’, Canadian Journal of Economics, vol. 23, no. 3, pp. 630-53.

Campbell, D. and J. Haynes 1990. Resource Rent in Fisheries, ABARE Research Report 90.10, Canberra.

Campbell, D., A. Kingston and T. Battaglene 1993. Policy Options for Exploratory Fishing, ABARE report prepared for the Australian Fisheries Management Authority, March, Canberra.

Commonwealth of Australia 1989. New Directions for Commonwealth Fisheries Management in the 1990s, AGPS, Canberra.

Hogan, L., S. Thorpe, S. Zheng, L. Ho Trieu, G. Fok and K. Donaldson 1996. Net Economic Benefits from Australia’s Oil and Gas Resources: Exploration, Development and Production, ABARE Research Report 96.4, Canberra.

Industry Commission 1991. Mining and Minerals Processing in Australia, vol. 3, Issues in Detail, Report No. 7, February, AGPS, Canberra

Liberal Party 1999. ‘Wealth From The Sea’, in Liberal Party of Australia 1998 Election Policy, www.liberal.org.au/ARCHIVES/election98/policy/fisheries/fisheries.html (accessed 26 October 1999).

McAllister, M.K. and G.P. Kirkwood 1998. ‘Using Bayesian decision analysis to help achieve a precautionary approach for managing developing fisheries’, Canadian Journal of Fisheries and Aquatic Sciences, vol. 55, pp. 2642-61.

Munro, G. and G. Parkes 1999. Auction and Tender as Allocation Mechanisms in Fisheries and their Resource Rent Implications, Report prepared by MRAG Americas Inc for Austral Fisheries Pty Ltd, February, Perth.

Walters, C. 1998. ‘Evaluation of quota management policies for developing fisheries’, Canadian Journal of Fisheries and Aquatic Sciences, vol. 55, pp. 691-705.

Developing New Fisheries in Western Australia - J. Borg and R. Sellers

J. Borg
Fisheries Western Australia
168-170 St Georges Terrace, Perth WA 6000, Australia
<[email protected]>
and
R. Sellers
Fisheries Division, Northern Territory Department of Primary Industry and Fisheries
GPO Box 990, Darwin NT 0801, Australia
<[email protected]>

1. INTRODUCTION

The Developing New Fisheries in Western Australia (DNF) process moves the management of new, exploratory and developing fisheries from an ad hoc system, where there was no certainty and no process for moving towards rights-based management, to a clear and transparent process where both fishermen and government have a strategic framework within which to work.

2. HOW FISHERIES MANAGEMENT IS ADMINISTERED IN WESTERN AUSTRALIA

2.1 Legislative base for granting access

The Minister for Fisheries, on behalf of the Western Australian (WA) community, has a stewardship responsible for the State’s fisheries and their environment for the benefit of current and future generations. Fisheries Western Australia ensures the conservation, development and sharing of Western Australia’s fish and other living aquatic resources on behalf of the Minister in accordance with all relevant laws enacted by the WA Parliament.

Prior to 1995, fisheries management in Western Australia was governed through the Fisheries Act 1905. This Act allowed for the gazetting of Fisheries Notices which either established the management rules for particular fisheries or set in place prohibitions covering particular fish resources, fishing methods or areas. It resulted in a series of limited entry fisheries (LEFs), restricted entry fisheries (REFs), and licence conditions that exempted people from existing prohibitions. A licence to fish in any of the fisheries covered by Fisheries Notices or licence conditions did not confer a perpetual right. However, rights were often assumed by licence holders unless serious breaches of the law caused the licence to be removed. On most cases, nothing the government did or said acted against this assumption.

A small number of fishing activities (mainly line fishing and hand netting) not covered by any limiting Notice remained outside of these Fisheries Notices, and hence any other formal management arrangements. These fisheries became known as the developing and exploratory fisheries and there was no policy or process to deal with applications to undertake such fishing activity.

In reality, all fishing activity in this category was prohibited by way of Fisheries Notices. However, fishermen who considered markets, technology and safer harvesting methods, now made these fishing activities potential fisheries of the future, by applying to the Executive Director for an exemption from the relevant prohibition. As little was usually known about fish resources subject to these applications, there was little way of refusing the application. This ad hoc process commonly resulted in many more authorisations being issued than was required for the sustainable exploration or development of new resources. This excess, and sometimes latent, effort proved to be legally difficult and administratively costly to remove.

The Fish Resources Management Act 1994 (FRMA) was introduced in 1995. It is the predominant legislation governing the activities of Fisheries WA. The FRMA provides the framework for modern fisheries management and protection of the marine environment. The introduction of the FRMA did not change the types of fisheries that existed in the State - there are still different levels of management applied to fisheries at various stages of development. It does, however, provide additional powers to the Minister and Executive Director to regulate fishing activity. In addition to the declaration of managed fisheries, interim managed fisheries, and allowance for licence conditions, the Minister and Executive Director are now able to issue exemptions to certain provisions of the Act and Regulations. The extent of this power is listed in Section 7 of the FRMA. The other power given to the Executive Director, which is the legislative base for this process, is his ability to require an applicant to provide additional information in relation to an application to conduct a particular fishing activity.

The motivation for the DNF process comes from the objects of the FRMA (Section 3), that is:

“to ensure that the exploitation of fish resources is carried out in a sustainable manner...; to foster the development of commercial fishing...; to achieve the optimum economic, social and other benefits from the use of fish resources...; and to enable the allocation of fish resources between users of those resources...”

Although management plans and prohibition notices covered most fishing activities off the coast, the policy of Fisheries WA and its predecessors was to assist fishermen wherever possible in undertaking new fishing ventures. If a fisherman wanted to test or develop a new fishery that person would write and ask for an endorsement on their licence that would exempt them from the relevant prohibition (but not from a management plan). With some minor exceptions, it could safely be assumed that the appropriate endorsement would be granted.

What usually resulted from applications was -

i. considerable administrative work to ascertain whether such fishing was sustainable or desirable

ii. if it was decided that it was inappropriate to grant to exemption, considerable resources were used trying to show why an endorsement should not be issued

iii. often the resource was not commercially viable, the cost of harvesting too high, or the equipment not sufficient and fishing did not occur, or if it did, it led to no new viable commercial fisheries

iv. expectation of, or the realisation of, a permanent right because the condition or endorsement was never taken off the licence and

v. the frequency of individual applications created a constant unpredictable and unplanned workload for fisheries management staff.

In addition, new applicants would apply for access to resources that previous attempts had not proven viable and it was equally as difficult and expensive to refuse access. If refused, the applicant had recourse to the Minister to appeal under the 1905 Act. Under the FRMA, appealants may go to an Independent Tribunal.

There was no process and no policy to deal with these applications under either the 1905 or 1994 Acts. This lack of strategic management of exploratory and developmental fisheries meant that management of these fisheries was inefficient and costly and this was no longer acceptable in a cost-recovery environment.

3. WHAT IS A DEVELOPING FISHERY?

For the purposes of the DNF process, a developing fishery is defined as:

"a fishery within which there is little or no exploitation, there is potential for development and which is currently subject to a prohibition. There also may be little information regarding:

i. the stock(s) under consideration,

ii. the role of said stock(s) in both local and larger marine ecosystems,

iii. the possible uses of the harvested materials,

iv. potential domestic and/or foreign markets, and

v. explicit management objectives, policies, and/or operating regulations.”

4. POLICY UNDERPINNING THE DEVELOPING FISHERIES MODEL

4.1 Principles behind the DNF

The principles outlined in this process reflect the fact that:

i. the Government, and hence Fisheries WA, takes a precautionary approach to ensure the sustainability of developing fisheries

ii. the objects of the FRMA require, among other things, achieving the optimum economic, social and other benefits from the use of fish resources

iii. Fisheries WA has responsibilities for conservation of the marine environment in general

iv. the risks of developing fisheries must be assumed by those participating in them

v. the assumption of risk by pioneer participants will be recognised and

vi. administrative, managerial simplicity and accountability are mandatory conditions in Fisheries WA's management of developing fisheries.

One result of the sustainability mandate is that it is no longer appropriate for Fisheries WA to undertake a narrowly-based management strategy of a single resource species, rather it must take a broad approach that considers the ecosystems that support all marine species.

The goals of an ecosystem-based approach to fisheries management allows for development based on the equitable and the sustainable use of both species and ecosystems, the maintenance of essential ecological processes, and the preservation of biological diversity that aims at meeting present needs without compromising the ability of future generations to have the same privilege.

4.3 Precautionary principle

When information is uncertain, unreliable or inadequate, Fisheries WA must take a cautious approach to the development of fisheries to reduce the risk of development being to the detriment of resources, the environment or to other stake-holders. To foster sustainable development and minimise risk the DNF has been designed to make participants in each proposed venture fully aware of the biological, economic and social implications of the proposed activities by:

i. ensuring careful analysis of the proposed venture

ii. adopting a risk-averse approach regarding the exploitation of new resources and

iii. requiring consultation with other stake-holders as part of the application process.

In considering how to achieve the optimum benefits from developing fisheries, the DNF provides for recognition of the status of fisheries developers or “pioneers”. It is recognised that a pioneer who develops a new commercial fishery that does not affect community-values associated with access to the community aquatic resources should receive some benefit. While the concept of differentiating between initial, or pioneering participants in a developing fishery, and parties who subsequently want to participate in the fishery after the developmental stage, is recognised by Fisheries WA in accordance with the process described in Section 71 of the FRMA:

s.71.

“(1) The fact that a person engaged in fishing, or used any boat for fishing, in a fishery before a management plan was determined for that fishery is not to be taken as conferring upon that person any right to the grant of an authorisation if a management plan is determined for that fishery.

(2) Despite subsection (1), the Executive Director is to take into account a person’s history of fishing in a fishery when determining whether or not to grant the person an authorisation.”

5. THE DEVELOPING NEW FISHERIES PROCESS

5.1 Rationale and objectives

One of the key benefits of the DNF process is that a developing fishery will not exist in a timeless vacuum with no formal beginning, middle and end. The framework within which fishermen in developing fisheries are operating is now explicit, as are the rights associated with each stage of development.

The developing fishery stage represents the first of three stages in the life of a fishery:

i. the developing fishery stage (or “interim managed developmental fishery” for the purposes of s.58 of the FRMA). This initial stage is of limited duration and ends when predetermined benchmarks are reached and management changes are triggered (generally a three year period)

ii. the interim managed fishery stage which is, at maximum, three years in duration and which may be less if participant-initiated triggers move it towards managed fishery status and finally

iii. the managed fishery stage which sees long-term access allocated through either a management plan, or other subsidiary legislation.

5.2 Establishing a developing fishery - the participants

The Government recognises that fish resources are public resources available to all and that participation in a developing fishery is open to all. However, for biological and administrative reasons participation in a developing fishery is subject to some criteria and rules.

The Regulations specify those people who can actively use fish resources for commercial purposes as those who hold a Commercial Fishing Licence and, where a boat is involved, a Western Australian Fishing Boat Licence.

Therefore, the minimum requirements to participate actively in a developing fishery are:

i. a Commercial Fishing Licence and
ii. a Western Australian Fishing Boat Licence (where a boat is involved).

There are seven steps to the process of establishing a developing fishery. This process is designed to provide a decision on the proposed developing fishery within three to six months and is intended to accommodate the maximum number of interested parties and their submissions and to facilitate efforts towards developing new fisheries. The application process will be initiated twice a year, but may move to once a year depending on demand.

The steps of the application process are:

i. Expression of interest: Following an advertisement placed in The West Australian by Fisheries WA calling for expressions of interest, people may express their interest in a potential developmental fishery

ii. Ministerial decision: The Minister determines the necessity of the regulation regarding the take of the resource described in the expression of interest (i.e. a prohibition) ¹

¹ Those fishing activities not covered by a formal legislated management plan are open-access, however, there may be prohibitions over certain fishing activities and, or, certain areas. These are by way of an Order issued under Section 43 of the Fish Resources Management Act 1994. This section allows the Minister to 'prohibit persons or any specified class of persons from engaging in any fishing activity of a specified class'. These Orders are gazetted in the Government Gazette and are subsidiary legislation to the main fisheries Act. Thus in these situations there is not usually a specific fishery to be developed or explored, it is more likely that the species to be targeted or the method to be used is currently prohibited and it is up to the applicant to convince the government that they should be excepted from that prohibition in order to explore the potential of a new fishery.

iii. Application: Based on the Minister’s decision regarding the development of a fishery for the resource, people who have expressed their interest will be notified by Fisheries WA of the opportunity to submit a formal application form and business plan to develop the fishery

iv. Assessment: The assessment of all applications and business plans by the Developing Fishery Assessment Committee (DFAC)

v. Notification of status: The stage at which the applicant is notified of the approval/refusal of an application

vi. Implementation/participation: The stage when successful applicants commence participation and bring the developing fishery to life and

vii. Review, assessment and modification: The review of performance against business plans annually, with a full review of the developmental fishery, its condition, and status occurring at the end of the developmental period. Both the review and status are to be assessed by the DFAC using data and information supplied by Fisheries WA, participants and independent observers.

6. TRANSFERABILITY IN THE DEVELOPMENTAL PHASE

Authorisations issued for developing fisheries will be non-transferable during the initial developmental phase. However, if at any time a review of the developing fishery is conducted and it is determined that the transfer of authorisations in the fishery is appropriate, any new licensee that enters the fishery after a transfer will be required to operate under the same business plan or conditions imposed under the FRMA. If this is not to be the case, the modified business plan must be submitted to the DFAC for consideration and approval by the Executive Director.

7. BEYOND THE DEVELOPING FISHERY

7.1 Trigger to move to the next stage

At the end of the developmental fishery period, the Executive Director will recommend to the Minister whether the fishery ceases, remains a developmental fishery, is managed as a ‘Regulation’ or ‘S 43 Order’ fishery or moves to the next stage of an interim managed fishery.

7.2 Subsequent participation

The Government supports the concept of clearly differentiating between the initial or pioneer participants in a developing fishery and those who subsequently want to participate. Because of this, the concepts of access and allocating access are important ones. In essence, there are two situations in which subsequent participation is an issue i.e. when the fully transferable authorisations are transferred, and when the addition of participants in a fishery is an administrative matter rather than an automatic occurrence.

In fisheries managed by input-controls and with limits on the number of total participants the addition of new participants beyond the initially declared number will automatically trigger the mechanisms for moving to an interim managed fishery. Thus, the issue of authorisations for these additional participants becomes part of the management arrangements for the interim managed fishery.

For those developing fisheries managed under transferable output-control regimes, the issue of access and subsequent access will be strictly a function of the private purchase of the individually transferable units. Regardless of how access is allocated, the Government has adopted a strategy that allows it to reserve the right to choose and design the allocation mechanisms on a case-by-case basis. Further, regardless of the method of allocation, the process would be advertised in The West Australian newspaper and any funds received as a result of the process would be used to cover, or subsidise, costs of management (including compliance and enforcement) and research in the fishery.

Subsequent entrants, i.e. those who have not incurred the costs associated with discovering, developing, and marketing new fisheries, may pay a premium for making use of information gleaned by pioneers. Those who have committed considerable amounts of time, equipment and resources should be able to recoup their exploratory costs during the post-development phase of the fishery.

Having described the allowances for additional access to developing fisheries, the situation may arise that the level of effort during the developmental period is too large. Should this be the case, an interim managed fishery management plan would need to be developed, using criteria that result in an appropriate level of effort remaining in the fishery.

Figure 1: The developing fishery process

Figure 1: The developing fishery process (continued)

If a developing fishery is terminated the licenses will automatically be cancelled and there would be no continued right of access for those who bought into the fishery.

8. CONCLUSION

Fisheries WA advertised for the first round of the DNF process on 15 October 1999. This initial round will be used to refine the process and has attracted wide interest and support throughout WA, including from peak industry bodies. In the future, Fisheries WA proposes to review existing developing fisheries by requiring fishermen with current developmental fisheries authorisations to make applications through the DNF process. This will ensure that a consistent approach is applied to all developing fisheries in WA and that existing developmental fishery rights are clarified. The DNF process is an excellent example of co-management and is explicit in the delineation of rights of access to developmental fisheries.

9. LITERATURE CITED

Fisheries Western Australia 1999. Developing new fisheries in Western Australia. A guide to applicants for developing fisheries. Fisheries Management Paper No 130. 42pp.

Incorporation of a Fish Property Right: a Hypothetical Example - W. Zacharin and R. Edwards

W. Zacharin
Fisheries and Aquaculture, Primary Industries and Resources SA
GPO Box 1625, Adelaide, Australia 5001
<[email protected]>
and
R. Edwards
Complete Fisheries Management
12 Greenhill Rd Wayville, Adelaide, Australia 5034
<[email protected]>

1. INTRODUCTION

Few statutory fishing rights have been created in Australia or worldwide in relation to inshore marine resources. The majority of wild capture fisheries have access arrangements determined by one being the holder of a commercial fishing licence or permit, which is usually issued for a period of 12 months under the relevant fisheries legislation. All Australian States and Territories have formal consultative structures and mechanisms in place which provide advice to their Governments on the best management or access arrangements for specific fisheries. However, the management committees are in all cases advisory only and this advice may be accepted, amended or rejected by Government for a variety of reasons, including strong opposing views from other stakeholders who may be affected by a management decision.

This lack of fishing rights worldwide has been due to the inability to effectively overcome the common property nature of the resource which Hardin (1968) termed the “tragedy of the commons”. It is becoming clear that ‘limited entry’ alone, which is the norm in Australian fisheries, does not necessarily overcome the ‘tragedy of the commons’. We need only look at emerging demands for reallocation, or new allocations, of limited fish resources away from the commercial sector for ‘use’ in marine park exclusion zones, or for recreational fishers, tourists and charter operators, to understand that the ocean still is being treated as ‘commons’.

It is incongruous that after many years of structural adjustment, intensive research and tightening of management controls aimed at achieving sustainability in the commercial sectors that insufficient notice is being taken of past experience and early warning signals of to effectively tackle the new ‘tragedy of the commons’. These emerging trends, which can only occur in the absence of clearly defined property-rights for all user-groups, see a number of important impediments to development of fisheries. These derive primarily from lack of certainty.

The key impact on the commercial sector is the distortion of investment with an overriding imperative to take the short view. This results in sub-optimal decisions about development opportunities including:

i. investment in market assets such as brands, infrastructure and human resources

ii. investment in down-stream processing and value-adding

iii. investment in more environmentally friendly practices and facilities such as waste-disposal infrastructure

iv. voluntary stock research programmes and

v. catching capacity and related input supply services and infrastructure (e.g. fuel facilities).

i. financial and human resources to defend or capture the ‘commons’
ii. gear and resources to ensure short-term profits
iii. methods to ‘beat the system’ and,
iv. government resources to deal with those competing for the ‘commons’.

If Government were to investigate moving forward in relation to independent day-to-day management of any marine resource, what would be the organisational implications of delegating responsibility for management of the resource and its habitat? Social researchers and fisheries managers have suggested that private ‘ownership’, or delegation of the stewardship role, is not appropriate for marine resources because of the common-property nature of the resource.

However, the agriculture, forestry and mining industries have gained legitimate long-term access to these crown resources. The Government has leased these resources to the private sector in return for an economic-rent from their exploitation. Can the same principles used to lease the access and management rights of mining and forestry resources be applied to the commercial fishing industry? What could motivate fishers to promote collective interests at the expense of individual interests? This paper describes the constraints, advantages and disadvantages of establishing a public company to manage a marine resource, and uses the Northern Zone rock lobster fishery in South Australia as an example. Other corporate models have been described by Townsend (1995a) and Townsend and Pooley (1995).

2. NORTHERN ZONE ROCK LOBSTER FISHERY

The Northern Zone rock lobster fishery¹ extends from the mouth of the River Murray west to the border with Western Australia and to 200 nautical miles offshore. There are 70 licence holders in the fishery with between 25 and 60 pots held per licence. The commercial catch in 1998-99 was 1016t and has averaged around 950t/reason over the past 10 years. Licences are issued on an annual basis.

¹ The rock lobster fishery jurisdiction extends to 200 nautical miles under the Offshore Constitutional Settlement agreement between the Commonwealth Government and that of South Australia. South Australia has management responsibility for the species and licences boats. No bycatch of lobster is permitted by any other boat.

There is also a recreational fishery which is active in inshore waters and accounts for about 30t/yr. Recreational lobster are taken by diving, commercial pots and drop and hoop nets.

The fishery includes a number of marine protected areas, the most significant being the Great Australian Bight Marine Park (GABMP). The park includes a mix of multiple use and total exclusion zones, which traditionally have been commercial rock lobster fishing areas.

Advice about resource-management, allocation, cost-recovery and service-delivery is provided to the Minister by his appointed Fishery Management Committee. The committee follows a strategic plan and has a 5-year fishery management plan covering biological and economic objectives.

3. PUBLIC COMPANY CONCEPT

A public company in Australia is a company which has an unlimited number of members and may be listed on the Australian Stock Exchange (ASX). The Corporations Law in Australia considers the company to have 3 distinct elements: the legal/economic entity, the directors and the shareholders or members. The company must have a constitution (Memorandum of Association) and replaceable rules (Articles of Association).

In relation to the first element, the company as an economic entity has the ability to manage its own financial, physical and human resources to fulfil its primary objectives, which in most cases is profit. However, with the management of a marine resource this function would also include the determination of access arrangements, harvesting protocols, collection of licence fees from a variety of individuals or other companies harvesting the resource, and the responsibility for audits (both financial and physical) under the Corporations Law. This discussion primarily focuses on commercial access issues with some comments on access by other extractive and non-extractive users.

Assume at this point that the Government is able to lease the resource to the company for a period of 50 years (we discuss how this may be achieved later). The first question that must be addressed by the company is the selection of the directors by the primary shareholders. Under the Articles of Association, groups of shareholders may have a right to appoint one or more directors, and certainly in the first instance the Government would also wish to nominate a director. The requirement for a Government director (for example similar to the current arrangements with Telstra Corporation) would be necessary to enable the Government to fulfil its statutory obligations under the current legislation and common law.

Ownership of forests and mineral resources in all the instances we have investigated remains with the crown and it should be no different in this case. However, the Government in entering into a long-term lease of access agreement with the company would require the ability to nominate a director to the board to protect their ownership and interests in such issues as environmental management, monitoring sustainable resource use and equity issues.

Other different shareholders with a right to appoint directors should be current licence-holders and perhaps industry associations that represent a significant majority of licence-holders. The board may also consider representation from the rock lobster processing sector, recreational fishing interests and any traditional users of the resource.

An appropriate initial board structure may be as follows:

Chairman selected by the board members
Directors (4) nominated by current licence-holders and recreational interests
Government nominee
Non-executive directors (2)
Executive director (Chief Executive Officer)

² Jeffree v The National Companies &Securities Commission (1989) in the Western Australian Full Court.

4. SHAREHOLDERS

The key feature of the operating arrangements would be that the right to access the resource for any purpose including commercial, recreational, charter and conservation, would be linked to the holding of shares. This would set the basis for involvement in the company, managing the resource, contribution to the costs of management and shifts in access shares between competing shareholders.

How then could shares be allocated to existing licence holders, future licence holders, investors or other interested parties? There are numerous permutations one can develop, the most radical being that the company purchases all existing licences under an agreed pricing arrangement. But, this option would be expensive and of no benefit to current licence holders. We suggest as an initial allocation mechanism, the following strategy.

All current licence holders are issued shares that reflect their current access to the fishery. This could be determined by either a simple or complex calculation based on the number of pots which is the existing ‘currency’ of access. As there are 3950 pots permitted in the Northern Zone rock lobster fishery, it would be simple to issue shares based on the number of pots held and their valuation. For example, 3950 pots at a current market value of $A33 000/pot gives a total pot valuation of $A130.35 million or 130.35 million $A1 shares. A licence holder with 60 pots could be issued a total of 1.98 million shares.

Only those holders with a minimum number of shares (25 pots or 825 000 shares) would be issued with a harvesting licence by the company (stipulated in the Articles of Association). Other shareholders that subsequently purchase shares would have to lease those shares to harvesters, or accumulate a minimum share-parcel to qualify for a harvester's licence from the company. As the fishery is managed by input-controls, share-holdings must match pot-allocations to respective harvesters, with 33 000 shares representing an ‘active pot’ in the fishery.

The same principles could be applied to the recreational sector with the current catch estimate being converted to shares. The current catch of about 30t is equivalent to the catch from 120 commercial pots and hence at $A33 000/pot an initial allocation of 3.96 million shares to the recreational sector would be made. At first the recreational shares may be held by the South Australian Government on behalf of the recreational fishing community.

The concept could be extended to incorporate the share of the resource used for marine parks. It is estimated about 10t of catch is not accessible in the GAB MP total exclusion area. Thus 1.32 million shares could be issued and held by the South Australian Government on behalf of non-extractive (conservation) stakeholders.

It must be remembered that the shares provide an access-right to take rock lobster granted by the company under the lease contract with the South Australian Government. They do not provide for ownership of a proportion of the resource. However, the shares would be considered as ‘property’ and would have all the rights of an asset in relation to ownership and transferability.

Share-trading would be similar to current transfer arrangements, where investors (fishers, conservation interests, recreational and government) may hold, accumulate and direct the use of shares. This share-trading process might be simplified if the fishery were managed by output-controls in the form of individual transferable quotas (ITQs) as would any mechanism for allocating recreational catch (e.g. individual animal tags on a fee-per-tag basis).

The structure would allow new and/or current user-groups seeking variations in access to the resource, to participate in a formal transparent mechanism with a commercial basis. Governments, on behalf of the community, could participate in the market, adjusting shares in line with community expectations as they change over time. The benefits in terms of clearly-defined shares and a secure investment climate for all user-groups cannot be understated. Re-allocation decisions would be determined by the market, a fair and transparent process.

5. LEASE AGREEEMENT

The Government would have responsibilities in the areas of sustainability, environment, public accountability, economic development and equity. The nature of the lease would be performance-based reflecting these responsibilities, with the most important issue for the company being the legal obligations stipulated by the Government for management of the resource.

Not only would the Government (on behalf of the community) require that the company harvest the resource in an ecologically sustainable fashion, but that the company also demonstrate sustainable management by contracting, or directly employing, various professional staff to conduct scientific assessment, environmental assessment and other services as required. The lease would require that the fishery be managed for optimal utilisation, while maintaining the resource base at a sustainable level set using biological performance indicators, such as catch per unit effort and exploitation rate. The lease would be explicit in these matters of rights and responsibilities of the Government, the company and the shareholders.

Further conditions in relation to biological and environmental performance would be required in a five-year fishery management plan, that would be explicit about:

i. the term of the plan
ii. achieving minimum standards - biological and environmental
iii. harvest strategies
iv. approvals processes
v. reporting procedures
vi. compliance procedures and
vii. audit and review processes.

Other lease conditions would relate to minimum and maximum access provided to commercial fishers, recreational fishers, traditional users of the fishery and conservation interests as well as any other requirements for shareholding and trading. A maximum shareholding of 15% would apply to any one individual or company.

A lease or rent payment would be expected in consideration of exclusivity to the resource. The amount of payment may be influenced by the significant rural and regional economic benefits that the rock lobster industry currently generates, but the Government could expect some rent for the access-right.

A requirement would be that shareholders, through an agreed licensing system, make licence-fee payments for services required to manage their access to the resource and their contribution to the lease. In the case of the commercial and recreational sectors, this would cover research, compliance and management costs, while conservation costs might include marine park research, compliance and management.

Appropriate penalties for breach of the lease would apply including confiscation of shares. Procedures for dispute resolution would be predetermined as would circumstances where compensation may be applicable.

6. COSTS OF MANAGEMENT

At present all commercial licence holders pay full management-cost recovery to the South Australian Government under a fee for service arrangement. The current fees for the Northern Zone rock lobster fishery are approximately $A700 000, of which $A236 267 funds fisheries-compliance activities. The company may be able to reduce the need for a high level of compliance if shareholders and harvesters are motivated to adhere loyally to the regulations imposed for management of the resource.³

³ Hardin (1968) stated that ‘the only kind of coercion I recommend is mutual coercion mutually agreed up by the majority of the people affected’.

In regard to a number of other management costs, we have made an arbitrary assessment of costs for comparison in Table 1. Additional savings could be achieved by promoting greater use of the harvesters in providing data on the fishery for scientific and management purposes. Further reduction in scientific research costs could be achieved by the direct employment of a research officer for the company.

A major cost increase would occur in administration costs. At present this represents costs for corporate services from Government which are minimal. With a company, the Chairman, directors and chief executive officer must be paid a salary and this has been set at appropriate market rates. The ‘other services’ represent costs for ancillary programmes such as community awareness or additional research, which may be significantly reduced in alternate years. Overall, the indicative budget suggests a potential saving of about $A50 000.

Possible sources of revenue for the company may include licence fees from recreational fishers. There are approximately 3600 pots used by recreational fishers in the Northern Zone fishery. Current pot registration fees set by Government at $A45/pot and revenues of $A162 000/yr are received. Some of this revenue may have to be shared with Government for providing compliance services for this fishery. An agreement on licence fees for the recreational sector would be determined as part of the contract conditions to ensure fair access by this sector. Additional revenue may be raised by the company by issuing additional recreational pots or by conducting a voluntary share buy-back over time and auctioning or leasing those shares to new or existing harvesters.

A new cost would be the annual lease payment to the South Australian Government for exclusive access and management rights to the resource. As suggested, this fee should cover costs to the Government for enforcing regulations. Whether additional rent should be paid would depend on the wider communities views on leasing of the resource.

7. REPORTING REQUIREMENTS

Under the requirements of the Corporations Law, a company must submit annual accounts and an audit of financial resources. However, it is the additional requirements of Government which are likely to be negotiated as part of the lease contract that would occupy the company’s attention.

Table 1
A comparison of management costs for the current arrangements and the proposed public company

Service	Existing management committee ($A,000)	Company structure ($A,000)
Scientific research	166.2	150.0
Economic research	3.6	3.6
Policy & management	31.9	30.0
Regulatory/licensing	34.3	15.0
Compliance	236.3	100.0
Directorate	20.4	220.0
Operational management costs	49.0	20.0
Extension officer	31.5	15.0
FRDC1 levy	62.6	62.6
Environmental programme	30.0	30.0
Other services	43.0	10.0
TOTAL	708.8	656.2

¹ Fisheries Research and Development Corporation

Biological performance indicators currently used in the fishery are:

i. Catch per unit effort (kg/pot lift)
ii. Exploitation rate (the fraction of the population harvested annually)
iii. Egg production (a derived index using legal-sized females)
iv. Pre-recruit abundance (under-size catch per unit of effort) and
v. Mean size of rock lobster landed across the fishery.

The lease contract would have to include substantial financial penalties for breach of contract to enforce performance. The penalty may be dealt with by placing a constraint on future catches by the company for a specified period, particularly if the resource was being over-exploited. Or a direct financial penalty could be imposed. Such a payment would have to be recouped from revenue sources which would mean the current shareholders.

8. SHAREHOLDERS BENEFITS

What benefits would the proposed corporate model provide to shareholders and Government? The proposed structure and operating lease do not establish a ‘profit’ generating activity as such, as the only source of income would be from shareholders in the form of licence fees to cover costs of management. Hence ‘dividends’ to stakeholders in the traditional sense would not accrue.

Rather, the ‘dividends’ would take the form of better defined access and a framework for managing changes in resource shares over time and the resultant investment confidence for all shareholders. An increase in rock lobster biomass may also lead to higher share prices.

It has been established in a number of countries that natural resource management can be improved through the strengthening of property rights. For wild fisheries, the challenge is to devise a system that will make the incentives of those who have exclusive access to the resource converge with the public interest in the conservation and efficient utilisation of the resource (Pearse 1994).

Any management system must reward fishers for their collective effort and motivate all harvesters to think locally but act globally in exploiting the resource. There is no doubt that a collective co-operative approach could improve the performance of the fishery and the costs of management. Jentoft and McCay (1995) suggest that “ultimately, fishers control to what extent a management system will work or not; almost no matter how much Government spends on compliance and enforcement”.

Benefits of providing a company with long-term management rights may be:

i. Greater control and flexibility in setting annual catch levels

ii. Greater certainty in access arrangements to the resource

iii. Improved flexibility in management decision making (e.g. changes to minimum size, market responsiveness)

iv. Greater compliance by harvesters

v. Reduced management costs to harvesters

vi. Flexibility in the choice of service providers, such as those for research, compliance and market information and

vii. Capacity to raise funds in the market for other opportunities.

i. Reduced management costs of the fishery

ii. Reduced vulnerability to political pressure and the power of vested interests and

iii. Allocation decisions between commercial, recreational fishers and other stakeholders would be determined by agreed negotiation and formalised in the lease contract for a specified period.

i. Investment in market development and investment

ii. Investment in lobster on-growing and culture

iii. Development of recreational and tourism infrastructure

iv. Marketing of recreational and tourism opportunities

v. Service delivery (e.g. management, communications, development, marketing, research and conservation) and

vi. Acquisition of catching and processing capacity.

What are the disadvantages of transferring management to a public company and changing the equity of current licence-holders? Would the lease contract confer any stronger property-right to the resource than currently exists? We suggest there are significant benefits in formally determining resource shares. Would private investors move into the market and purchase significant shareholdings, thereby changing the small-business nature of the fishery and its contribution to regional economic growth? This is likely to occur if the value of shares rises and fishers decide to invest their capital elsewhere. Would the actual costs of management increase asbiological and environmental monitoring and performance require increasing resources to enable the company to fulfil audit requirements? This is uncertain at this stage, though. Greater participation by harvesters may result in the perceived cost-savings.

9. SUMMARY

As limits to the lobster resource have become better defined in recent years, the Government, commercial fishers, recreational fishers and conservationists, have turned their collective energies to methods of maximising the benefits to the South Australian economy and community from the limited resource. An economic, or development, focus dictates that a commercial approach to resource-sharing as opposed to government-driven prescriptions are inevitable if all the benefits and efficiencies on offer are to be captured.

It may well be however, that Australian society is not yet prepared to see ownership of marine resources transferred to private interests as has happened in Japan. Fisheries management remains a political issue in western society and the ‘manager’ needs to pursue multiple conflicting goals.

Co-management and leasing long-term access rights to the resource takes a middle road between overall Government concerns for efficient resource utilisation and conservation, and local concerns for equal opportunities, self-determination and self-control (Jentoft 1989). However, a move to corporate management over cooperative management is an alternative step and perhaps provides a better mechanism for dealing with the rapid structural changes and globalisation of markets in the seafood industry.

There are some other examples of privatisation described in Pomeroy and Berkes (1997) which use pooled quota-holdings between user-groups or auction mechanisms to determine who gains resource access. Gonzalez (1996) has suggested territorial use rights to control access and fishing effort in the presence of an open-access situation while Townsend (1995b) has described a transferable dynamic stock-rights system. However, all these mechanisms seem to display some continuing problems over ownership and equity of access. Our proposed corporate model would create incentives for cooperation and should promote more effective, efficient and equitable management regimes which would benefit the whole community.

Rock lobster fisheries are single species fisheries using single gear which make them conducive to private management. The proposed leasing of the northern zone rock lobster fishery to a public company may be achievable because of the corporate culture already prevalent in the licence-holders participating in this fishery. Without a collective corporate view being taken by licence-holders, the move to a public company model will not be achievable.

10. LITERATURE CITED

Gonzalez, E. 1996. Territorial Use Rights in Chilean Fisheries. Marine Resource Economics 11, 211-218.

Hardin, G. 1968. The tragedy of the commons. Science 162, 1243-1248.

Jentoft, S. 1989. Fisheries Co-management. Marine Policy 13, 137-154.

Jentoft, S. and B. McCay 1995. User participation in fisheries management. Lessons drawn from international experiences. Marine Policy 19(3), 227-246.

Pearse, H. 1994. Fishing rights and fishing policy: The development of property rights as instruments of fisheries management. Proceedings of the World Fisheries Congress, New Delhi pp 76-91.

Pomeroy, R.S. and F. Berkes 1997. Two to Tango: The role of Government in Fisheries Co-management. Marine Policy 21(5), 465-480.

Townsend, R.E. 1995a. Fisheries self-governance: corporate or cooperative structures? Marine Policy 19(1), 39-45.

Townsend, R.E. 1995b. Transferable dynamic stock rights. Marine Policy 19(2), 153-158.

Townsend, R.E. and S.G. Pooley 1995. Corporate management of the Northwestern Hawaiian Islands lobster fishery. Ocean & Coastal Man. 28(1-3), 63-83.

Zacharin, W.F. 1997. Management plan for the South Australian northern zone rock lobster fishery. SA Fish. Man. Ser. 28, 1-24.