The estimates of fisheries subsidies that we made above represent important information but to better assess their significance the values need to be compared with something. The industry value of a subsidy could, for example, be put in relation to the total sales value for the part of the industry it affects, or the total government expenditure on fisheries subsidies could be expressed as a percentage of the total added value created by the fisheries sector[18] and compared with similar ratios for other sectors.
The ratios that should be calculated depend of course on the objective of the analysis, e.g., should the fisheries subsidies be compared with other sectors of the economy or with fisheries in other countries, or should the development - increases or decreases in different categories of fisheries subsidies - over time be measured? Some examples of ratios that could be calculated are listed below. The ratios can either be calculated for the fisheries sector as a whole or for different subsectors or groups of firms, depending on the scope and objective of our study.
Government expenses (revenues)
- Government costs (revenues) divided by the number of employees in the fisheries sector, selected subsectors or groups of operators.
- Government costs (revenues) divided by the value added created by the sector or subsector.
- Government costs (revenues) divided by the value of production (turnover) of fisheries industry or part of it.
- Government costs (revenues) divided by ex-vessel value of landed fish.
Change in industry profits
- The industry value of the subsidies divided by the total profit/loss (before or after tax) of the fisheries industry, selected subsectors or groups of operators.
- The industry value divided by the ex-vessel value of landed fish.
- The industry value (change in profits) divided by the value added created by the fisheries sector, selected subsectors or groups of operators.
If we want to make international analyses, we should make sure that the ratios we calculate are relevant for cross-border comparisons and that data we use are compatible. The different conditions - natural, economic and social - under which the fisheries industry operates in different countries influence the relative values of fisheries subsidies and these may not be immediately comparable. It should also be recognized that the institutional arrangements and the resources available to the public sector vary between different countries and this aspect needs to be taken into consideration when making international comparisons.
In addition to the more general ratios discussed above, we may also want to make further use of the results of the costs and earnings analysis. Based on the calculations made on the income statements - discussed in chapter 7 above - we can calculate financial ratios and in this way evaluate the economic performance with and without subsidies. Depending on our sample size and the number of subsectors that we have included in the costs and earnings analysis, average ratios for different parts of the industry can be estimated and assessed. Some of the ratios to calculate could include:
Gross margin
Profit margin (return on sales)
Return on investments
|
BOX 23 Within the framework of the fisheries subsidies study in Seidisbus, a costs and earnings analysis was carried out for the shrimp fishery. In 2000, there were six companies operating a total of eight boats in this fishery. Income statements were obtained from four of the companies, covering six of the boats. It was assumed that the remaining two companies operated along similar lines to those interviewed and the data obtained was extrapolated to establish a profit and loss account for the shrimp fishery as a whole. All eight vessels in the fishery were of the same type and size although of very different age; the newest had just been taken into service while the oldest had been operating for nearly 25 years. The average age of the fleet was estimated at 8 years. The cost of a new vessel was estimated to be about US$ 10 000 000 based on information from the national ship wharf. However, there is also an important second-hand market in the region and the average value of the vessels in the fleet was estimated to be 6 000 000 with a life span of 15 years. Accordingly, the total current value of the fleet is US$ 48 000 000. The commercial interest usually charged for this type of investment was 15% and the loan period would generally be the same as the economic life span of the investment, i.e. 15 years in this case, with payments due at the end of each year. With regard to subsidies, many of the examples quoted in chapter 6 - and summarized in Figure 9 - were relevant to the shrimp fishery in Seidisbus. The exceptions were the investment grant programme (Box 6) and the restructuring of the shrimp hatchery industry (Box 8) which were only relevant to the aquaculture subsector, the subsidy involved in the state-ownership of the ship wharf (Box 8), the provision of landing sites along the coast for the artisanal fishers (Box 15), the membership in the regional fisheries committee dealing with the management of small pelagic species (Box 19) and the extra costs for new TEDs which were already being used by the fleet (Box 18). The income guarantee scheme (Category 1 subsidy) benefited the fishers working onboard the shrimp trawlers. However, there was no information on the amounts having been paid out to individual fishers and it was hence assumed that the scheme had benefited fishers in the semi-industrial and the shrimp fishery fleets equally: 120 (employees shrimp fleet) divided by 370 (total employees semi-industrial and shrimp fleets) multiplied by 450 000 (industry value of subsidy) = 145 900. All six companies targeted the export market and had their own marketing and distribution structure. Shrimp exports represented 90% of the total value of fish exports in 2000. Four of the companies had participated in the 2000/2001 trade fair organized by the Export Council (Category 2 subsidy): 90% of 75 000 (fisheries' share of Export Council budget) plus 4/30 (share of shrimp industry participants in trade fair) of 12 000 (fisheries' share or trade fair costs) = 69 100. For the fuel tax rebate (Category 2 subsidy), there were records of the recipients of the reimbursements. The shrimp fishery fleets had received a total of 550 000 under the scheme. FAO, and in particular the marine fisheries management project (Category 2 subsidy), was important to the shrimp fishery, probably more so than to many other parts of the sector. It was believed that it would be fair to assign 75% of the industry value to the shrimp fleet: 75% of 201 750 = 151 300. The same share, 75%, was attributed to the shrimp fishery of the total fisheries management subsidy (Category 3): 75% of 2 000 000 = 1 500 000. The free access subsidy (Category 4) affected the shrimp fishery proportionally to the value of their landings, i.e., 4% of 35 million = 1 400 000. AGGREGATED PROFIT AND LOSS ACCOUNT - SHRIMP FLEET (US$) 2000 |
||||
|
Item |
Actual: |
Name of |
Amount of |
Account less |
|
REVENUES |
|
|
|
|
|
SALES REVENUES |
38 000 000 |
FAO |
151 300 |
36 279 600 |
|
|
|
Export Council |
69 100 |
|
|
|
|
Management |
1 500 000 |
|
|
OPERATING COSTS |
|
|
|
|
|
RUNNING (VARIABLE) COSTS |
17 000 000 |
Fuel rebate |
550 000 |
17 550 000 |
|
LABOUR COSTS |
5 000 000 |
Income guarantee |
145 900 |
5 145 900 |
|
FIXED COSTS |
3 000 000 |
Free access |
1 400 000 |
4 400 000 |
|
GROSS CASH FLOW |
13 000 000 |
|
|
9 183 700 |
|
CAPITAL AND FINANCIAL EXPENSES |
|
|
|
|
|
DEPRECIATION |
3 200 000 |
|
|
3 200 000 |
|
INTEREST COSTS |
500 000 |
|
|
500 000 |
|
PROFIT OR LOSS BEFORE |
9 300 000 |
|
3 816 300 |
5 483 700 |
|
TAX |
|
|
|
|
|
CORPORATE INCOME TAX (15%) |
1 395 000 |
|
|
822 555 |
|
PROFIT OR LOSS AFTER TAX |
7 905 000 |
|
|
4 661 145 |
It would also be interesting to examine the change in financial strength and solvency ratios but as the longer-term impact of the subsidies on the firm is not known, this would be difficult to do in any reliable way. The financial strength and solvency ratios are based on information from the balance sheet and in order to make any meaningful assessment, the balance sheet would need to be adjusted for subsidies in the same way as the profit and loss account. The latter is a shorter-term reflection of the business and it is easier to make adjustments with an acceptable level of reliability. The balance sheet is the long-term account of the business's transactions. To adjust the balance sheet for the effects of subsidies would involve, in addition to analysing the history of the direct effects of subsidies, speculations with regard to overall investment and business decisions triggered by the indirect effects of subsidies in the past. In fact, in line with this discussion, also the last profitability ratio suggested above, i.e., return on investments, could be questioned with regard to its reliability as it uses total assets - a balance sheet item - as the denominator.
|
BOX 24 In Seidisbus, the following ratios are calculated in the fisheries subsidies study:
|
|
BOX 25 Using the information for the shrimp fishery in Seidisbus (Box 23), the following financial ratios can be estimated: 1. Return on sales
2. Return on investment
|
|
[18] The added value created
by the fisheries sector is often referred to as the GDP of the fisheries
sector. |
