4 AN OVERVIEW OF CAPACITY MEASUREMENT STUDIES

The measurement of capacity and capacity utilization rates in various sectors of the economy is not a new phenomenon.^[29] Capacity and efficiency studies have been conducted in the agriculture, medical, and industrial sectors of the economy as well as in domestic and foreign fisheries.

For example, Morrison (1985) used annual U.S. manufacturing data from 1954 to 1980 to construct and compare traditional indices and alternative economic capacity utilization measures. Stochastic production frontiers have been used to conduct a comparative study of wheat farmers in Pakistan (Battese and Broca, 1996) and to determine the technical efficiency of 26 rural Nevada water utilities (Bhattacharyya et al., 1995). Reinhard and Thijssen (1998) used an output distance function approach to define and estimate a resource use efficiency measure using a panel of Dutch dairy farms to characterize non-point source pollution. A nonparametric approach to measure capacity, competition, and efficiency in hospitals was developed by Fare, et al. (1989).

These studies are indicative of the capacity metrics that have been in use in many industries and that are well accepted by scientists as well as by a broad range of managers and policy decision makers. What is new is the desire of fishery managers to explicitly address capacity in fisheries.

While excessive capacity utilization levels are cited in a number of studies of both international and United States fisheries, the unique nature of most fisheries is often ignored when traditional methodologies to measure capacity are employed. The traditional methodological approach assumes the existence of relatively efficient markets for the allocation of goods and services (commodities) used in the production process.

In most U.S. and international fisheries, an extensive market externality exists (usually described as the “common property externality”) which results in a set of incentives that can cause a severe misallocation of resources used in the production process. One symptom of this misallocation is the excessive use by the fishing sector of capital and labor in the production of fish.

As a result, capacity utilization estimates based on the presently existing methods of data envelopment analysis (DEA) and stochastic production frontiers (SPF) indicate exceedingly large estimates of excess capacity in open access and in regulated open access fisheries where command and control regulations are used to try to restrict harvest levels.

More importantly for fishery managers, these methods designed to measure excess capacity in a regulated open access fishery do not correctly account for the overcapacity that exists as a result of the common property externality.

4.1 Capacity Measurement in Global Fisheries

Interest in the problem of fish harvesting capacity has grown steadily over the last decade at both international and respective domestic levels, and international studies that have attempted to measure global fishing capacity levels are often cited as examples of how excessive levels of investment in fish harvesting technology have lead to the decimation of global fish stocks.

For example, Fitzpatrick (1995) calculated a 270 percent increase in average fishing power between 1965 and 1995 - essentially, a 9 percent average annual growth rate. This increase in vessel fishing power has been coupled with an increase in total vessels from 0.6 million in 1970 to 1.2 million in 1992, or a 2.2 percent average annual growth rate. Garcia and Newton (1995) estimated that world fishing capacity should be reduced by 25 percent for revenues to cover operating costs and by 53 percent for revenues to cover total costs. Similarly, a substantial reduction in global fleet capacity - perhaps as much as a 50 percent reduction in existing global fishing capacity - would be required for levels to become commensurate with sustainable resource productivity (Mace, 1996).

In other studies, such as a summary of the results of various DEA and peak-to-peak analyses of fishing capacity using primarily input data from selected Canadian and FAO member country fisheries (Hsu, 2000) found that:

• the Atlantic inshore groundfish fishery between 1984 and 1991 had excess capacity;
• the Pacific salmon fishery between 1984 and 1995 had substantial excess capacity;
• the aggregate Atlantic inshore fishery between 1984 and 1991 had nominal capacity levels; and,
• substantial levels of excess capacity existed in world capture fisheries.

4.2 Capacity Measurement in Specific Commercial Fisheries

Although the literature on capacity in commercial fisheries is not abundant, various papers and case studies have shed some light on different aspects of this complicated problem:

• Kirkley, Squires, Alam, and Omar (1999) developed estimates of harvesting capacity for the Malaysian purse seine fishery;
• Banks (1998) evaluated the fishing vessel decommissioning scheme of the European Union designed to achieve a 20 percent reduction in bottom trawl fisheries and a 15 percent reduction in beam trawl fisheries for benthic stocks;
• Bardarson and Vassdal (date unknown) used DEA to define total factor productivity in the Norwegian trawler fleet over the 1985 to 1996 time period;
• Cook (1990) developed a dynamic bioeconomic model to determine the efficacy of management options to reduce capacity in the Canadian halibut fishery and increase social returns from the fishery; and
• the Government of Japan (2001) assessed capacity in its domestic fisheries and determined generally that excessive fishing capacity was present in its coastal fisheries and, as a result, for the large-scale purse seine and offshore trawling fisheries in which capacity was deemed to be excessive, vessel reduction projects are being advanced.

The review by Ward et al. (2000) provides a source of information that can be used to help determine whether excess capacity is a severe problem in a particular fishery, The review covers the published literature that is available and that assesses capacity levels in U.S. fisheries using these accepted measures of capacity and capacity utilization

4.2.1 Early Studies

One of the earliest efforts to estimate capacity levels in United States fisheries was conducted by Ballard and Roberts (1977). They used the peak-to-peak method to estimate capacity utilization rates for 10 Pacific coast fisheries that, in 1973, accounted for 86 percent of the dollar value and 72 percent of the total weight of landings for the Pacific region. Over the 24 year time period, vessel tonnage in these fisheries grew by 197.4 percent, the real value of the fishery increased by only 65.4 percent, and the catch declined by 0.5 percent. Table 1 indicates that the capacity utilization level declined over the time period of analysis.

However, some caveats apply to this approach. First, these figures only indicate that the potential exists for an increase in catch without major new capital expenditures. That is, a fifty percent capacity utilization rate does not imply that the fleet would be economically more efficient with a fifty percent reduction in fleet size. Second, fluctuations in weather conditions or biological stocks may result in the exaggeration of the fleet’s potential catch capability causing the peak years to be abnormally high and the intervening years to appear excessively depressed. Third, the technology trend used to estimate the potential output per input unit is calculated as the percentage change in unit input production over the time period between peaks and can as a result be influenced by regulatory policy and changes in labor skill levels causing biased estimated capacity rates.

Smith and Hanna (1990) estimated capacity utilization rates for the Oregon bottom trawl fishery between 1976 and 1985. Capacity utilization was calculated by multiplying the number of vessels with vessel size, technical efficiency, and number of trips. Table 2 indicates that utilization was at a maximum in 1976, and declined to a low of 3.9 percent in 1980.

Table 1 Ten Major Pacific Coast Fishery Capacity Utilization Rates (Ballard and Roberts, 1977)

* indicates a peak year for the evaluation of trends

Table 2 Annual Oregon Trawl Fleet Capacity Utilization, 1976-85 (Smith and Hanna, 1990)

* Fleet Capacity from Table 2 in Smith and Hanna (1990) times 28 trips.

The elimination of foreign fishing between 1976 and 1982 caused the domestic fleet to triple capacity as new and larger vessels entered the fishery. Large rockfish catches beginning in 1981 caused capacity utilization rates to rebound until 1983. The 1982 recession caused fixed and variable costs in the fishery to rise resulting in a reduction in fleet size (annual fleet capacity in Table 2) while regulations reduced catch levels (annual catch capacity in net tons in Table 2) causing capacity utilization to increase after 1984.

This analysis demonstrated that no one management measure will effectively control capacity growth.

4.2.2 Other Capacity Measurement Studies

Data envelopment analysis (DEA) was applied to domestic fishery capacity estimation by Kirkley and Squires (1999) and by Kirkley et al (1999).

These studies used DEA on panel data from ten Northwest Atlantic scallop vessels operating between 1987 and 1990. They found substantial excess capacity relative to current harvest levels in this sample fleet. Vessels operating efficiently could increase their total production by approximately 50.8 percent between 1987 and 1990. Operating at the optimum level of days at sea and crew size and over 285 days, subject to resource conditions, would have allowed production to increase by another 39.9 percent.

Capacity utilization per trip based on observed output and resource constraints was found to be quite low, but was relatively high in terms of technical efficiency. Technical inefficiency appeared to be a major reason why vessels have not operated near optimal capacity, but capacity utilization rates differed depending upon the standard of measurement used. If measured relative to observed days fished per year, capacity utilization rates were much higher than if measured relative to optimal number of days fished per year; e.g., 96.6 versus 85.6 capacity utilization rate, respectively.

A bioeconomic model, developed by Edwards and Murawski (1993), assessed the economic benefits that could be derived from the efficient harvest of the New England groundfish fishery. While not a direct estimate of harvest capacity, this study did indicate that substantial net benefits could be generated if the fishery were operated at its social optimum. Table 3 indicates that optimum effort was estimated to be 70% less than effort in 1989. Excess fishing effort was estimated to be 60 % in the Atlantic cod fishery, 70% in the yellowtail flounder fishery, and 80% for the haddock fishery.

An output based measure of capacity utilization would estimate the level of landings that could potentially be landed relative to the actual level harvested. However, their input based approach allowed the determination of the effort level needed to maximize net benefits to the nation. By determining the optimal level of the fishing effort input needed to harvest a given level of output, the study provided an indication of the substantial level of excess capacity that appeared to exist in this fishery.

Table 3 The Efficient Harvest of New England Groundfish Resource, 1989 (Edwards and Murawski, 1993)

A hedonic approach was used by Kirkley and Squires (1988) to estimate capital stock and investment in the New England otter trawl fishery. An index of constant dollar capital stock values was estimated based on a subsample of this fishing fleet. Table 4 indicates that fluctuations in capital investment did not necessarily coincide with the vessel count. The number of trawl vessels increased in each year after 1965. However, capital stock levels fluctuated during the same period and even declined during four of those years.

Table 4 Indices of Capital Stock Based on Constant Dollar Value and Vessel Count (Kirkley and Squires, 1988)

* Gear type assigned by plurality of days absent.

Di Jin, et al. (2000) used a similar approach to conduct an analysis of total factor productivity to separate changes in stock abundance from improvements in technical efficiency for the same fishery. The overall annual decline in total factor productivity found in the New England groundfish fishery between 1964 and 1993 of 6.6 percent was due primarily to a decline in stock abundance. Correcting for the decline in stock abundance, total factor productivity actually rose by 4.8 percent per year on average.

These results confirm that the key problem in New England groundfish fisheries is excess capacity.

A qualitative approach to measuring overcapacity was conducted by the National Marine Fisheries Service (Ward et al., 2001) and was comprised of an assessment of the harvest capacity levels in federally managed fisheries.

An initial qualitative assessment determined that overcapacity is a problem requiring the attention of fishery managers in 55 percent of the federally managed fisheries reviewed in seven regional reports. The fisheries without overcapacity included two individual transferable quota fisheries on the east coast, several low-value pelagic species fisheries on both the east and west coasts, and various small-scale, largely part-time, and subsistence fisheries in the western Pacific and in the U.S. Caribbean.

These results suggested that overcapacity in federally managed fisheries is a management issue that should be addressed by fishery managers.

4.3 Capacity Measurement in Recreational Fisheries

Capacity is not only an issue for the commercial fishing industry; it can also be an issue for recreational fisheries. Furthermore, excessive recreational capacity has been identified as a concern where the data necessary to develop capacity measures is not available and where the concept relative to recreational fisheries is not well understood (Kirkley, 1998).

Defining and measuring capacity levels in recreational fisheries is complicated. First, the recreational output is not the pounds landed or number of fish caught, but the quality of the recreational fishing experience. While the quality of the fishing experience is related to the number of fish caught, it also includes other factors. Unfortunately, data for accessing the quality of the fishing experience, the maximum potential quality for the angler, or even the maximum potential harvest, is usually unavailable.

A second issue is determining the work-leisure trade-off and how it affects the subsequent assessment of the associated fishing satisfaction or utility levels. Third, the determination of the demand for recreational trips is critical in the assessment of recreational capacity.

Using a physical output approach, Kirkley (1998) estimated capacity and capacity utilization for the Gulf of Mexico and Atlantic recreational fisheries from 1986 to 1995 by defining capacity to be the maximum potential catch in terms of the number of angler trips using a peak-to-peak approach (Table 5).

Table 5 Atlantic and Gulf Recreational Fishery Landings and Effort, 1985-1995 (Kirkley, 1998)

Relative to capacity utilization, recreational anglers consistently caught fewer fish than the maximum they could have caught if the resource or something else had not constrained their harvest levels, but some extreme assumptions were made to utilize this definition of capacity and capacity utilization.

First, it was assumed that the demand for recreational fishing must be separable from the demand for all other goods and services, including other recreational activities; more typically, when consumers purchase various goods and services, they group items together as composite bundles such as food, shelter, clothing, and recreational activity. However, this assumption about separability allows an analysis of the demand for recreational fishing and, subsequently, its utility without performing a demand analysis for all goods and services. Second, the peak-to-peak approach uses the highest output per unit of input (trip) and adjusts it for changes in technology over time, but in the study the technology was assumed to remain constant over time.

As a result, the maximum potential physical catch is not an adequate indicator of capacity or an assessment of capacity utilization in recreational fisheries. Given customary and traditional recreational fishing practices, however, it does represent a potential upper limit on the maximum catch.

4.4 Capacity Measurement in Artisanal Fisheries

Capacity utilization measures for artisanal fisheries are missing from the literature.

While comparable capacity utilization rates can be calculated for small, medium, and large scale commercial fishing firms, artisanal and sometimes small-scale fishermen often rely on multiple outputs to ensure their economic and perhaps even physical survival.

Adopting existing capacity utilization measures to small scale and artisanal fisheries would require assuming the separability of outputs. Yet, by separating capacity from other outputs necessary for survival, existing measures of capacity utilization that focus solely on fishery output or input levels may not provide fishery managers with sufficient information to properly account for artisanal and small scale fishermen.

4.5 Summary

Case studies of capacity in various fisheries have been conducted over time using different qualitative and quantitative measurement techniques. Generally, they indicate that excess capacity is a management problem for those fisheries in which measures were calculated.

The use of different approaches to measure capacity at different points in time generally prevents direct comparison of capacity estimates between these fisheries. These studies also show that many assumptions had to be made to develop capacity estimates, especially in recreational fisheries. A standardized approach to capacity measurement is necessary to make possible comparisons between fisheries, scales of production, and over different time periods.

However, on a more positive note, even though comparisons between fisheries, regions, or over time are not possible, these case studies do indicate the interest in and the seriousness of excess capacity in commercial and recreational fisheries. In addition, capacity estimates are not available for many managed fisheries in the literature, indicating a need for more analyses if policy makers and managers are going to focus on the matter of reducing overcapacity as a strategy for moving towards sustainable fisheries.

These case studies indicate that a number of problems still need to be resolved before capacity measures can be estimated in multi-species, multi-area, multi-output, and multi-seasonal fisheries and in artisanal and recreational fisheries. Moreover, these global assessments and individual case studies indicate that the distinction between the concepts of excess and overcapacity capacity have not been explicitly incorporated into estimates of capacity in fisheries.