Kahawai FAP

Kahawai Final Advice Paper

Ministry of Fisheries

29 June 2004

Loss of economic return

While there might be a number of possible economic effects from setting TACs at the level proposed in the IPP those that were quantifiable were minor. Lost opportunity costs (associated with the limitation on expansion of commercial catch) needed to be weighed against the uncertainty in current stock status, the value of kahawai as a shared fishery and the importance of this species in an ecological context.
MFish has evaluated the potential economic impact of TACC options on Industry in more detail.

Restructuring costs

There are short-term impacts arising from introducing kahawai into the QMS associated with the need for individual fishers to acquire quota to reflect their current fishing operations. Kahawai landings in the criteria years for catch history were substantially higher than they are currently. This has led to a situation where the sum of provisional catch history exceeds most of the proposed TACCs for kahawai stocks. Unless provisional catch history is cancelled (this occurs if it is not transferred) current fishers who were also fishing during the criteria years will have their provisional catch history reduced. The level of reduction is dependent on the TACC that is finally set. For any of the TACC options proposed there is likely to be a reduction in provisional catch history (that is provisional catch history will transfer to a smaller share of actual quota). Accordingly once quota is allocated, some current fishers may hold insufficient quota to cover kahawai landings from their current fishing operations.
However, under a QMS regime the balancing regime will require fishers landing kahawai without annual catch entitlement (ACE) to pay the deemed value. Differential deemed values are also proposed. Those fishers consistently landing kahawai, particularly those landing kahawai as an unavoidable bycatch, will place a greater value on quota to avoid a future stream of deemed value payments. This will create an incentive for quota to flow to those fishers with a long-term interest in the fishery. MFish expects that there will be short-term restructuring costs for these long-term fishers while quota is repositioned to where it is most required and valued. A similar situation (and impact) is anticipated for new entrants to target fisheries of which kahawai is a bycatch who will receive no allocation of kahawai quota.

Reference points

MFish has used reference points to compare the socio-economic impacts of TACC options as follows:

Current utilisation; and
Average bycatch.

The MFish estimate of current commercial utilisation forms the basis of the status quo fishery. Accordingly it is a useful reference point for TACC options proposed.
A further reference point for any potential economic impact is the constraint a shortage of ACE for bycatch species might impose on target fisheries. Kahawai bycatch at moderate levels is associated with target fishing for jack mackerels, trevally, snapper and grey mullet. The level of bycatch reported has been relatively stable over the past ten years in KAH1 and KAH 3. Accordingly, MFish considers that in these areas the difference between total commercial kahawai landings and those reported as caught when targeting kahawai might represent a minimum level in terms of a manageable bycatch.
Recently reported bycatch levels are based on current fishing methods in use in the fishery. As most of the bycatch of kahawai is in the purse seine fishery for jack mackerels and the trawl fisheries for trevally and snapper incidental bycatches of kahawai can probably not be actively managed by fishers.
In KAH 2 and KAH 8 the level of reported bycatch is more variable between years. However, only in KAH 8 is the average level of bycatch greater than the target catch.

Estimates of loss of economic return

MFish has estimated the potential loss of economic return with respect to the reference points above for each of the following factors:

loss in earnings from kahawai (based on port price);
loss in quota value; and
potential deemed value costs.

Commercial impacts can be measured as direct opportunity costs. A tonne of kahawai has a value and any reduction in tonnage for the commercial sector as a result of a lower TACC can be measured as an opportunity cost. MFish considers that impacts can best be measured by asset value and by forgone annual earnings as provided by the port price of kahawai (MFish notes that port prices will overestimate annual earnings as these include handling costs).
In the IPP asset value (quota value) for kahawai was estimated between $1 700 and $5 100. MFish accepts that there is uncertainty in estimations of the future quota price for kahawai but in the absence of any alternative asset values provided by submissions, consider these to be the best available information.
MFish has evaluated loss of economic return for three TACC options against points of comparison. These are:

The Sanford option;
Proportional reduction option; and
Non-Commercial Fishers option

Sanford has submitted that it prefers that the MCY estimate of 8 200 tonnes be used as the basis of setting TACCs after allowances are made for non-commercial fishing. MFish has used the industry proposal as a point of comparison to evaluate TACC options and assess the potential impacts of the TACC options proposed. MFish notes that within that level of TAC Sanford proposes greater TACCs than other options.
The Proportional Reduction TACC option is based on an arbitrary 15% reduction from current commercial levels of use. MFish has used the alternative MFish proposal as a point of comparison to evaluate TACC options and assess the potential impacts of the TACC options proposed.
Non-Commercial Fishers has submitted that it prefers that a revised MCY estimate of 6 900 tonnes be used as the basis of setting TACCs after allowances are made for non-commercial fishing. MFish has used the recreational proposal as a point of comparison to evaluate TACC options and assess the potential impacts of the TACC options proposed.
Taking the difference between each TACC option and the reference point and multiplying this difference by the port price of $0.85 for all stocks estimates the forgone annual earnings associated with each TACC option.
Taking the difference between each TACC option and the reference point and multiplying by the estimate of quota value per tonne for all stocks estimates the potential forgone quota value. As mentioned above the quota value is estimated to range between $1 700 and $5 100
For associated fisheries, economic impacts can occur when ACE is not available to cover the inevitable bycatch associated with other target fisheries. Impacts include the payment of deemed values for any kahawai taken above ACE.
The potential for costs associated with payment of deemed values is estimated from taking the difference between each TACC option and the average bycatch and multiplying by the proposed deemed values of $610 or 660 per tonne. MFish notes that this assessment is based on the fishery as a whole. The potential for deemed value costs is further influenced by the circumstances of individual fishers with respect to their future quota holdings of kahawai. MFish notes that this analysis is based on the payment of annual deemed values and does not apply to differential deemed value rates. If differential deemed value rates are incurred the impacts could be up to two fold greater.
An alternative to the payment of deemed value when there is insufficient ACE to cover bycatch is that fishers could stop fishing for their target species. MFish is not aware of any current situation where the landing of target species is constrained by the level of bycatch TACCs. Typically when landings are taken in excess of the bycatch TACC deemed values are paid. Accordingly, MFish does not consider there will be any potential costs of foregone fishing for associated species due to kahawai bycatch limitations.
The assessment of the potential loss of economic return associated with TACC options is summarised in Table 10.

Conclusion

MFish notes that adopting the current utilisation option imposes no costs greater than reference points.
MFish concludes that restructuring costs above what may be usual for a QMS introduction are likely for kahawai because historical catch (and therefore PCH) is higher than any TACC option proposed. MFish considers that these costs will be short term but are relevant for you to consider. MFish notes that fishers will incur restructuring costs under any of the TACC options proposed.
Assessing loss of economic return for kahawai TACC options is problematic. MFish has therefore provided a range of reference points for you to consider with respect to the choice of TACC options. MFish has used port prices and derived an asset value (quota price) to assess opportunity costs of TACC options with respect to these reference points. Because no quota market currently exists for kahawai, the assessment has relied on proxy values. MFish notes that there is uncertainly associated with this approach, however it is considered the best information currently available.
MFish notes that adopting the Sanford option will increase economic returns in comparison to current levels of utilisation.
Adopting the proportional reduction option will result in forgone port price earnings and quota value of 15% in comparison to current utilisation. In addition, MFish notes that adopting a proportional reduction of commercial catches in KAH 8 reduces the TACC below the average landings of bycatch. This would mean incurring the payment of deemed values for this overcatch. The level of bycatch is variable and catches have exceeded the proposed TACC in only four of the past fifteen years. Nevertheless, on average deemed value payments of $58 000 per annum might be expected by adopting TACCs that are proportionally reduced.
MFish concludes that apart from forgoing annual economic returns and asset values with respect to setting TACCs at the greater values of the Sanford and current utilisation options, the only other impact incurred by setting TACCs at the level of the proportional reduction option is in KAH 8, where deemed values may be occurred from over catching kahawai as a bycatch in some years.
Adopting the Non-Commercial Fishers option will result in concomitant forgone port prices and quota value of about 25% in comparison to current utilisation. In addition, MFish notes that adopting this proposal would reduce the TACC below the average landings of bycatch in KAH 2, KAH 3 and KAH 8. This would mean incurring the payment of deemed values for this overcatch.

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Allowances for other sources of mortality

MFish initial position

The IPP proposed setting a nominal allowance of 5% of the average reported purse seine landings for the last five years in accordance with the legislative requirement to provide an allowance for other sources of fishing related mortality.

Submissions

Sanford submits that purse seine fishing is a benign method because fish are alive until they are in the hold of the vessel. As a result any catch can be released from the net in the event of gear problems. Accordingly, it submits that an allowance for fishing-related mortality is unnecessary.
Non-Commercial Fishers submit that set netting and other commercial methods result in incidental mortality of kahawai. It recommends other sources of fishing related mortality be set on the basis of 5% of all commercial methods.
Richard Pollock submits that illegal selling of kahawai is a common occurrence and should be provided for by way of this allowance.

MFish response

The IPP proposal was based on a nominal value for one particular method of commercial fishing. MFish does not agree with Sanford that purse seining is completely benign and in the event of gear problems all fish are unharmed. Reports suggest that schools sometimes merge dragging the gear under water and allowing kahawai to escape. The trauma associated with this is likely to cause incidental mortality. MFish notes the submission of Non-Commercial Fishers that other commercial methods also result in incidental mortality. However, MFish believes that any assumptions relating to wider application of this allowance should also extend to recreational fishers (that are known to practise catch and release resulting in further unknown levels of incidental mortality).
Accordingly, MFish proposes changing the procedures for estimating other sources of mortality. It proposes setting an arbitrary allowance for incidental mortality on the basis of 2% of TACs and proposes to adjust this allowance as new information is obtained. MFish notes that the level of incidental mortality will vary depending on the management options being considered and are based on assumptions that require further investigation.
The IPP noted at paragraph 53 that there is no information on the current level of illegal catch. MFish notes Richard Pollock’s submission that an allowance for this should be made but considers that this can be incorporated in the generic allowance, which is now proposed as a proportion of TACs.