Australian Agribusiness Review - Vol. 6 - 1998
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A Review of the Albacore Tuna Fishery in the South Pacific
Chris Lightfoot is a consultant economist with extensive experience in the Pacific region. He is currently based in Melbourne This paper has been prepared from information gathered during a consultancy undertaken by Chris Lightfoot and Chris Friberg on behalf of the Forum Fisheries Agency.
Over the past twenty years the international albacore (Thunnus alalunga) fishery has declined in importance relative to other tuna fisheries. The Japanese and the South Korean fleets have virtually left the fishery and the composition of the Taiwan fleet is changing from specialist albacore longliners to dual purpose frozen sashimi/albacore vessels. The remaining specialist albacore longliners are old, inefficient and barely covering their direct costs of operation. The newer Taiwan vessels are making slightly better returns, principally due to having ultra low temperature freezers that enable them to switch between the albacore and frozen sashimi fisheries. The newer vessels are also larger and can stay at sea for much longer periods. As a result the Taiwan fleet is moving into the high seas where albacore are an international common property. This means the vessels do not have to pay access fees or conform to management controls. The change in structure and operating patterns means that the island states have little control over the fishery and therefore are unlikely to earn significant rents from its exploitation.
Most of the Pacific Island nations rely on royalties and income derived from the tuna caught in their exclusive economic zones for substantial part of their nation income. One of the important commercial species caught in the South Pacific is albacore (Thunnus alalunga) which, despite being a target species for commercial fishing fleets since the 1950s, is abundant and not under threat of over-exploitation.
The South Pacific albacore stock extends from the East Coast of Australia to the West Coast of South America. The long line fleet normally targets the adult fish that are usually found in the surface mixed layer, but have been caught as deep as 500 metres (Talbot & Jones, 1994). They have a maximum life span of about twenty years by which time they may reach 130 cm in length and 40 kgs in weight (Talbot & Jones, op cit).
The albacore fishery is an international fishery with fleets operating in most of the major oceans of the world. Albacore are typically caught between latitudes 10o and 45o both north and south of the equator with most being taken on the high seas.
Albacore is a highly mobile species that moves throughout a very wide area of the South Pacific. While albacore travel in schools, these schools are generally less dense than those of skipjack and juvenile yellowfin. Consequently the commercial fishery is largely limited to long line or trolling. Attempts to establish a large-scale drift net fishery in the late 1980's failed due to international concern about the indiscriminate nature of the fishing technique. However, there are small gill net fisheries in the Atlantic and some albacore are taken in purse seine nets off the West Coast of the USA. Long line vessels take about 75 percent of the catch with most of the rest being taken by trolling.
In general it is makes little sense for individual nations to unilaterally impose management regimes on highly mobile species. The stock must be managed across its range the benefits from management are to be realised. The South Pacific nations recognised the need for coordinated action in the late 1970s and established the Forum Fisheries Agency (FFA) to represent their interests in negotiations with the international fishing fleets. Now vessels wishing to fish in the EEZ of the Pacific Island nations must meet access criteria agreed to in negotiations with the FFA.
While this approach has worked well when establishing access arrangements for yellowfin and skipjack fisheries it has been far less successful for albacore. In the five years to 1996 the FFA put considerable effort into negotiating access agreements for the albacore fishery. Despite these efforts the negotiations stalled and very little progress has been made on the issue since 1996.
The reason for this lack of success is largely due to the structure and location of the albacore and viability of the international albacore fleet.
The nationality and structure of the South Pacific albacore fishing fleet has changed markedly over the past 30 years. In the early years the fleet was predominantly small Japanese vessels which operated out of transhipment bases throughout the region. Now Taiwan owned vessels dominate the fleet and large vessels, which are capable of staying at sea year round, are replacing most of the smaller vessels. Many of these larger vessels have the ultra low temperature (ULT) freezers, which enables them to switch between albacore and frozen sashimi.
The number of vessels operating in the fishery has also dropped. In the 1960's the fleet comprised several hundred long line vessels. There are currently less than 70 vessels targeting albacore. These include 12-16 operating out of Fiji and another 50-60 operating out of American Samoa.
The average age of the Taiwan Pacific fleet is also increasing with over half being more than 20 years old, see Table 1. The figures shown in Table 1 include 11 dual-purpose vessels that target albacore when the price of frozen sashimi is low.
The older vessels are generally in the CT-5 and CT-6s classes. The newer vessels are either CT-6u or CT-7 classes. The general specifications of the vessels are shown in Table 2.
1 Includes Taiwan vessels that are registered under flags of convenience.
3 The CT classification code is used by Taiwan shipping authorities to identify fishing vessels. The "s" and "u" extensions have been used in this paper to differentiate between vessels with standard refrigeration systems (s) and those with ultra-low temperature systems (u).
The main change in design has been the move to ULT freezers and semi-automatic long line gear. The ULT freezer gives the vessels the flexibility to target frozen sashimi or albacore. The move to semi-automatic gear has helped offset the increasing cost of crewing the vessels.
The CT-5 and older CT-6s class vessels continue to follow the established fishing patterns. They operate out of either Fiji or American Samoa, their fishing trips are usually limited to three to five months and they target albacore. Most of the crew are usually Mainland Chinese with two to three Taiwan officers and, occasionally, several Ni-Vanuatu or Fijians. These older vessels usually unload directly into the canneries. On rare occasions they may tranship through regional ports but the cost of transhipment is usually prohibitive given the low margins on which the vessels are operating.
The newer CT-6u and CT-7 class vessels have a markedly different operating strategy. Most stay at sea for far longer periods, they fish on the high seas and, at least in the North Pacific, they commonly tranship and re-supply at sea. This operational strategy appears to be increasing in the South Pacific. The crews on these vessels are almost all Mainland Chinese with Taiwanese officers. The vessels have been fitted with ULT freezers which gives them two marked advantages over the older vessels. When targeting albacore they can sell their yellowfin and bigeye by-catch as frozen sashimi or, if the price of frozen sashimi improves relative to albacore, they can target yellowfin and bigeye for the sashimi market.
Most of the vessels fish under contract arrangements with the major Taiwan management agents who organise the transhipment of the catch and re-supply of provisions and fuel. The agents are central to the fishery, they have a major influence on where the fleet fishes and the marketing of the catch.
The albacore freezer long line fishery is not a lucrative fishery. The change in nationality of the fleet, the aging of the vessels, the change in operational strategy to dual purpose vessels and the limited market growth are all evidence of the marginal nature of the fishery.
The following analysis provides a comparison between different classes and ages of vessels. It shows clearly that the returns to investment are generally low and are very sensitive to change in the catch and/or price of albacore.
The following financial model has been constructed with data collected from managing agents, processors, fuel suppliers, bait brokers and the Taiwan Deep Sea Boat Owners Association. Where possible the data has been cross-checked with landing information in Pago Pago and Levuka and previous financial analyses of long line fisheries.
The analysis uses the current value of the vessels to calculate the return on capital. In the case of the CT-5 and CT-6s class vessels, the values used are the estimated current sale price of 15 to 20 year old vessels. The values used for the CT-6u and CT-7 class vessels are the current replacement cost. This approach enables the returns being achieved by the old style vessels to be compared with those being achieved by the newer vessels that are currently coming into the fleet.
At current prices, the older vessels (CT-5 and CT-6s) are just covering their operating costs. This is only sustainable in the short term. The vessels will eventually become unserviceable and, at current returns, they will not be replaced. Despite the poor returns some owners are willing to continue operating provided they at least cover their direct costs of operation. In part this is due to the increasing number of skippers who have equity in these older vessels. The return to the skipper includes the wages earned so they are often willing to continue operating beyond the point where an investor would take the vessel out of the fishery.
The newer vessels (CT-6u and CT-7) are doing better than the older vessels but at current prices are barely covering the opportunity cost of capital. This operational pattern is not as perverse as it seems at first glance. In effect the owners of the newer vessels are gambling on the occasional high price for frozen sashimi. They believe that, provided the albacore price is sufficient to cover vessel operations and service their debt, they stand the chance of making good returns when the price of frozen sashimi rises.
The sensitivity analysis in Table 5 shows that the returns earned by the fleet are very sensitive to change in the catch and the price.
The returns to the older CT-5 and CT6s vessels are highly sensitive to fairly small changes in price or catch. For the CT-5 and CT-6s class vessels the break-even price (on operating profit) is around US$2,075 per metric tonne. In both cases they would be unable to cover their direct operations cost if the price or catch fell by over five percent. On the other hand, given that the current value of these vessels is so low, a small increase in either catch or price can yield a fairly high return on investment.
The returns from the newer CT-6u and CT-7 class vessels are far less sensitive to changes in price and catch. This reflects the higher value of the vessels and their capacity to produce frozen sashimi from the yellowfin and bigeye by-catch. In both cases their break even albacore price is significantly lower than the break-even price required by the older vessels. The newer vessels can cover their operating costs at around US$1,250 per metric tonne. However, for an owner to construct a new vessel they must be confident that they can also cover their opportunity cost of capital. Given an opportunity cost of capital of 10 percent per annum, the break-even price is around US$2,150 per metric tonne.
The changing structure of the fleet reflects a complex economic environment within which the fishery operates.
The main underlying influences on the fishery are:
The combined effect of these influences has been a severe cost/price squeeze on the albacore fleet. The fleet's response has been to replace the specialist albacore vessels with dual-purpose vessels, increase the trip duration and move the fleet onto the high seas. This transition to a new operational strategy is still underway.
This new fishing strategy has significant implications for the Pacific Island States. It will make it difficult to collect access fees and it will reduce the fleet's reliance on regional ports. If the strategy is fully implemented the benefit to the region will be little more than employment at the processing plants in Pago Pago (American Samoa) and Levuka (Fiji).
Probably the most important impact on the nationality of the albacore fishing fleet has been the strengthening of the fishing nations' currencies against the US$. While the fleet owners must pay many of their costs in domestic currency, their income is in US$. As their domestic currencies strengthen against the US$ they receive less domestic currency for each dollar earned. Since their currencies are usually appreciating in response to a strengthening economy they also find it increasingly difficult to recruit domestic crew who can find work with better pay and conditions elsewhere in the economy.
The impact of changes in the real exchange rate between the US$, the Japanese Yen and the Taiwan NT$ are shown in Figure 1 and Figure 2.
= level of the Consumer Price index in the USA
= level of the Consumer Price index in the country under review
= number currency units of the country under review per US dollar at time t
= number currency units of the country under review per US dollar in the base period
Figure 1: Changes in the Real Exchange Rate
between the YEN and US$
Figure 2: Changes in the Real Exchange Rate
between the Taiwan NT$ and US$
In both cases the currencies have strengthened markedly against the US$ since the beginning of the fishery. In the case of Japan, the catch from the long line fishery peaked in 1962 when the Yen was still relatively weak. As the Yen strengthened the catch tapered off until, by the mid 1970's, it was less than 2,000 tonnes per year. Over the same period the Yen more than doubled in value relative to the US$. In recent years the Japanese catch of albacore has increased somewhat but this is more likely to be short-term opportunistic catches in response to low frozen sashimi prices rather than a re-establishment of the Japanese albacore fleet.
The South Pacific Albacore Research group (SPAR) records show the Taiwan entering the long line fishery in 1967. Since then the real exchange rate between the US$ and the Taiwan NT$ has increased by about 60 percent. While this increase is not sufficient to push the Taiwan out of the fishery it is making it more difficult for them to cover their costs. If the Taiwan NT$ continues to strengthen against the US$ it is quite likely that the Taiwan will either withdraw from the fishery or transfer their operations into lower income countries.
Unlike other fisheries the albacore long line fishery has been unable to sustain significant improvements in the productivity of the fleet. Apart from the short period between the mid 1980's and 1990 when the driftnet fishery temporarily increased the catch rate, the fleet productivity has been limited by the nature of the long line fishery. Despite some advances in the automation of long line fishing and the material used, the level of productivity has not improved anywhere near as much as the fishery for skipjack and juvenile yellowfin.
The skipjack and juvenile yellowfin fisheries changed dramatically with the introduction of super seine vessels. The catch rate and total catch both increased and the cost per tonne of fish fell. This increase in productivity had a fundamental impact on the structure of the fisheries for tuna. The size of the fishery expanded rapidly while the price paid for the fish fell. Given its inability to match the improvements in productivity of the skipjack and juvenile yellowfin fisheries, the albacore fleet was caught in a severe cost/price squeeze.
The size of the market for canned tuna also expanded rapidly throughout the 1970's and 1980's. Virtually all of this growth was in the market for canned light meat tuna. Albacore now only accounts for around four percent of the world market for canned tuna. While some consumers may prefer canned white meat tuna, it is unlikely that they are totally unconcerned about the price, especially when the price of canned light meat tuna is markedly lower. In the short term, some consumers may be willing to accept price increases for canned white meat tuna but in the medium to longer term, if the price rise is sustained, they are highly likely to switch to buying canned light meat tuna.
The recent financial crisis in Asia has caused the South Korean and Japanese currencies to weaken relative to the US$. However even these lower values are markedly higher than those prevailing in the 1950s through to the end of the 1970s when Japan and Korean fleets were active in the fishery. In the circumstances it is unlikely that these fleets will re-enter the fishery.
This understandable reaction puts a ceiling on the price of canned white meat tuna and, consequently, on the price canneries will be willing and able to pay for albacore.
Figure 3: Monthly Price Series for
Figure 3 shows a monthly-deflated price series for albacore landings at Pago Pago. The nominal price has been adjusted to remove the effect of inflation. The exponential price trend is plotted against the monthly time series. The rate of decrease in the real price over the period has been 2.2 percent per annum.
Unlike the older specialised albacore fleet, the vessels now entering the fishery are designed so that they can easily switch between fishing for albacore and frozen sashimi. Increasingly, the target species will depend upon the relative price of albacore and frozen sashimi.
This change means that the newer vessels can either catch albacore for the canneries, which supply a predominantly North American market, or they can supply frozen sashimi to the Japanese market. They cannot do both at the same time. It is hard to predict the likely outcome of the trade-off between these two markets. The North American market for canned white meat tuna is fairly stable and has a low short run price elasticity of demand. The Japanese market for frozen sashimi appears to be more volatile but may, in the longer term be willing to pay higher prices.
Currently, the frozen sashimi price is fairly low and it is more profitable to fish for albacore. Hence, most of the newer vessels are currently targeting albacore. But the margin is small and they may switch their effort frozen sashimi with even quite small changes in the relative prices.
Given that the fleet is comprised of vessels with similar operating costs and levels of productivity, this unusual market structure could lead to "knife edge" changes in target species. If the Yen strengthens relative to the US$, the price of frozen sashimi is likely to increase relative to the price of albacore. In this case, the entire fleet may switch its target species from albacore to frozen sashimi.
In the short term, it is likely that a switch away from albacore would drive up the price of albacore, as canneries attempted to maintain stocks to service their established markets. In the longer term, it is unlikely that the higher prices could be maintained because consumers would move to cheaper substitutes, such as canned light meat tuna.
Access fees are charges for the use of a resource that belongs to an individual or State. The user can only meet these charges if the income earned from using the resource exceeds the production costs and a reasonable return for effort and risk. If the resource does not belong to an individual or State, it is a common property and available to anyone.
In case of tuna, if the catch is taken within an EEZ, it belongs to the State that controls the EEZ and the State has the right to charge access fees. Whether or not the fleet can pay the access fees depends upon the profitability of the fishery. Where the resource is caught outside the EEZ, it does not belong to any individual or State and is an international common property. In this situation, it is not possible to collect access fees.
These issues have important implications for the management and operations of the albacore fishery. The low level of profitability means the fishery does not normally generate sufficient surplus to pay significant access fees. Also, given the abundance of albacore outside the EEZs, most of the resource is an international common property.
In the circumstances, there are few opportunities for the island nations to extract a resource rent from this fishery. The only exceptions to this generality are:
Of these opportunities, only the third offers any real scope for charging access fees. Even then, the fee structure would need to be short term and localised. It is highly unlikely that any high seas fleet is going to pay annual multilateral access fees when the opportunities to benefit from those rights are likely to be limited short periods in localised areas.
Albacore is a residual tuna fishery. It is what the DWFN fleets do when there is no better way to using their fishing vessels. There is little prospect of this changing in the near future. Until the catch of skipjack and juvenile yellowfin approaches maximum sustainable yield, the price of canned tuna is unlikely to rise. Also the frozen sashimi market is likely to provide better returns than the albacore fishery. This means that the price of albacore is unlikely to trend upwards.
If the Yen weakens against the US$, the market situation may change but, at the moment, this seems unlikely. In the circumstances the island states can expect to get little out of the DWFN albacore fishery.
The main opportunities are:
Marcille, Jaques, (1991). Tuna Stocks and Tuna Fishing: Present Situation and Trends, Proceedings: 3rd INFOFISH Tuna Trade Conference, Bangkok.
Talbot, Murray & Brian, Jones, (1994). Albacore, Seafood NZ: NZ Tuna Fisherman's Association, Wellington.
A.D. Owen, (1991). Exchange Rate Fluctuation and the Comparative Competitive Advantage, A.C.I.A.R. Project No. 8928, Canberra.
South Pacific Commission, (1996). Proceedings: Sixth South Pacific Albacore Research Workshop, Rarotonga.