ICES Journal of Marine Science: Journal du Conseil Advance Access originally published online on April 30, 2008
ICES Journal of Marine Science: Journal du Conseil 2008 65(6):832-840; doi:10.1093/icesjms/fsn070
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Fuel price increase, subsidies, overcapacity, and resource sustainability
1 Fisheries Centre, Aquatic Ecosystems Research Laboratory (AERL), University of British Columbia, 2202 Main Mall, Vancouver, BC, V6T 1Z4, Canada
2 School for Resource and Environmental Studies (SRES), Faculty of Management, Dalhousie University, Halifax, NS, Canada
Correspondence to U. R. Sumaila: tel: +1 604 822 0224; fax: +1 604 822 8934; e-mail: r.sumaila{at}fisheries.ubc.ca.
Sumaila, U. R., Teh, L., Watson, R., Tyedmers, P., and Pauly, D. 2008. Fuel price increase, subsidies, overcapacity, and resource sustainability. – ICES Journal of Marine Science, 65: 832–840.Global fisheries are currently overcapitalized, resulting in overfishing in many of the worlds fisheries. Given that fuel constitutes a significant component of fishing costs, we expect recent increases in fuel prices to reduce overcapacity and overfishing. However, government fuel subsidies to the fishing sector reduce, if not completely negate, this positive aspect of increasing fuel costs. Here, we explore the theoretical basis for the expectation that the increasing fuel prices faced by fishing enterprises will reduce fishing pressure. Next, we estimate the amount of fuel subsidies to the fishing sector by governments globally to be in the range of US$4.2–8.5 billion per year. Hence, depending on how much of this subsidy existed before the recent fuel price increases, fishing enterprises, as a group, can absorb as much as this amount of increase in their fuel budget before any conservation benefits occur as a result of fuel price increases.
Keywords: fisheries subsidies, fuel subsidies, global fisheries
Received 8 August 2007; accepted 24 March 2008; advance access publication 30 April 2008.
| Introduction |
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A key motivator for commercial fishing is profit, i.e. the more profitable it is to fish, the more fishing there will be, everything else being equal. Fuel constitutes a substantial component of the cost of fishing. The actual proportion varies by fishery, but can reach up to 60% in cases such as the commercial fisheries of Hong Kong (Sumaila et al., 2007a) and for canoe purse-seiners in NW Africa (FAO, 1995). In Senegal, fuel constituted >50% of the costs for the motorized canoe fleet (Dahou et al., 2001), and it accounted for
34% of the total costs (TC) for the Fijian artisanal fishery (Reddy, 2004). Comparative figures for the SE Australian trawl fishery are lower, fuel accounting for between 10% and 25% of total operating costs (FERM, 2004), but despite this comparatively lower percentage, the fishery is experiencing difficulties in the face of increasing fuel costs (FERM, 2004). Given that many world fisheries are overfished, and that fuel makes up a substantial component of fishing costs, an obvious question is whether the recent, sharp increase in fuel prices will help reduce overfishing, because this reduces the profitability of fishing. The chances of this happening can be reduced significantly where fuel subsidies are given to the fishing sector by governments. Fuel subsidies are defined narrowly here as the price differential between what other users and fishers pay for fuel in a given economy. Fuel subsidies are an example of fisheries subsidies, usually defined as direct or indirect financial transfers by the government of a country to its fishing sector. Subsidies are given directly to fishers in various forms, including grants, loans and loan guarantees, equity infusions, tax preferences or exemptions, and price or income support programmes (OECD, 1997, 2006; Milazzo, 1998; Schrank and Keithly, 1999; UNEP, 2004; Clark et al., 2005; Khan et al., 2006). Alternatively, fishers can receive the fuel subsidy through a third party. In Australia, for example, fishing cooperatives establish commercial arrangements with fuel suppliers, who claim a fuel grant on behalf of their fishers. The fuel suppliers then sell fuel to the fishers at a price discounted by the amount of the grant. In Malaysia, operators of registered fishing boats are provided with an "e-diesel" card which allows them to buy subsidized diesel at specific fisher jetties around the country. In Ghana, the government provides special fuel called "pre-mix" at subsidized prices to the fishing sector.
Of course, fuel subsidies are given to other sectors of the economy too. For example, fuel subsidies to the UK agricultural sector seem to be extensive. In a British parliamentary publication, it was reported that red diesel for agriculture was subsidized at a rate of 42.69 p per litre, resulting in a total subsidy of £3 billion in 2001 (Daily Hansard, 2002) In the USA, fuel subsidies to the agricultural sector alone amounted to US$2.4 billion in 2004 (OECD, 2005a). Meanwhile, in Australia, the same per litre fuel rebate was provided to the agricultural, fishing, forestry, rail, and marine industries in 2000 (Webb, 2000).
To help provide research inputs into the debate on the sustainability value of fuel subsidies, we decided to estimate global fuel subsidies to the fishing sector, then discuss their potential impact on the ability to manage fishery resources sustainably through time. For our purpose, we collected and analysed data on the price differential, if any, enjoyed by the fishing sector in each country relative to other economic sectors, attributable to subsidies, and the quantity of fuel consumed by the fishing sector. We then applied a simple statistical technique to scale this up, to estimate at a global level the annual dollar amount paid to the fishing sector as fuel subsidies by governments around the world.
To our knowledge, there is currently no global estimate of fuel subsidies to the fishing sector in the literature. However, global estimates of fishery subsidies in general were provided by FAO (1992) and Milazzo (1998). A more recent estimate of global fisheries subsidies less fuel subsidies is given by Khan et al. (2006), who included preliminary figures for fuel subsidies based on Sumaila et al. (2006). Regional estimates of fisheries subsidies have been provided for the Asia Pacific Rim by APEC (2000) and for the North Atlantic by Munro and Sumaila (2002). The OECD publishes annual fisheries subsidies estimates for its member countries (OECD, 2004, 2005b). However, we believe that this study is the first to provide a global estimate of fisheries fuel subsidies.
| Theoretical framework |
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It is generally accepted that commercial fishers fish for profit. The more profit they can make by fishing the more they will fish, other things being equal. Profit,
, is determined here by the difference between total revenue, TR, and TC. TR is a function of price (p) and catch (H), and TC is a function of fishing effort, which in turn is a function of fuel cost (f) and other costs (o), such as the cost of labour. Let profit without fuel price increase and no fuel subsidies,
0, be expressed as
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f < 0, i.e. the higher the f, the lower the profit, other things being equal. With a fuel price increase from f to f ', the profit can be expressed as
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As f ' > f, the profit will be less.
With fuel subsidies (s), 0 < s
(f ' – f), and the effect of the increase in fuel cost is either reduced or completely negated. Alternatively, for a fishery that is well-connected politically, a fuel price increase could be exploited to obtain a subsidy that is higher than the fuel price increase, resulting in a greater level of fishing effort than before the fuel price increase.
The scenario given above is captured neatly for open access fisheries by Figure 1. Figure 1a–d illustrates what could happen, with an increase in fuel prices, to fishing effort; it uses the simple Gordon–Schaefer model (Gordon, 1954). Figure 1a shows the standard model with TR curve and the initial linear total cost function (TC0). Under open access, the equilibrium effort is E. Figure 1b shows a swing in the TC curve from TC0 to TC0' with an equilibrium effort of E0'. If this was all that happened, the fuel price increase would have a sustainability value. However, as seen in many countries after the recent increases in fuel prices, the fishing sector normally advocates fuel subsidies in the face of increasing fuel cost. Depending on how successful the sector is in this regard, TC0' can swing to anywhere between TC0 and TC0' (Figure 1c) or even to TC0f2 (Figure 1d).
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The outcomes under open access illustrated in Figure 1 can be shown to apply under a sole owner profit maximizing economic agent model, by setting up a Hamiltonian function and solving it with the objective of maximizing discounted profit under the relevant stock constraint (Clark, 1990).
| Computing fuel subsidies |
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We researched printed and online sources to compile data on fuel subsidies worldwide. We also enlisted the help of colleagues worldwide, including academics, government officials, and non-governmental organizations. We categorized countries into those that provided (or were likely to provide) fuel subsidies, and those unlikely to do so. For each country in the former group with available relevant and useable fuel subsidies data, we computed the cost of a subsidized litre of fuel (usually diesel). We then estimated that countrys total fuel subsidies based on fleet fuel consumption, obtained from Tyedmers et al. (2005).
We created a database of fuel subsidies for 144 coastal countries that had engaged in fishing activity in 2000 and were not territories or dependencies of other countries. Information related to fuel subsidies was compiled from primary and grey literature, the Internet, and newspaper articles. Although this is a static analysis for 2000, we used the closest available data within the period 1995–2006 for countries for which we did not have year 2000 data. Data from years before or after 2000 were normalized to constant 2000 dollars by applying the consumer price index (CPI). CPI rates were extracted from the International Financial Statistics website, http://pacific.commerce.ubc.ca/ifs/.
Information for each country was filtered into three groups, progressing from countries with specific fuel subsidy data to those with coarse or no information. Group 1 (data-rich) countries had the best data, i.e. the actual monetary value of fuel subsidy per litre, or the TC of fuel subsidies. For countries where the total value of subsidies was provided, we calculated the per-litre subsidy by dividing the total subsidies by the countrys total fuel consumption, based on data from Tyedmers et al. (2005). Group 2 (data-sparse) countries were those with qualitative information available about the provision of fuel subsidies in the respective countries. Group 3 countries were those for which we have no information. There were 24, 28, and 58 countries in Groups 1, 2, and 3, respectively. In addition, there were 34 countries which, according to our research, do not provide fuel subsidies (Appendix).
Within each group, countries were divided into two categories—developed and developing—based on their score on the United Nations Human Development Index (HDI). This was to take into account the fact that developed and developing countries face different economic constraints and, therefore, are likely to have different abilities to provide fuel subsidies.
The HDI runs from 0 to 1, and we assumed in this study (as in Khan et al., 2006) that countries with scores ranging from 0 to 0.79 were developing countries, and that those with scores >0.79 were developed countries. Some adjustments were made to this rule, as follows: Russia, China, and Taiwan, with a value of HDI <0.79 were nonetheless assigned to the developed country category. This was because their fisheries are highly industrial with the potential for high fuel subsidies to be advanced to the fishing sector. Also, countries such as Trinidad and Tobago, Cuba, and Uruguay had HDI scores >0.79, but were classified as developing countries owing to the less-developed nature of their fisheries sectors (this also follows Khan et al., 2006).
For Group 1 (data-rich) countries, we multiplied each countrys per-unit fuel subsidy by the annual quantity of fuel consumed by the countrys fishing fleets. This gave the total annual fuel subsidies provided by each country to their fishing sector in constant 2000 dollars. For Group 2 (data-sparse) countries, we estimated total fuel subsidy per country by multiplying each countrys fuel consumption by the average real cost per litre of subsidized diesel obtained for data-rich countries. For Group 3 countries, i.e. the remaining 58 countries with no information, we assumed that no fuel subsidies were provided. This is clearly a strong assumption, with the implication that our estimates are conservative. However, the total fuel consumption for these 58 countries was 0.8 and 2.8 billion litres for developed and developing countries, respectively, accounting for just
8% of the total fuel consumed by all countries in our analysis. Finally, we obtained an estimate of global fuel subsidies to the worlds fishing sector by adding the developing and developed country estimates.
| Results |
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As of 25 August 2006, we had information for 86 out of 144 countries. Of the 86 countries with information, 52 were believed to receive subsidies, and 34 not to do so.
There were in all 24 data-rich countries, of which 8 were categorized as developed and 16 as developing countries. For the data-rich developed countries, we calculated an average real (2000) cost per litre of subsidized diesel to be US$0.18 ± 0.11 (s.d.). The TC of subsidies for this group was US$1.8 billion. For the 16 developing data-rich countries, corresponding amounts were US$0.15 ± 0.08 per litre, with a total subsidy cost of almost US$1 billion.
Our research suggested that 28 data-sparse countries provide fuel subsidies, although the amount was not known. Of these, 9 were developed and 19 were developing countries. The total fuel consumption for data-sparse developed and developing countries was around 18 and 2.2 billion litres, respectively. We multiplied the total fuel consumption for all data-sparse countries by the average fuel subsidy cost to obtain total subsidy costs of US$3.2 and US$0.3 billion for developed and developing countries, respectively. In addition, a high and a low estimate were obtained by using the upper and lower ranges (1 s.d.) of the data-rich countries subsidy means. This produced an upper and a lower range estimate of US$5.3 billion and US$1.3 billion for developed countries. Subsidy amounts for developing countries ranged from a high of US$0.5 billion to a low of US$0.2 billion.
Summing data-rich and data-poor results gave us mean subsidies of US$5 billion for developed countries (Table 1), and
US$1.4 billion for developing countries (Table 2). In total, the sum of developed and developing countries mean estimates gave us a global estimate for fisheries fuel subsidies of US$6.4 billion, ranging from US$4.2 to US$8.5 billion (Table 3),
8% of the annual commercial fish catch value of
US$80 billion (Sumaila et al., 2007b).
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| Discussion and conclusions |
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Here, we have presented the theoretical expectation that an increase in fuel price paid by fishers to go fishing should have sustainability value. We also demonstrated that fuel subsidies to the fishing sector could subvert the workings of the market and completely negate the expected sustainability value of a fuel price increase. In fact, recent events have demonstrated this to be true, because rises in fuel price have led to an increase in fisheries fuel subsidies in some countries. For example, in June 2006, the Malaysian government started providing coastal fishers with subsidized petrol at RM1 per litre, a RM0.92 (US$0.25) subsidy (New Straits Times, 2006). In October 2005, the Spanish government agreed to a 60% increase in fuel subsidies after local fishers blockaded several Mediterranean ports (PravdaRU, 2005). Those cases demonstrate that the decision to provide fuel subsidies was influenced primarily by political and social concerns, rather than on the sustainability of fisheries resources.
We have determined the level of fuel subsidies worldwide to be some US$6.4 billion, ranging from US$4.2 to US$8.5 billion. These subsidies were provided mostly before the recent fuel increases, so current fishing effort reflects a considerable part of those subsidies. Therefore, future fishing effort will be influenced partly by the rate of increase in fuel price relevant to the future rate of increase in subsidies provided to the fishing sector. Comparing the midrange of our estimate with the US$25.7 billion of global fisheries subsidies less fuel subsidies reported in Khan et al. (2006) means that fuel subsidies amount to
20% of total fisheries subsidies. Fuel subsidies inflate the proportion of global subsidies defined by Khan et al., (2006) as "bad subsidies" or subsidies that lead to overcapitalization to
US$21 billion or >65% of total global fisheries subsidies.
| Appendix. List of data sources and subsidies per litre of fuel |
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*Note: The countries with insufficient or no information (see text) are: Bahrain, Chile, Cyprus, Estonia, Finland, Ireland, Israel, Kuwait, Lithuania, Qatar, Singapore, United Arab Emirates, Algeria, Belize, Brunei Darussalam, Bulgaria, Cambodia, Comoros, Croatia, Cuba, Djibouti, Dominican Rp, Egypt, Equatorial Guinea, Eritrea, Guatemala, Guinea Bissau, Haiti, Honduras, Iran, Jordan, Kenya, Kiribati, Latvia, Lebanon, Liberia, Libya, Madagascar, Maldives, Mauritania, Mauritius, Micronesia, Morocco, Myanmar, Nauru, Nicaragua, Oman, Palau, Romania, Sao Tome and Principe, Saudi Arabia, Sierra Leone, Somalia, St Vincent, Sudan, Suriname, Syria, Venezuela.
aY/N allows the grouping of countries into "data-rich" (Group 1) and "data-sparse" (Group 2).
bFigures in parenthesis are estimated (see text).
cOther types of input subsidies (e.g. gear, boats) available, but fuel subsidies not mentioned.
dNo fuel subsidies listed under direct government transfers in OECD Fisheries Review (2005).
eLikely no subsidies owing to limited fuel supplies for fishing fleet or high fuel cost with no reported subsidies.
fThe government has set up the PESCA Trust to use tax from fuel to support artisanal fishing organizations.
| Acknowledgements |
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We thank the Sea Around Us Project, a Partnership of the Pew Charitable Trusts, for support, and URS also acknowledges the support of the European Communitys Programme for International Scientific Cooperation (INCO) through Contract 003739, the INCOFISH project. We also thank two anonymous reviewers for valued comments which improved the manuscript.
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