Market Interactions between Aquaculture and Capture Fisheries: an Empirical Application to the Sockeye Salmon Fisheries in Bristol Bay, Alaska

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1 Market Interactions between Aquaculture and Capture Fisheries: an Empirical Application to the Sockeye Salmon Fisheries in Bristol Bay, Alaska Diego Valderrama and James L. Anderson Department of Environmental and Natural Resource Economics University of Rhode Island

2 Problem Description Impressive growth of aquaculture industries has affected markets for species from capture fisheries. A dramatic example of these interactions is offered by the various Alaska salmon fisheries. Increases in world aquaculture production of farmed salmon has coincided with declines in ex-vessel prices for Alaska (wild) salmon. Less-than-full participation has been observed in the Bristol Bay limited-entry fishery since 2001 due to reduced profitability margins.

3 World Aquaculture Production of Atlantic, Chinook, and Coho Salmon Vs. Ex-vessel Price of Bristol Bay Sockeye Salmon Million MT US$/lb Aquaculture Production Ex-vessel Price of Bristol Bay Sockeye -Sources FAO (2007); ADF&G (2006)

4 Permit Market Value and Percent of Permits Fished in the Bristol Bay Sockeye Fishery Drift Gillnet Fishery 100% 300 Percent Permits Fished 80% % % % 60 0% Permit Market Value Percent Permits Fished Thousand Dollars Percent Permits Fished 100% 80% 60% 40% 20% Setnet Fishery Thousand Dollars -Source CFEC (2007) 0% Permit Market Value Percent Permits Fished

5 The Basic Model of Market Interactions between Aquaculture and Common-Property Fisheries (Anderson 1985) The basic model assumes a sustainable fishery with growth defined by the logistic equation. Supply from the open-access fishery: Y F OA rc = 1 Pq c PqK The model also assumes supply from an aquaculture sector: YA = γ + γ P 1 2 and a linear demand function: D = β β P 1 2 Parameters: r = coefficient growth; K = environmental carrying capacity; q = catchability coefficient; P = price; c = cost per effort unit.

6 Market Interactions between Aquaculture and an Open-Access Fishery P OA e OA P OA D' Fishery Supply OA S' A P' P' Net Demand f or Fishery D'' e' D' P' e' A Net Demand f or Aquaculturalists Aquaculture Supply S'' A P'' e'' P'' e'' A D'' D Y F - 0A Y' F Y'' F Y A - 0A Y' A Y'' A The presence of an aquaculture sector reduces fishing effort, enhances fish stock, and increases supply to the consumer.

7 Modeling a Limited-Entry Fishery To analyze the specific case of Bristol Bay, the regulatory structure of the fishery must be considered explicitly. Homans and Wilen (1997) analysis of regulated open-access fisheries is a useful point of departure. By assuming that, within a fishing season, harvest drives changes in the stock biomass, X () t = qex() t cumulative harvest over a single season can be defined as 0 0 ( ) HT ( ) = X XT ( ) = X 1 e qet = Total Run - Escapement

8 Modeling a Limited-Entry Fishery With a specific escapement goal (S*) in mind, regulators choose T so that T 1 X ln qe S 0 = * On the other hand, rents are defined as Rents ( ) [ ] 1 qet = PX 0 e vet + fe where P = price; v = variable cost coefficient; f = fixed cost coefficient. These two equations are used to jointly determine a regulated open-access equilibrium.

9 The Regulated Open-Access Model: an Illustration Effort: E A E = E(T;X 0, P, v,f,q) S B > S A T = T(T;X 0, S A,q) B T = T(T;X 0, S B,q) Season Length: T Higher escapement goals result in shorter seasons and lower levels of fishing capacity. X 0 = Total Run S = Escapement Goal P = Price

10 The Limited-Entry Case Effort: E E = E(T;X 0, P, v,f,q) E LE e LE T = T(T;X 0, S,q) Limited entry has the potential to create rents in the fishery by reducing the size of the fleet. Season Length: T X 0 = Total Run S = Escapement Goal P = Price

11 What is the Effect of Price Reductions Caused by Aquaculture? Effort: E T = T(T;X 0, S,q) E = E(T;X 0, P A, v,f,q) P A > P B E LE e A e B E = E(T;X 0, P B, v,f,q) Season Length: T If price declines substantially, participation in the fishery may fall below 100% (all other factors held constant). X 0 = Total Run S = Escapement Goal P = Price

12 An Alternative to Competitive Fishing: The Case of Cooperative Management Effort: E T = T(T;X 0, S,q) E Comp = E(T;X 0, P A, v,f,q) P A > P B E LE e A E Comp = E(T;X 0, P B, v,f,q) e B E Coop = E(T;X 0, P B, v,f,q) Season Length: T Under cooperative management, season is lengthened to the largest possible extent. X 0 = Total Run S = Escapement Goal P = Price

13 Examining the Evidence from Bristol Bay Work is currently being conducted to compare data from the fishery to predictions from the model. Five major river systems in Bristol Bay. For each river system, information is available on Prices. Number of active permits. Fishing times. Size of runs, escapement, harvest levels. Time-series and cross-sectional data will be used to estimate the remaining parameters of the model (q, v, f). Censored-regression methodologies will be used to account for the restricted-access nature of the fishery.