An Economic Analysis of Management Options in the Western Rock Lobster Fishery of Western Australia

The Western Rock Lobster Fishery, which is located on the lower west coast of Western Australia, is the largest rock lobster fishery in any county. It supports about 550 lobster fishing boats and has an average annual catch of 11,000 tonnes valued at about $AUD250 million. The sustainability of the fishery is maintained by limiting total allowable effort (TAE), managed through an individually transferable effort (ITE) system. Ongoing improvements in the effectiveness of rock lobster fishing, have placed increased pressure on the fishery and an assessment of the estimated 'sustainability index' has indicated that an effort reduction of about 15% is required in one of the three management zones of the fishery, to ensure there is an adequate breeding stock for continued sustainability. Management options (such as reductions in the number of traps allowed to be used in the fishery, seasonal closures and changes to the maximum size of lobsters taken) to achieve the 15% TAE reduction for the zone vary in the way they could impact on the fishers' financial position because they have different impacts on the value of both the income and expenses. The expected annual net revenue (average revenue net of average fixed and variable costs) of fishers, under different management scenarios, is modeled to determine which has the least negative impact (or as occurs in some cases, the most positive impact) on the net revenue of fishers. The results of the study (which assessed both Year 1 and Year 2 impacts) were provided to the rock lobster industry and the Western Australian Government's industry advisory group in order to assist in the decision making process. The assumptions used in the analysis were also provided to fishers so that feedback could be garnered in order to gauge the veracity of the results. The analysis showed that the most efficient management options were those that involved closing the fishery during periods when the catch rate of rock lobsters is low. These periods (ranked from the most efficient to the least efficient in Year 1), included: (a) 21 days from 15 January to 10 February; (b) 16 days from 15 November to 30 November; (c) late season closures for 3 to 7 days around the full moon; (d) June closure; and (e) early season closures for 3 to 7 days around the full moon. By the second year all of these closures resulted in increased net revenue due to the cost savings and the reduced negative impact on catch. 1 Cite as: Thomson, Neil, Caputi, Nick. 2006. An economic analysis of management options in the western rock lobster fishery of Western Australia, p. 157-164. In: Sumaila, U. Rashid and Marsden, A. Dale (eds.) 2005 North American Association of Fisheries Economists Forum Proceedings. Fisheries Centre Research Reports 14(1). Fisheries Centre, the University of British Columbia, Vancouver, Canada. 2 Email: [email protected] Management options in the W. Australia rock lobster fishery, N. Thomson and N. Caputi 158 Uniform trap reductions (which could be imposed on a proportional basis against fishers existing unit entitlements for all or part of the season) were shown to be the least efficient in the short-term, however this assessment does not account for any long-term benefits arising from a reduction in fleet size as was observed in previous trap reductions in 1993/94. The results of the study provided input into the decision making process. INTRODUCTION The Western Rock Lobster Fishery, which is located on the lower west coast of Western Australia, is the largest rock lobster fishery in any county. It supports about 550 lobster fishing boats and about 1500 fishers. Many more are employed in the processing sector. The industry has an average annual catch of about 11,000 tonnes with a gross value of production of about $AUD250 million per annum (based on the ex-vessel price of lobsters paid to fishers). The sustainability of the fishery is maintained by limiting total allowable effort (TAE), managed through an individually transferable effort (ITE) system. This system has provided a sound basis for management since 1963, when limits on the TAE were introduced. A series of management changes (eg closed seasons, trap reductions) have been made over the years with the objective to remove latent effort within the fishery and reduce the TAE in order to maintain the fishery's sustainability (Caputi et al., 1997). In the fishery, trends in rock lobster stock are monitored by means of a comprehensive survey of the recruitment and spawning stock and an assessment of voluntary and mandatory reports (on catch and effort) provided by fishers. The abundance of the settlement of the post-larval stage (puerulus) has been monitored for over 35 years and provides a reliable basis for catch prediction which is utilised in the management of the fishery (Caputi et al., 1995). The breeding stock is monitored from catch rates of commercial vessels and since the early 1990's from fishery-independent breeding stock surveys. Increased efficiencies in the operations of rock lobster fishers has increased the exploitation (Wright et al., 2006) and placed pressure on the breeding stock. The fishery is currently managed on the basis of a biological reference point (BRP) based on the breeding stock. Latest surveys indicate that the breeding stock in one of the zones (the North Coastal Zone, otherwise referred to as Zone B3) is declining and is close to breaching the BRP. An updated analysis from the Hall and Chubb (2001) Rock Lobster Model indicated that an effort reduction of about 15% was required to ensure that the breeding stock in Zone B was maintained above the BRP over the next few years. A similar assessment has been made for the other rock lobster fishing zones where the sustainability concerns are not as vexed, therefore this study focuses on the results of the Zone B analysis. While industry generally agreed about the need for effort reduction, there was extensive debate about which management method should be adopted in order to achieve the required effort reduction and the subsequent improvement in the breeding stock. Management options such as reductions in the number of traps fished, seasonal closures, and maximum size (of rock lobsters kept) changes, were considered and these vary in the way they impacted on a fishers' financial position because they had different impacts on the catch and value of rock lobsters and also impacted in varying ways on fishers operating costs (eg labour, bait and fuel). Ideally the management method chosen would achieve the required management outcome but minimise any negative impact on the earnings (net of costs) of fishers. This study estimated the expected impact of different management options on fishers' gross margins by modelling the average revenue and fixed and variable costs of fishers and assessed how these would be affected by different management options. The most significant impact of a new management measure on catch is likely to be felt in the first year after the management is implemented. The reason for the lessened negative impact on catch in Year 2 is that any lobsters left behind as a result of the management measures in the first year will grow in size and be available for capture in Year 2 and subsequent years. This was demonstrated by the 1993/94 management package when an 18% trap reduction was imposed along with other management measures. 3 Zone B encompasses Western Australian coastal waters north of latitude 30o South, excluding waters surrounding the Abrolhos Islands, which lie 60 kilometres west of the coast. 2005 NAAFE Forum Proceedings, U.R. Sumaila and A.D. Marsden 159 The results of the analysis of Year 1 and Year 2 impacts on expected gross margins were provided to industry and the Western Australian Government's industry advisory group on rock lobsters to assist in deciding what combination of management options for effort reduction to adopt. Management Options Considered There were three types of management options that were considered to achieve the required 15% reduction in TAE, being: (a) trap reductions for part or all of the season; (b) seasonal or time closures; and (c) female maximum size change. All of these have their advantages and disadvantages from a biological, economic, marketing and social perspective and will affect fishers differently, depending on their circumstances and the way they fish. A trap reduction over the whole season will also achieve the required reduction in TAE, resulting in a saving in the cost of traps and bait, but the number of days fished would stay the same so that there is little (if any) saving in fuel costs. Previous experience has shown that trap reductions have probably accelerated the decline in the number vessels in the fishery as some fishers sell their trap entitlements to others and exit the industry. While this is likely to lead to a long-term improvement in the economic efficiency of effort, there are also likely to be substantial transitional costs, as capital is made redundant. A trap reduction for part of the season was another management option considered, as it may be used to reduce the catch during the peak catch periods in December and March and hence allow for a more orderly processing and marketing of the lobsters. The industry is of the view that such an option could result in improved prices at peak periods of catch, although prices used in the study were based on past observations, of trends within the season, and current average prices. Time closures, particularly during periods of low catch rates, have the advantage of reducing bait and fuel costs with a relatively minimal impact on catch. The time closures considered were November, January, June and during periods of full moon. The full moon closures were considered over periods from the early and later parts of the fishing season, which is November to February and March to June, respectively. The full moon period has a negative impact on catch rates of about 20%, particularly in the later part of the season (Srisurichan et al., 2005). Time closures may have positive social benefits in providing fishers with a rest break during the 7.5-month season (15 November to 30 June). However, they may not promote any long-term fleet rationalisation, over and above that which has been occurring as technology and fishing practices have changed. The option to lower the maximum allowable size of female rock lobsters caught from 105 mm carapace length to 100 mm (which is aimed at providing direct protection to mature females) has the advantage of targeting the breeding stock directly and has the least impact on catch. However it has no social or economic advantages in that it does not reduce operating costs. THE MODEL The Impact of Various Effort Reduction Proposals A comparison of the various management options was undertaken so that the net biological effect of effort reduction options could be determined. An estimate was made of the percent effort reductions that would be achieved by implementing each of the options so that the options could be compared. For example, the 15% reduction in TAE could be achieved simply by imposing a 15% trap reduction for the whole year. However, effort reduction options covering only part of the year (for example a 15% trap reduction in November and December), were scaled for the proportion of annual catch caught in the period for which an effort reduction was applied. A similar assessment was done to evaluate the time closures. For example, January was being considered for closure because it is a period of low catch rate with a poor economic return taking into account the cost of fishing. During January about 13% of the annual trap lifts occur and so the estimated savings in trap lifts (and hence in bait and fuel expenses) for the year is assumed to be about 13%. However because this is a low catch rate period, a January closure does not equate to a 13% reduction in fishing effort. During January about 6% of the Zone B catch is taken and so a January closure was assumed to represent the Management options in the W. Australia rock lobster fishery, N. Thomson and N. Caputi 160 same effective effort reduction as a 6% trap reduction for the whole year. Other time closures were considered in the same way so that a comparison against different effort reduction options could be made. Throughout the paper, the term 'effective effort reduction' is used to describe how various options are equated. The change to the female maximum size does not have any savings in trap lifts so the impact of a maximum size change was compared to that of a trap reduction on the basis of their expected long term (say 5 years) impact on the breeding stock. Thus for Zone B, the output from the Hall and Chubb (2001) model indicated that a change in the maximum size from the current maximum of 105 mm to 100 or 95 mm resulted in an effective effort reduction of 3.5% or 7.8% respectively. Rock Lobster Prices The average price for rock lobsters was set at the current season average price, which is $20 per kilogram, but weighted each month, by the average monthly variation, calculated from a ten-year data set, noting that in real terms, the average price is higher but trending downwards. Rock Lobsters Fishing Costs The Western Rock Lobster Fishery is characteristically fished by small modern craft having a length of about 20 metres. They are generally crewed by a skipper and two deck-hands, although there are some that are crewed by one, two or four crew. Recently, data were collected in a survey of the operating costs of rock-lobster fishers as part of a broader economic consultancy on the merits of input controls versus output controls. Data from that survey has been used to provide an indication of both fixed and variable costs of fishing. The assumptions about costs have been validated on an informal basis, as they have been reviewed by the rock lobster fishing industry. The estimated annual fixed costs for a fishing vessels were as follows: • the capital cost of a rock lobster fishing vessel is $AUD500,000, annualised at 12% per annum in order to approximate both for the cost of capital and boat depreciation; • the cost of an annual overhaul is $AUD15,000 per year; • the cost of administration is $AUD15,000 per year; and • the cost of running the licensees office is $AUD11,880 per year (including the cost of bookkeeping, office consumables, insurance and depreciation on office equipment). No consideration was given to the costs of servicing capital associated with rock lobster trap licences. While this capital is considerable, with traps trading at between $AUD20,000 and $AUD25,000 per trap, their inclusion in the cost base was not considered necessary in order to compare management options. Estimates were made about the variable costs of labour (which were based on the well established industry norms which include a revenue sharing agreeement with crew), fuel and bait costs. Fuel and bait costs have been converted into an average cost per trap lift basis, noting that the average annual fuel bill for fishers is approximately $45,000 per annum, after the Australian Federal Government's fuel tax rebate which is provided to primary producers is accounted for. The average variable cost per trap lift was used to estimate savings where the number of trap lifts was assumed to be reduced due to the implementation of time closures. This assumption was central to the estimated saving that time closures were shown to produce. Treatment of Costs and Revenues Under the time closure scenarios, whether they were seasonal or other periods of low catch, it was assumed that variable costs were not consumed during the period of the time closure, whereas fixed costs were unchanged. In the case of trap reductions, bait costs were reduced in proportion to the trap reduction that was considered. With fewer traps, it was assumed that fishers would continue to fish in the same fishing grounds, so fuel costs were assumed to be unchanged. Because of the revenue sharing arrangements, 2005 NAAFE Forum Proceedings, U.R. Sumaila and A.D. Marsden 161 labour costs are proportional to the revenues from rock lobsters caught, except for a retainer payment for skippers. It was estimated using the Hall and Chubb (2001) model that a 15% effective effort reduction would result in a reduction in catch of 9% in the first year and 3% in the subsequent year. The reason for the lessened negative impact on catch in Year 2 is that any lobsters left behind as a result of the management measures in the first year will, despite suffering some natural mortality, the survivors will grow in size and be available for capture in Year 2 and subsequent years. The assessment of the Zone B fishery is complicated by the fact that in the last 3.5 months of the fishery (15 March to 30 June) about half of the 280 vessels move to fish another zone of the fishery, the Abrolhos Islands (also known as Zone A). Thus effort reductions during the first four months of the fishery (15 November to 14 March) are borne by all fishers while those in the last 3.5 months are only borne by those remaining in Zone B. The economic assessment present in this study focuses only on those fishers who fish in Zone B for the whole season. THE RESULTS The results of the analysis are presented (below) showing the net revenue impact of effort reduction options in the first year after it is introduced (Year 1) and in the following year (Year 2). Different options were considered up to a 15% effective effort reduction. Zone B is currently considered to be the least profitable of the rock lobster zones in Western Australia as a result of a recent low catches with expected gross margins of $AUD34,400 per boat (Fig. 1). Figure 1 shows that as the fishery effort is reduced in the first year, so are the short-term returns to fishers. However, not all options have the same impact on fisher revenues and costs, therefore the aim is to identify those options that provide the greatest effective effort reduction but cause the least negative impact on short term net revenue. The second year shows a similar trend however the impact on catch is much less (see discussion above) but the cost savings are maintained (Fig. 2). $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 0% 5% 10% 15% Equivalent Effort Reduction E x p e c te d G ro s s M a rg in o f Z o n e B F is h e r 15 January 10 February Closure June Closure Early Season Moon Closures 3-7 Days Maximum size 100mm Late Season Moon Closures 3-7 Days Trap Reductions Status Quo November Closure Figure 1. Expected gross margin in year 1 versus the effective effort reduction. Management options in the W. Australia rock lobster fishery, N. Thomson and N. Caputi 162 $30,000 $35,000 $40,000 $45,000 0% 5% 10% 15% Equivalent Effort Reduction E x p e c te d G ro s s M a rg in o f Z o n e B F is h e r Trap Reductions Early Season Moon Closures 3-7 Days Status Quo Late Season Moon Closures 3-7 Days November Closure 15 January 10 February Closure Maximum size 100mm June Closure Figure 2. Expected gross margin in year 2 versus the effective effort reduction. Time Closures The analysis showed that the most economically efficient option in Year 1 would be to close the season between 15 January and 10 February and this could result in a net improvement in the expected gross margin (from $34,400 per annum to $37,000 in the first year), for an effective effort reduction of about 5%. Note that other January closure options were also tested (by extending or shortening the period of the closure), with this option being the most efficient. The expected net improvement in average gross margins does not necessarily mean that all fishers are currently losing money when they undertake fishing activity in this period. It does, however, suggest that gross margins are very limited in that period. Some fishers also operate during this period to maintain cash flow. A net benefit is likely to arise only if all fishers are barred from fishing in this period because it is assumed that 40% of the catch foregone (that would otherwise be caught in the period of closure) will be caught later in the season for no additional cost. This conclusion and treatment of revenues was broadly supported by the anecdotal views of individual fishers. Incidentally, some fishers voluntarily cease fishing over the late January period in order to take holidays over the summer season and to minimise costs during the low catch period. The November closure is another period that appears to provide an effective effort reduction of about 7% with minimal reduction in gross margin. November, which is at the start of the fishing season, is a period with relatively low catch rates and hence the ratio of catch loss to cost savings is low if there is a delayed start to the fishing season. The Zone B fishery is shared by fishers who fish around the Abrolhos Islands, from the opening of the season in November to 14 March. This means that in Year 1 (Fig. 1), insofar as those fishers that exclusively fish in Zone B are concerned, effort reduction strategies that occur during the shared period 15 November to 14 March, are likely to have a lesser relative negative impact on their gross margin than those options that occur only in the period from 15 March through to the end of June when the season closes. In Year 2, (Fig. 2) the relative difference between early season and late season time closures was eliminated. These outcomes highlighted the potential different interests of fisher stakeholders involved in the decision making process. 2005 NAAFE Forum Proceedings, U.R. Sumaila and A.D. Marsden 163 Similar to the Year 1 analysis, the results of the Year 2 analysis (Fig. 2) indicate that most efficient options appear to be time closures during low catch periods. In the second and subsequent seasons the cost savings are maintained, however the reduction in catch is lessened because fishers catch many of those lobsters left behind in the first year of effort reduction. Thus all the time closures result in a net benefit in gross margin while still maintaining an effort reduction. The January closure could provide benefits of approximately $7,000 per annum (20% increase) to fishers in the second and following seasons. The foregone catch in the January period is higher in Year 1, but in Year 2, it is assumed that catches throughout the year will increase more substantially as a result of the January closure. Maximum size The maximum size change for females has a small reduction in the gross margin in Year 1 (Fig. 1) and is estimated to have the equivalent impact on breeding stock of a 3% to 4% effort reduction. However there are no cost savings associated with this measure and hence in the second and subsequent years there is a similar reduction in gross margins as there is no carryover of stock available for capture (Fig. 2). Trap Reductions The trap reductions of 5% to 15% are assumed to result in the same effective effort reduction as the proportion of traps reduced. Trap reductions are also likely to result in some savings in the cost of bait used but no significant savings in terms of fuel as it is assumed that fishers will fish the same number of days and travel to similar fishing locations even if their total number of traps are reduced proportionally. Hence there are likely to be substantially fewer cost savings than those likely to arise for equivalent effort reductions where time closures are implemented. Therefore a significant reduction in gross margin is apparent in Year 1 (Fig. 1). In the second year most of the catch foregone in the first year is available for capture and the net impact on the gross margin is negligible, even with a 15% trap reduction (Fig. 2). DISCUSSION AND CONCLUDING REMARKS The analysis of the different impacts of effort reduction options provided timely input into the decision making process of the Western Australian Government's rock lobster industry advisory committee. This committee was tasked with providing advice to the Western Australian Minister for Fisheries on how to achieve an effective effort reduction of 15% in Zone B and lesser effective effort reductions in other zones of the Western Rock Lobster Fishery. This effort reduction was required, particularly in Zone B, to achieve an improvement in the breeding stock. This study allowed industry and managers to assess the short-term economic impact of the proposed management changes as well as the assessment of the biological consequences of the changes on the stock undertaken by the Hall and Chubb (2001) rock lobster model. The analysis showed that the most economically efficient options in the short term were targeted seasonal closures, including closures for periods during November, January or June and 3-day to 7-day closures over the full moon period. These are all periods of relatively low catch rates. The analysis showed trap reductions were effective and efficient for the two years. The closures for the 3 months specified each contributed about 5% to 7% in effective effort reduction and by the second year they all had a positive impact on the gross margin. It is acknowledged that the study is limited in that it only examines the impact of effort reductions for two years and does not include an assessment of how longer term structural changes in the fleet could improve the relative efficiency of trap reduction options, if they were to be introduced. Trap reductions could have a long-term economic advantage if they promote further fleet rationalization, arising when some fishers sell their trap entitlements to others and leave the industry. The analysis also simplifies the dynamic and inter-temporal relationship between fishing effort and catch at different times of the year and for different periods during moon cycle. For example, fishers may modify their behaviour to adjust for new management rules in order to try and minimise their impact; an assessment of this behaviour would require some form of optimisation. However this adjustment of Management options in the W. Australia rock lobster fishery, N. Thomson and N. Caputi 164 behaviour would apply to all the potential management rule changes to some extent so that the relative impacts should still be relevant. Notwithstanding the simplification, if the basic premise that an effective effort reduction of 15% will result in catch reductions of 9% and 3% in years 1 and 2 respectively, then there is likely to be a benefit to fishers from the effort reductions, particularly if it brings about a reduction in expenditure required to fish (e.g., the cost of labour, fuel and bait). The information from this study was a significant contribution to the decision-making process of determining the new management package. The package recommended for Zone B consisted of a 15 January to 10 February closure, a 10% trap reduction from 15 November to 14 March and Sundays off from the 15 March to 30 June. (It is noted that the Sunday off scenario was not examined in this study, but was included after discussions with fishers who requested it.) The 'Sundays off' option, during the latter part of the season, was supported by the Zone B fishers in order to overcome potential occupational health and safety issues associated with fishing that is occurring continuously for 7.5 months. In Zone C (which is south of the Zone A and B fisheries), fishers opted for a later start to the season opening on 25 November and they will be trialling 3-day moon closures from February to June. Zone A fishers who also fish in Zone B until the 14 March will have 10% trap reductions until the 15 April. The trap reductions have been recommended to cover the peak catch period of December on the coast and March-April at the Abrolhos Islands. (Zone A).