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1 An Economic Analysis of the Problem of Sturgeon depletion in the Caspian Sea A. Markandya U. Bath 23/11/2006.

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Presentation on theme: "1 An Economic Analysis of the Problem of Sturgeon depletion in the Caspian Sea A. Markandya U. Bath 23/11/2006."— Presentation transcript:

1 1 An Economic Analysis of the Problem of Sturgeon depletion in the Caspian Sea A. Markandya U. Bath 23/11/2006

2 2 Introduction Caspian sea famous as host to majority of Sturgeon Stocks Catches declined in the mid 20 th Century, but recovered with sound management Recent years, number of factors reduced stocks. Overview of factors contributing to loss of stocks Modelling fish stocks –behaviour under private fishery and open access Methods of regulation Externalities in the context of Caspian Sea sturgeon fisheries A numerical model: how economic analysis could help in devising policy options.

3 3 Factors Depletion of Sturgeon Stocks in the Caspian Sea Over fishing, Poaching and Illegal Trade End of the USSR, the strong regulatory system collapsed Powerful incentives given high price of caviar. Result: illegal catch estimated to be 6-10 times greater than legal 50% of international trade estimated to be illegal Use of illegal fishing methods Huge reductions in numbers and size of fish caught Reproduction significantly reduced Reduction in quality, reputation and price of caviar.

4 4 Habitat destruction: Loss of spawning grounds due to dams, and possibilities of circumventing these Spawning grounds crucial to natural reproduction of sturgeon Damming of major rivers (particularly Volga) significant factor in decline of stocks Volgograd dam reduced the available grounds to 12% - lost all of Beluga grounds. Only on the Ural do sturgeon still reproduce naturally – but spawning population may have been destroyed by poaching and pollution Losses of fish in water uptakes

5 5 Measures to mitigate effects: –Fishway on Volgograd relatively successful –Artificial spawning grounds – many now silted, but not a limiting factor due to stock depletion –Increased spring water discharge can increase spawning effectiveness –Fish protection devices on water uptakes

6 6 Replacement of natural reproduction by means of aquaculture, including hatcheries Conservation: natural reproduction preferable But in meantime alternative means required Aquaculture – entire life cycle or hatcheries Hatcheries: –USSR programs for artificial reproduction in the 1950s: capacity of 100 million young fish. –Recent years: essential in maintaining recruitment –Capacity now million, condition critical –Current production insufficient to maintain stocks. Aquaculture –BIOS centre in 1994 in Astrakhan –Developing better hybrid (beluga and sterliad) –Caesarean techniques researched and developed.

7 7 Water Pollution/ Oil spills 10 million people live on Caspian coast, 60 million in Volga watershed. Pollution from sewers and industry, particularly oil and mining – 1 million m 3 untreated waste each year. Pollution major ecological imbalance, especially in North severe effect on human health and both water and land quality. Effects on fish reproduction.

8 8 Transboundary problems Before dissolution of USSR, well defined catch quotas and rigorous enforcement Since, economic difficulties, and resources shared by five states Fewer resources - and lower incentives to invest in stock maintenance –Benefits enjoyed by all countries: externalities Fish stocks common pool resources international cooperation is essential.

9 9 Summary: policies available to reduce loss of sturgeon stocks re-creation of the conditions to allow natural reproduction including the regulation of fishing and reduction in pollution increased contribution of hatcheries to wild sturgeon stocks, and the development of alternatives to the commercial exploitation of wild stocks by means of aquaculture.

10 10 Modelling fish population dynamics Modelling stock growth and harvesting Growth function: account for growth rate of species, and limits of habitat growth = F(Growth rate r Stock (S), Carrying Capacity C) E.g. Growth = E.g. with S = 3000, r = 20%…

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12 12 Introducing Harvesting: Bioeconomic Equilibrium

13 13 The Optimal Effort Level

14 14 The Optimal Effort Level

15 15 Policies available for regulation of fisheries Direct restrictions on fishing efforts –Limits on days at sea, size of engine etc. Optimal taxes on a fishery –Tax on effort – e.g. licence fee –Tax on catch Rights-based approaches - quotas on catch and effort –Simple TAC –Individual Transferable Quotas Note: effective fishery management: 3 components –Setting regulatory framework –Effective monitoring and enforcement –Efficient judicial process

16 16 External effects and the management of transboundary fish stocks Externalities: Party 1s activity costs/ benefits for Party 2 –Party 1 does not account for this effect in decision- making Externalities resources used socially inefficient way Negative environmental externalities – pollution –Classic example of negative environmental externality –Relevant to the problems of Caspian sturgeon fisheries –If firm uses polluting input, likely to be over-used from a social point of view

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18 18 Positive environmental externalities: sturgeon hatchery provision Positive externalities likewise lead to socially efficient resource allocation Now likely to be less than the socially efficient level of the activity –E.g. provision of spawning grounds and hatcheries. Benefits of sturgeon fisheries enjoyed by all of the littoral states investing state enjoys only a proportion of the rewards unlikely to invest as much as would be socially optimal.

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20 20 External effects: implications for the management of Caspian Sturgeon External effects inevitably affect management of transboundary fish stocks –Under open access: effort increased until rents dissipated. Transboundary fishery: many of characteristics of open access fishery –Limits to catch benefits for the entire fishery Various policy options Best one remains: restrict total catch and minimise costs of landing this catch TAC quota for each country, additional restrictions on size, fishing location If tradeable, increases efficiency

21 21 Implications for Sturgeon stocks of the Caspian? Joint management of stocks by all the littoral states is imperative analysis shows co-operation will always produce a better outcome Issues: –Identifying appropriate TAC –Finding most cost-effective means to secure this catch –Dividing TAC among littoral in fair way Numerical example shows how this might be done using biological/ economic analysis

22 22 Identification of the best solution using a Numerical Model How can we use quantitative analysis to suggest best policy/ mix of policies? 1.Model growth of the sturgeon population –Quantify the effects of different harvesting and reproduction policies. 2. Incorporate cost, revenue, lost spawning grounds Economically efficient TAC How much hatchery capacity is worthwhile How might TAC might be equitably divided NB – hypothetical model.

23 23 Modelling sturgeon stock reproduction Basic growth function: Growth = C = 3000 r = 20% million tons and the intrinsic growth rate is 20 percent. Resulting growth function:

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25 25 More realistic representation: account for time taken for sturgeon to reach maturity and therefore reproduce growth now a function of weight of mature stock, and weight of spawning population 15 years previously –(assume sturgeon takes 15 years to mature) Modified growth function:

26 26 Assumptions: –At 15 years a fish weighs 15KG –Spawners produce eggs/ KG bodyweight –Each mature fish spawns every 12 years –15.5 % eggs survive to become fingerlings –0.01% fingerlings survive to maturity –Intrinsic growth rate of the mature stock is 10 percent. –Growth over time…

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28 28 Next Stage: what catch level can be maintained at each level of the stock? Incorporate harvesting into growth function –Assume harvest only spawning stock –x : weight added to mature stock/ each KG of stock successfully spawning 15 years previously –Q : proportion of stock attempting to spawn in any year. –Set right hand side equal to harvest and solve

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30 30 Identifying the optimal stock level and TAC Calculate in terms of maximising steady state profits –If no harvesting costs, maximum profits at maximum steady state harvest. –Catch of 138 tons, stock 2,230 tons. Assume harvest cost function: –Cost = $3000 x Harvest +$2 x (3000 – Stock) Revenue function –Revenue = $100 x H x 0.04 Revenue, Cost, Profit functions Profit maximising at H = 121, S = 2,620 tons

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32 32 Lost spawning grounds and their replacement by hatcheries. Re-express growth function in terms of fingerling production F = number of fingerlings produced z = expected weight added to mature stock 15 years later for each fingerling produced. Set G= H, solve for H relationship between hatchery provision and maximum sustainable harvests

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34 34 Optimal Hatchery Provision? Assume: Hatchery costs for 1 million fingerling capacity –$30,000 operating costs –$35,000 capital costs Sturgeon production costs: As above Revenue Function: As above Calculate revenues and costs for each level of provision, each stock Worthwhile to invest in hatchery capacity of 101,000 fingerlings Sustainable catch level of 69 tons. Steady state stock 2,830 tons.

35 35 Identifying the TAC over time – and an equitable distribution Variety of regulatory policies could lead to the TAC, e.g. –Moratorium –Remove safe proportion of spawning stock Limiting catch to sustainable level –Allocate transferable catch quotas to each state. On basis of mutually agreed criterion e.g. historical catches –With issue of hatcheries – problem of externality - equitable for investment in hatchery provision to be compensated with increased share of quota?

36 36 Compensating states for the costs of hatchery provision Assume now carrying capacity of fishery is 3 million –Fishery is exploited by 5 nations. –At optimal level of hatchery provision – 101 million fingerling capacity Profits available $25 million Cost of hatchery provision - $6.5 million. –Investment socially desirable = each $1 million investment yields over $3 million benefits –But if benefits divided among five each $1 million investment yields $0.6 million benefits to investor not worthwhile. Investor must be assured of sufficient return –e.g. Allocate 26% of quota in proportion to investment – to cover costs –Allocate remainder in agreed manner

37 37 A cost-benefit analysis for an individual hatchery Single proposed investment: to increase fingerling production from 11 million to 12 Now account for discount rate – calculating the Net Present Value of the investment Is the investment worthwhile? Assumptions: as above, but operating costs for the facility assumed to be $25,000, capital costs $600,000

38 38 Operating profit increases $330,318 –Does this justify investment cost?

39 39 Assume that increase in operating profit takes 15 years In the meantime, no change, but Hatchery costs incurred Calculating discounted flow of net benefit: NPV = $14,353 : investment worthwhile. But, if investing nation has access to only 20 % of increased steady state catch: NPV of the project would be -$692,710 Investment not worthwhile unless compensation to investing party

40 40 The need to control poaching and international trade Any management strategy depends on ensuring TAC and other restrictions are adhered to. Essential for: –Efficiency- Sustainability –Maintenance of quality of product. Likely feasible only if restrict to state monopolies –e.g. one in each littoral state, no more than four in Russia If private sector, monopoly rights should be auctioned Regulation of international very important role –Reduces returns from poaching –Enables to verify provenance and quality - maintain price. Parties of CITES require help in capacity-building –incorporating CITES regulations into national legislation –creating the required management and scientific authorities.

41 41 Conclusions Problem of sturgeon depletion in the Caspian Sea immensely complex. –over fishing, poaching and the use of illegal fishing methods, –pollution –loss of spawning grounds. Solution therefore likely equally complex - –Enforceable limits on catches –Banning the catching of juveniles –Limiting pollution –Investment in mitigating, compensating for loss of spawning grounds.

42 42 Conclusions We have seen how issues can be analysed in an economic framework –Modelling reproductive function and the effects of harvesting –Regulation: ideal system limits catch and minimises costs –Relevance of Externalities to the situation –Numerical model – how some of these issues can be analysed – –Including distribution of quotas in proportion to investment With sufficient data, these methods could provide policy advice However, uncertainty always an issue – policies should be precautionary

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