1

The Vessel Buyback Program and its Impact on the

Offshore Fishery in Taiwan

Jenny Chin-Hwa Sun, Ph.D.Professor and Director

Institute of Fisheries Economics, National Taiwan Ocean Univ.

INTERNATIONAL WORKSHOP ON FISHING VESSEL AND LICENSE BUY-BACK PROGRAMSMarch 22-24, 2004, La Jolla, California

Southwest Fisheries Science Center and the Office of Science and Technology, NOAA Fisheries (NMFS); CERUM and Department of Economics, Univ. of California, San Diego

2

I. Introduction

In 2002, the total marine fish landing in Taiwan reached 1 million metric tons with a total value around US$2 billions.

Around 72.7% of the total landing value is generated by the distant water fishery with only 1,297 vessels, which are mostly greater than 100 gross tons and account for only 4.8% of the total fishing vessels in Taiwan (Table 1).

The total number of fishing vessels in 2002 is 26,994 and there are 15,741 fishing rafts (built with plastic pipelines) and sampans (small boat without fixed engine), which are mostly equipped with gill net, are the major fishing gears in the coastal region.

3

0

1,000

2,000

3,000

4,000

0-10 10-50 50-100 100-200 200-500 >500

Number of Vessels by Tonnage Class

Figure 2. Fishing Vessels by Tonnage Class in Taiwan(2002)

By excluding the fishing rafts and sampans, there are only 9,453 vessels left and 86% of the vessels are less than 100 gross tons, which are devoted to offshore fishery.

4

0

500

1,000

1,500

2,000

2,500

3,000

Tuna LongLine

Trawl Torch Light Net

Pole & LineBoote

Gill Net OtherOffishore/Costal

Fisheries

Number of Vessels by Fishing Gear

Figure 1. Fishing Vessels by Fishing Gear in Taiwan (2002)

Most of the vessels operated as tuna long line fishery, trawl, and torch light net.

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The offshore and coastal fisheries only account for 19.9% and 7.3%, respectively, of the total landing value in 2002.

Since 1978, the offshore harvests follows a downward trend, but the number of fishing vessels, the total vessel tonnage, and the total horsepower follow an steady increasing trend until 1992 when the overall restriction on the construction of fishing vessels was imposed.

With a great number of fishing vessels competing in the same area, overfishing occurred both in the offshore and coastal fisheries.

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In order to maintain the sustainability of Taiwan’s offshore fisheries stocks and to avoid overfishing, the government has implemented a fisheries management policy which regulates harvests by suspending fishing licenses, restricting construction of fishing vessels, and buying back used vessels in order to reduce the offshore fleet size.

Furthermore, a major revision of the Fisheries Act in 1991 gave the government the explicit right to adjust the fishing effort according to resource abundance. Four amendments that regulate the number of offshore fishing vessels in Taiwan were enacted in 1967, 1980, 1989, and 1991.

7

The most recent measure, announced on Dec. 24, 1991, which is still in effect, restricts the construction of all fishing vessels, except for fish transport vessels over 2,000 tons.

The government adopted two voluntary vessel buy back programs in 1991-1995 and 2000-2004, respectively.

2,319 vessels with 118,354 gross tons were bought back during 1991-1995 and the total government expenditure reaches NT$1,721 million (US$52.16 million).

8Figure 1. Structure of Powered Fishing Vessels of Offshore Fisheries (1953-2002)

0

50

100

150

200

250

300

350

400

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001 Year

Production (1,000 M.T.)Vessel Tonnage (1,000 Ton)Number of Vessels (100 Vessel)Horse Power (10,000 H.P.)Catch per Ves. Ton (M.T./0.5Ton)

Restricts the construction of all fishing vessels in 1991

Buy back programs in 1991-1995 and 2000-2004

9

-

100

200

300

400

500

600

700

1991 1992 1993 1994 1995 2000 2001 2002 2003Year

Million NT$

0

200

400

600

800

1,000Vessels

Amount (Million NT$)

Number of Vessels

Figure 4. Government Expenditure on Vessel Buyback Program(1991-1995 and 2000-2003)

2,319 vessels with 118,354 gross tons were bought back during 1991-1995 and the total gov’t expenditure reaches NT$1,721 million (US$52.16 million).

The purchase price of the vessel is based on price per gross ton which is around NT$14,552 per vessel tonnage (US$441/ton) in 1991-1995.

Even though the second phase buyback program initiated in 2000 which offers NT$18,000 (US$545) to buy back the vessel per ton, only 5 vessels accept the offers.

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Hence, a new scheme in the 2001 buyback program was to set up a scheme to increase the price per gross ton to NT$50,000 for vessels less than 5 gross ton.

(1) NT$50,000 for vessels less than 5 tons; (2) NT$40,000 for vessels between 6 to 10 vessel ton;(3) NT$30,000 for vessels between 11 to 20 vessel ton;(4) NT$20,000 for vessels between 21 to 100 vessel ton,(6) NT$18,000 for each gross ton for vessels over 100 vessel ton.

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However, the second stage buy back program implemented in 2001 was still not very successful as fishermen under rational expectation were holding out in waiting for higher payment scheme to be introduced in the near future. Only 28 vessels were bought back in 2001.

This prompted the government to announce a new payment scheme in 2002 designed to speed up the buy back by offering a higher amount in 2002 but the amount would decrease in the subsequent years as follows:

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For example, if purchased as the year indicated, then it follow different price scheme as follows,

NT$70,000 in 2002, NT$60,000 in 2003, NT$50,000 in 2004

for each gross ton for vessels less than 5 tons;

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(2) NT$60,000 if purchased in 2002, NT$50,000 in 2003, and NT$40,000 in 2004 for each gross ton for vessels between 6 to 10 vessel ton;

(3) NT$50,000 if purchased in 2002, NT$40,000 in 2003, and NT$30,000 in 2004 for each gross ton for vessels between 11 to 20 vessel ton;(4) NT$40,000 if purchased in 2002, NT$40,000 in 2003, and NT$25,000 in 2004 for each gross ton for vessels between 21 to 50 vessel ton;(5) NT$40,000 if purchased in 2002, NT$30,000 in 2003, and NT$20,000 in 2004 for each gross ton for vessels between 51 to 100 vessel ton.(6) NT$40,000 if purchased in 2002, NT$30,000 in 2003, and NT$18,000 in 2004 for each gross ton for vessels over 100 vessel ton.

(7) The total payment per vessel will not exceed 9.5 million for any vessel purchased, in 2002, NT$8.5 million, in 2003, NT$ and 7.9 million, in 2004.

14

0

10

20

30

40

50

60

70

80

0-10 10-20 20-50 50-100 100-200

2000 2001 2002 2003

Number of Vessels by Tonnage Class

Figure 4. Number of Vessels Bought Back by Tonnage Class inTaiwan (2000-2003)

15

0

20

40

60

80

100

120

140

Long Line Trawl Gill Net Miscellaneous

2000 2001 2002 2003

Number of Vessels by Fishing Gear

Figure 5. Number of Vessels Bought Back by Fishing Gear in Taiwan(2000-2003)

16

0

20

40

60

80

100

120

140

160

North East South Remote IslandsRegion

Figure 6. Number of Vessels Bought Back by Region in Taiwan(2000-2003)

Number of Vessels in Various Regions

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2. Economic Performance of Offshore Fisheries and Aquaculture

Since the offshore Fishing vessels are mostly smaller than 100 tons, which are mostly owned by individual. Some of these small-scale, individual vessels switch back and forth between two or more types of fishing gear, according to season and target species.

The cost and revenue data for the different tonnage classes of offshore fishing vessels were obtained from the database released by the Annual Economic Survey of Offshore Fisheries and Aquaculture (Taiwan Fisheries Bureau, 2001).

The revenue and cost data are used to approximate the revenue-cost ratios for fishing vessels in the different tonnage classes.

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Tonnage Class

Average Yield per

Vessel Ton

(Kg./Ves. Tons)

(O)

Average Revenue per

Vessel Ton

(NT$/Vessel Tons)

(A)

Average Cost

(NT$/Vessel Tons)

(B)

Average Variable

Cost

(NT$/Vessel Tons)

(C)

Revenue-

Cost

Ratio

(D=A/B)

Short Term

R-C

Ratio

(E=A/C)

Percentage of

Total Ton

(F)

under 5 2,362 188,442 136,136 81,242 1.38 2.31 5.16%

5 - 10 2,339 146,777 121,037 81,081 1.21 1.81 8.42%

10 - 20 1,972 135,705 121,214 83,813 1.11 1.61 19.67%

20 - 50 1,523 99,349 88,731 65,943 1.11 1.5 58.16%

50 - 100 1,226 69,993 68,187 40,498 1.02 1.72 8.59%

Weighted

Average

1,698 112,569 98,522 69,336 1.14 1.62 -

Table 2a. Offshore Fisheries Production, Revenue,and Cost in Taiwan, 1992

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Table 2. Offshore Fisheries Production, Revenue, and Cost in Taiwan, 2002

Average Yield per

Vessel Ton

(Kg./Ves.

Tons) (O)

Average Revenue per

Vessel Ton

(NT$/Vessel Tons)

(A)

Average Cost per

Vessel Ton (NT$/Vessel Tons) (B)

Average Variable Cost per

Ves. Ton

(NT$/Vessel Tons) (C)

Revenue-Cost

Ratio

(D)

Short Term

Revenue

-Cost Ratio

(E)

Percentage of

Total Ton

(F)

under 5 Tons

1,506 259,600 196,000 136,000 1.32 1.91 2.94%

5 - 10 Tons

2,276 183,467 157,333 124,667 1.17 1.47 4.38%

10 - 20 Tons

1,342 146,600 134,600 109,200 1.09 1.34 11.05%

20 - 50 Tons

1,612 126,000 116,857 91,371 1.08 1.38 35.32%

50 - 100 Tons

1,867 89,640 80,307 64,587 1.12 1.39 46.31%

Weighted Average

1,726 117,883 105,991 83,709 1.11 1.40 -

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3. Estimates of Optimal Number of Fishing Vessels

What's the optimal number fishing vessels to regulate?How's the effectiveness of vessel reduction program?How's the impact on the long term wealfare of fishermen?

Sun, C.H. 1998. Optimal Number of Fishing Vessels for Taiwan’s Offshore Fisheries: A Comparison of Different Fleet Size Reduction Policies. Marine Resource Economics 14:275-88.

to build a empirical production function to estimate the MSY and to investigate the operating cost and per unit price of production in order to estimate the MEY, and OY.

to simulate the short, intermediate, and long run policy effect of the limit license and vessel retirement program.

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III. Model SpecificationThis study specifies a generalized harvest function which permits

the estimation of an unconstrained Cobb-Douglas production function (Comitini and Huang 1967; Hannesson 1983; Tomkins and Butlin 1975; Tsoa, Schrank and Roy 1984):

(1)tt

q

ttttXEA)E,X(HY

tY

tA

tE

tX

where : offshore fisheries harvest in period t, : offshore fisheries technological effeciency in period t, : offshore fisheries fishing effort, which is defined as total vessel tonnage of the offshore fisheries in period t, : an assessment of offshore fisheries resource stock , , and are parameters, , , .

q

10 10 10

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The dynamic movement of the fisheries resource stock is,

(2)

where r is the intrinsic growth rate, and K is the environmental carrying capacity.

1t

1t

1t1t1t1t1ttY)

K

X1(rX)E,X(H)X(GXX

Suppose the error term is multiplicative normal, then the empirical model is specified as follows: (5)

t1t

2

1t

q

1t

1t

1

1t

q

1t

1t

tttY)

EA

Y(

K

r)

EA

Y)(r1(lnElnqnAYln

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Estimating Maximum Economic Yield and Optimal Yield

Suppose that the offshore industry net benefit is specified as: (6))Y,C(X-)Y,R(X=)Y,(X tttttt

The problem of maximizing industry net benefits over time becomes: (9)

with a current value Hamiltonian as defined by:

(10)

0

tttt1t

T

0tttt

t

X=X(0)

)E,X(H)X(GX-X s.t

)cE)E,X(pHMAX

]Y)X(G[u)Y,X()u;Y,X(H tttttt

~

where u is the shadow price which represents the marginal return of the slackness of the resource constraint.

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Under a steady-state equilibrium, the first order conditions of the optimal yield solution, XOY and EOY, are defined to satisfy the following two equations:

(11) and

(12)

cpH

cH)X(G

E

X

0)E,X(H)X(G

The implicit function which defines XOY and EOY in (11) and (12) can be simplified as: (13)

0)E,X(f

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Table 3

Comparison of the Estimates of the Offshore Fisheries Production, Vessel

Tons, Resource, and Aggregate Profit under Actual Production in 1993,

MSY, OY, and MEY in Taiwan

Estimates

Production in 1993

MSY

OY

MEY

Production (Tons) 201,157

236,221

209,238

197,569

Vessel Tons (Tons) 164,447 100,800 51,742 43,012

Resource (Tons) 900,991 1,522,977 2,029,991 2,132,991 Profit

(NT$1,000) -2,865,944 5,735,164 8,773,708 8,860,209

26Figure 1. Estimates of MSY, MEY, and OY of the Offshore Fisheries in Taiwan

-400

-200

0

200

400

600

800

1,000

Fisheries Resource(Thousand Tons)

Production: Y (Thousand Tons)

Profit (NT$ Ten Million)

OY Equation: f (X , E)

XMSY XOY XMEY

Profit

Production

OY

300020001000

Thousand TonsNT$ Ten Million

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(1) Evaluation of the Effectiveness of the Vessel Retirement and Buy Back Program

Scenario 1. If the government did not apply the vessel

retirement and buy back program in 1991, which serves as a base Scenario.

Scenario 2. Assume that the government applies the vessel retirement and buy back program from 1991 to 1993.

Both the fisheries stock and fisheries harvests decline steadily under the base case. A passive vessel retirement and buy back program is determined to be an ineffective resource stock recovery program.

Policy Simulations

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(2). Evaluation of Long-run Equilibrium Vessel Reduction Scenarios Suppose that starting in 1994, the government had implemented a vessel reduction program aimed at maintaining fisheries harvests at MSY levels.

Suppose that fishing effort and total vessel tonnage are fully adjusted to effort under MSY level giving that horse power is held at 1993 levels.

Five different long-run equilibrium vessel reduction scenarios present themselves:

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Table 4. Net Present Value of Profit in Simulations (1) Effectiveness of the Vessel Retirement Program and (2) Evaluation of Equilibrium Vessel Reduction Scenarios

Simulations

(Million NT$)

(1) Effectiveness of the

Vessel RetirementProgram (1990 to 2003)

(2) Evaluation of Equilibrium Vessel Reduction Scenarios (1993 to 2008)

Scenarios S 1 (Base) S 2 S 1 S 2 S 3 S 4 S 5

Net Present Value of Profit

-62,840

-33,052

18,144

(1 Year)

6,316 (5 Y)

-1,144 (10 Y)

-7,815 (15 Y)

-26,705 (Base)

Net Present Value of Short term Profit

3,562

23,617

48,125

40,034

35,177

30,982

19,177

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The government in Taiwan had instituted a comprehensive program to remunerate fishermen for voluntarily reducing fishing effort in accordance with the bulletin of “In reward for closing fishery season procedure” since Sep. 2002.

The program has been running with an annual budget of approximately US$12 million. All kinds of fishing vessels that covers all ocean fisheries in Taiwan with valid fishing licenses, except illegal recreational and over 30 years vessels.

The vessels shall have 100 days of fishing activities and sum 120 days of suspending fishing activities in the fiscal year.

The reward will be even higher if the vessels have 100 days of fishing activities and continue 60 days of suspending fishing activities in the fiscal year.

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To date, the program has not been very successful, as the payments offered to fishermen for curbing fishing activities are so low which are not sufficiently attractive and there are only 21% of the vessels are voluntary to fulfill the requirement.

With a great number of fishing vessels from Mainland China competing in the same area, we believe that one way to make the program work is to restrict it to a few selected fisheries with special environmental and resource considerations. By concentrating rewarding on certain few species, the program could be redesigned to provide sufficient incentives to reduce the effort further.