Taking stock: Perverse subsidies in the fisheries sector

20 August 2012

Subsidies have always been part of the policy toolbox that governments use to achieve a variety of policy goals. Over the last decades, they have been particularly pervasive in the energy, agriculture, and fisheries sectors. A recent report by the McKinsey Global Institute estimates that current government supports globally on energy, water, agriculture, and fisheries total more than US$1 trillion dollars annually. [1] The way in which these subsidies are allocated plays a major role in shaping global production and trade patterns, income distribution, and the use of natural resources.

Critics of subsidies often point to the inefficiencies and economic distortions they create, their perverse distributive consequences, and the negative impact they tend to have on the environment by lowering prices and exacerbating the absence of prices on externalities. In the area of fisheries, subsidies have been blamed for enhancing the capacity of fishing fleets to the point that stocks are consistently over-exploited. This phenomenon can be seen each year in the Mediterranean when European fleets meet established quotas in far less time than what has been allocated by authorities. However, despite the negative impacts, subsidies can also play a positive role in addressing market failures or advancing public policy objectives such as supporting the livelihoods of small-scale fisheries or delivering essential public goods.

Fisheries provide livelihoods to vast numbers of people and are a cornerstone of food security in developing countries. According to the FAO, some 45 million people were directly engaged in capture fisheries or in aquaculture in 2008, with more than 90 percent of them located in developing countries. [2] Fish and fishery products are highly traded. Exports have increased significantly from US$2.9 billion in 1978 to US$27.2 billion in 2008, with the EU being by far the largest market. [3] For developing countries as a whole, fish exports largely exceed those of several other agricultural commodities such as rice, meat, sugar, coffee, and tobacco. At the same time, 80 percent of the world's fisheries are being fished up to or beyond their biological limits, a situation that carries significant social, environmental, and economic risks. Many developing countries face depleted fish stocks, causing severe disruption of coastal economies and loss of livelihoods. In spite of that, the size of the global fishing fleet continues to grow, while catches per vessel and per unit of capacity are continually decreasing.

Scale and composition

Subsidies in the fisheries sector have been applied in a number of ways and for a number of objectives. Direct support for vessel building has played an important role in developing the global fishing industry. There is clear evidence that these subsidies can cause market distortions and encourage overcapacity, ultimately contributing to the depletion of fish stocks. On the other hand, subsidies to resource management might have positive effects on trade and natural resources, as do support measures for monitoring, control, and surveillance of illegal fishing activities. Still other subsidies are designed to assist small-scale and artisanal fishing communities that rely on fishing activities for their livelihood and food security.

Overall, reliable data on fisheries subsidy schemes remains scarce. Developed country subsidy programmes are complex and often linked to general subsidy programmes. Several support measures are "hidden" - for example in the form of fuel subsidies - or under the guise of other measures not traditionally considered subsidies. For developing countries, very little quantitative data exists. Keeping these shortcomings in mind, Sumaila et al [4] estimate that global fisheries subsidies in 2003 were between US$25 billion and US$29 billion.

Fisheries subsidies fall into three main categories:

  • Beneficial subsidies, which enhance fish stocks through conservation, and fisheries management;
  • Capacity-enhancing subsidies, such as price and marketing support, fuel subsidies, boat and fishing port construction programmes, or certain aspects of foreign access agreements; and
  • Ambiguous subsidies, whose impact on fish stocks are undetermined (for example, rural fishers' development programmes, or vessel buyback).

Overall, fuel subsidies compose 15-30 percent of total support, while capacity-enhancing subsidies represent 60 percent of global fisheries subsidies. [5] Japan and the EU have traditionally provided the bulk of these subsidies, but rapidly-emerging economies such as China and Brazil are now providing their fleets with significant support - in part to catch up with, and sometimes surpass, the traditional fishing nations (see Figure 1).

The different amounts of subsidies by regions also reflect significant differences in annual catch and fleet size. Taking this into account, figure 2 shows subsidies as a share of total landed value in 2003 in different regions. The calculation of subsidy intensity results in much more parity among the different regions with Africa and Latin America ranking first when subsidies are expressed as a share of the value of catches.

Policy reform at the WTO

The critical importance of fisheries for employment, livelihoods, food security, and government revenues in both developed and developing countries makes reforming the sector very sensitive. Recognising the importance of the sector for developing countries, WTO members launched negotiations in 2001 with the aim of clarifying and improving disciplines on fisheries subsidies. Notably, the mandate highlighted the imperative to tackle the unsustainability of the natural resource under current practices. The 2005 Hong Kong ministerial declaration called on the Negotiating Group on Rules to "strengthen disciplines on subsidies in the fisheries sector, including through the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and over-fishing." To address the concerns of developing countries and small and artisanal fisheries, several countries have put on the table proposals for exemptions from the disciplines for least developed countries (LDCs), as well as for Special and Differential Treatment for all developing countries.

Ambassador Guillermo Valles Galmés of Uruguay, former Chair of the Negotiating Group on Rules, issued a first draft text in November 2007. The text, described as "ambitious" by many, proposed the prohibition of government support for construction, operating and fuel costs of vessels, and port infrastructure development exclusively or predominantly linked to wild capture fishing - including storage and processing facilities. The draft also proposed that some subsidies be permissible for all countries, provided that they maintain an international-standard fisheries management system. The text would have also exempted LDCs from the disciplines altogether. Non-LDC countries, including large developing countries with potentially significant subsidy programmes, would only be entitled to exemptions under Special and Differential Treatment provisions. These exemptions are currently conditioned to the size of the fishing vessels and to fishing within their own Exclusive Economic Zone (EEZ) and are subject to the implementation of management regimes.

Both developed and developing countries raised concerns about the potential impact of the new disciplines for employment, food security, and livelihoods in their fisheries sectors. Japan has been sceptical about the potential benefits of cutting down subsidies, insisting that the problem with over-fishing is rather related to poor management regimes, which need to be strengthened. While a proponent of the WTO agenda on fishery subsidy reform, the EU has been concerned with the socio-economic impacts of a deep cut in its support programmes. South Korea has signalled an interest in "carving out" subsidies for small-scale fishers, especially in terms of aging traditional fishing communities.

Some non-exempted developing countries have expressed concern over the lack of flexibility in the current draft text. For example, China, India, and Brazil say there would be potential negative effects on their fisheries sectors in terms of employment, livelihood, and food security. Some have even described not obtaining sufficient flexibilities in this area as a deal breaker. The exemptions provided in the draft Chair's text would eliminate many subsidies currently allowed, and subject exemptions to stringent management requirements, which a number of developing countries have indicated would result in nullifying the benefit of the exemptions and be beyond their capacity to comply with.

Countries from the ACP group (Africa, Caribbean, and Pacific) host many Fishery Partnership Agreements, granting access to their marine waters to distant nation fishing vessels in return for financial compensation. In the subsidy negotiations, these countries have sought and obtained an exclusion of access fees paid by distant fishing nations to host countries (so-called government-to-government payments). However, subsidies arising from the further transfer of access rights that a government has acquired from another WTO member state to fisheries within the jurisdiction of that state remain amongst those prohibited under the draft text. As such, ACP states may find themselves indirectly affected in their fisheries relations with foreign nations, including for sourcing of fish from foreign vessels for processing and export. They may also see a decline in employment and revenues arising from the operations of foreign fleets. On the other hand, reduced foreign presence may provide an opportunity for reducing the fishing effort, thereby contributing to more sustainable use and less competition for capture and export between foreign vessels and the local fishing industry.

On 19 December 2008, Chair Valles Galmés responded to these complaints by reeling-in much of the hard language on specific subsides featured in the 2007 draft text. Much of this language was replaced by a "roadmap" consisting of fundamental questions to be addressed before negotiations can move forward. With the current impasse in the Doha Round, these negotiations have not progressed in any significant way since then, in spite of repeated calls for an "early harvest" on fisheries subsidies.

Policy reform under the Common Fisheries Policy (CFP)

Meanwhile, the EU is seeking to reform its fishery policy. An estimated 75 percent of EU stocks are currently overfished, according to European Commission estimates, and one-third of Europe's fleet will become unviable in the future if overfishing continues. In this context, the Common Fisheries Policy (CFP) reform proposal contains provisions to reduce harvests of the most over-exploited stocks and fix quotas for fish stocks on multi-year basis. The proposals are the result of a long process initiated in an April 2009 Green Paper exposing existing loopholes and failures of the current CFP. To address the issue of sustainability, the plan proposes that the EU fleet adopt the principle of maximum sustainable yield (MSY) for fishery harvest by 2015.

The reforms also address sustainability issues by proposing to eliminate the practice of discarding by-catch (i.e. non-target species caught unintentionally). The proposal aims to force the fishing industry to better target their catch. If implemented, the by-catch proposal will be phased-in over a realistic time period to allow the fishing industry to adjust to the new regulations. Support for small scale artisanal fisheries, increased scientific information and development of a sustainable aquaculture sector would also be integral components of the reformed CFP. Compulsory labelling of fishery products would be incorporated into the CFP under the plan to give EU consumers a choice concerning the fishery products they purchase, including information on where the fish was harvested, whether it has been previously frozen, and the fishing method used to harvest it. In an effort to achieve an agreement by mid-2012, concessions to accommodate all member states have, however, resulted in a significant weakening of the Commission's reform proposal from July 2011, prompting several NGOs to call for a boycott on the compromise.

EU policy reform in this area, as well as necessary reform in other countries, would be significantly boosted by international agreement on subsidy reform. The progress achieved during tireless discussions in the WTO negotiating group on rules provides an invaluable basis for such an agreement. In order to ensure the survival of fisheries and the livelihoods of fishermen, countries will need to find a way to capture that progress and the important steps taken towards mutual understanding.

1 See McKinsey Global Institute, Resource revolution: Meeting the world's energy, materials, food, and water needs, Nov 2011.

2 FAO, State of the World Fisheries and Aquaculture, 2010.

3 Ibid.

4 Sumaila, U.R, A.S. Khan, A.J. Dyck, R. Watson, G. Munro, P. Tyedmers and D. Pauly. A Bottom-up Re-estimation of Global Fisheries Subsidies. Journal of Bioeconomics (2010) 12: 201-225.

5 Ibid.

This article is based on a longer paper covering agriculture and fisheries subsidies, which can be accessed here.

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