There is Something Fishy at the WTO
The fishing industry may not be the most glamorous in the world but it is at the centre of a number of economic problems, not least questions of sustainability and the livelihoods of small coastal fishing communities versus industrial fishing.
Most governments around the world subsidise their fishing industries. This is generally because they want to protect local industries. The table below from the Wall Street Journal gives an indication of how significant these subsidies are:
The effect of such subsidies is to increase the amount of fish taken each year from the world’s waters. This is because the effect of a subsidy is to shift the supply curve of a product to the right as shown below.
If we assume that the industry supply curve without subsidies is S1 and the demand curve D, then the equilibrium price of fish will be P1 with an annual catch of Q1. Remember that a supply curve is generated by the cost-curves of individual firms, and so the effect of a subsidy, that is a payment by a government to firms for producing a product, is to reduce the net costs of production. For example many governments pay fuel subsidies to their fishermen, which cuts the costs of running trawler ships, enabling them to travel greater distances in search of fish. Since subsidies reduce the actual costs to a firm of producing output their effect is to lower the cost curve for any given output — in the diagram the subsidy is shown by the vertical distance between the original supply line S1 and the new subsidy supply line S2, yielding a greater quantity of fish caught at Q2 and a lower average global price of P2. Consumers benefit from more plentiful and cheaper fish and governments get the political benefits from supporting fishing communities.
The problem is that if we fish the sea too heavily then fish stocks will eventually start to decline. It seems that the world is currently facing this situation. It is estimated that 52% of global fish stocks are fully exploited and that any further fishing from these stocks will cause total fish numbers to decline. If fishing levels could remain at Q2 this could just about be managed. The problem is that global demand for fish is rising: more people and more incomes mean that global fish demand is expected to rise 16% by 2030. In the diagram this will mean a shift in the demand curve to the right. As demand increases and price rises, supply will increase along the supply line S2 leading to global fish harvests rising ABOVE Q2. This means that fish stocks will start to decline. What will this do to the diagram? Well as fish stocks decline each year the supply curve will shift to the left: there will be less fish available each year, prices will rise, and employment in the fishing industry will decline.
So the World Trade Organisation is trying to negotiate reductions in the fishing subsidies paid by governments around the world.
According to the UN: “Fishing subsidies are estimated to be as high as $35 billion worldwide, of which $20 billion directly contributes to overfishing. According to FAO data, the percentage of stocks fished at biologically unsustainable levels increased from 10 percent in 1974 to 34.2 percent in 2017.
These subsidies effectively mean that taxpayers are paying industrial boats to degrade the environment and to destroy the food security and livelihoods of vulnerable coastal communities. By fueling unfair competition between large fleets and individual artisanal fishermen, they are also fostering inequality.”
If countries can agree to cut the amount of subsidies they pay to their fishermen then the supply curve for fish will shift to the left, reducing the annual catch and taking pressure off fish stocks — at least for now. But there are problems: first, there needs to be a mechanism for ensuring any given county will abide by a reduction given that it has an incentive to cheat and keep paying subsidies so its ships have an advantageous access to the fish stocks. Also, fish are a normal good and as global incomes rise and people seek healthier alternatives to meat, demand for fish will keep growing strongly and eventually demand will come up against the ultimately fixed amount of sea fish in the world. And then some solution more drastic than subsidy reductions will be required.
