1

An Economic Analysis of the Problem of Sturgeon depletion in the Caspian Sea

A. MarkandyaU. Bath

23/11/2006

2

Introduction • Caspian sea famous as host to majority of Sturgeon

Stocks• Catches declined in the mid 20th 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

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 legal50% of international trade estimated to be illegalUse of illegal fishing methods Huge reductions in numbers and size of fish caughtReproduction significantly reducedReduction in quality, reputation and price of caviar.

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

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• 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

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 1950’s: capacity of 100 million young fish.

– Recent years: essential in maintaining recruitment– Capacity now 50-55 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

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 m3 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.

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• 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 resourcesinternational cooperation is essential.

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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.

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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%…

C

SrS 1

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Growth

-20

0

20

40

60

80

100

120

140

1602

250

490

730

970

1210

1450

1690

1930

2170

2410

2650

2890

Fish Stock (Tons)

Gro

wth

in

Sto

ck (

To

ns)

Growth

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Introducing Harvesting: Bioeconomic Equilibrium

Bioeconomic equlibrium in the fishery model.

H

G

S

G

H

S

1 S

2

HMSY

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The Optimal Effort Level

Converting levels of effort into the implied levels of total revenue

G

S

H1SS

H4SS H3SS

H2SS H5SS

E

$

E1 E2 E3 E4 E5 E6

H6SS

Steady State

Revenue

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The Optimal Effort Level

Identifying the profit maximising level of fishing effort

Effort E1 E2 E3 E4 E5 E6

Total Cost

max.

Total Revenue

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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

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External effects and the management of transboundary fish stocks

• Externalities: Party 1’s 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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The socially optimal use of an environmentally polluting input

MEC

MEB

Q

$

QP Q*

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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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Privately optimal and socially optimal levels of investment in hatchery provision

MIC

MSB

Q

$

IP I*

MPB

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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 catchTAC quota for each country, additional restrictions on size, fishing location If tradeable, increases efficiency

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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

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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 groundsEconomically efficient TAC

How much hatchery capacity is worthwhile

How might TAC might be equitably divided

• NB – hypothetical model.

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• 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:

C

SrS 1

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Growth

-20

0

20

40

60

80

100

120

140

1602

250

490

730

970

1210

1450

1690

1930

2170

2410

2650

2890

Fish Stock (Tons)

Gro

wth

in

Sto

ck (

To

ns)

Growth

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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:

C

SySgSG t

tt 115

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• Assumptions: – At 15 years a fish weighs 15KG– Spawners produce 10000 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…

300011.03.1 15

ttt

SSSG

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Stock Growth

020406080

100120140160

3 8 19 39 73 149

306

595

1066

1730

2425

2860

2988

Stock (tons)

Sto

ck G

row

th (

ton

s)

Growth

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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

C

SHSyH

Q

SxG t

tttt 1)( 15

15

C

Syx

C

Sy

Q

xS

H

11

1

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Sustainable Harvest

0.0

20.040.0

60.0

80.0

100.0120.0

140.0

160.0

10 310

610

910

1210

1510

1810

2110

2410

2710

Stock (tons)

Su

sta

ina

ble

Ha

rve

st (

ton

s)

Sustainable Harvest

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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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Fishery Revenues, Costs and Profits

-200000

0

200000

400000

600000

800000

1000000

120000010 310

610

910

1210

1510

1810

2110

2410

2710

Stock (tons)

Ste

ad

y S

tate

Pro

fits

(U

S$)

Production costs

Revenues

Profits

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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

C

SHSyzFG t

ttt 1)( 15

C

Sy

C

SySzF

H

11

1

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Steady State Harvest with different Hatchery

Provisions

0

20

40

60

80

100

120

140

10 220

430

640

850

1060

1270

1480

1690

1900

2110

2320

2530

2740

2950

Stock (thousands of tons)

SS

ha

rve

st

('0

00

s t

on

s)

0

1000

11000

21000

31000

41000

51000

61000

71000

81000

91000

101000

111000

121000

131000

141000

151000

161000

171000

181000

191000

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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 stockWorthwhile to invest in hatchery capacity of 101,000 fingerlings

Sustainable catch level of 69 tons.

Steady state stock 2,830 tons.

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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?

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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

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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

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

11 million fingerling capacity

12 million fingerling capacity

Steady State Stock 2,800,000 2,800,000 Steady State Catch 9,175 10,001 Production Costs 31,195,512 34,003,215 Hatchery Operating Costs 25,000 25,000 Revenues 34,865,572 38,003,593 Operating Profit 3,645,060 3,975,378

Changes in operating costs and revenues due to investment in hatchery

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• 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

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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.

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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.

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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