Fishers and fishing communities can face large income volatility from changes in fish prices and fish stocks. Impacts of such fluctuations can go well beyond the individual fisher level and even affect entire communities, leading to severe economic crises [4], [5]. At the same time, fishers have very limited range of economic risk management options. They do not have access to popular risk management tools widely used by other natural resource producers, such as price supports[1], futures markets[2], or a subsidized “fish stock” insurance[3] [2], [6]–[8]. This is further complicated by the fact that fisheries themselves are quite a unique resource. Fish migrate, unlike most other natural resources which are stationary or have highly predictable patterns. They require a certain spawning stock biomass [4], and have populations that are not in direct control of the individual fisher. In other natural resources, such as oil or coal, none of these requirements exist. Furthermore property rights within fisheries are not as strong as those in other resource sectors. Farmers, for example, know exactly the size of their plots, can control which crop to plant, and when/how much water to give[5]. To a large extent, control their inputs and have a good idea of their expected outputs. For the most part, their key decisions (such as their inputs and their choice of equipment) do not affect other farmers [9]. This is in stark contrast to fisheries, which is a common pool resource[6] and decisions of one fisher can greatly affect others.
The role of income diversification
So how do fishers manage their economic risks?
While fishers may not have the same number of risk management options as other natural resource producers, they often rely on a popular strategy used by individuals ranging from farmers to hedge fund managers; income diversification. Income diversification can come in a variety of forms; such as fishing diverse set of fish stocks, having spatial diversity in fishing and having livelihood diversification beyond fisheries, such as farming or a second job [2], [6], [10]–[13]. At the individual vessel level, income diversification is correlated with reduced economic risk [6], [12]. A study by Kasperski and Holland (2013) also finds that vessels with concentrated income (that is, those vessels whose income from fisheries was less diversified), were more likely to exit the fishing industry over time. Thus, income diversification can provide fishers with greater staying power within the industry. Finally, the benefits of income diversification go beyond the individual level. At the community level (think of fishing towns and villages), higher diversification levels can provide greater economic resilience. A study by Cline et al., (2017) shows communities with high level of diversification perform better under economic and ecological shocks.
Challenges
At this point, it is tempting to think that income diversification is the silver bullet solution to all economic risk management problems in fisheries. However, it comes with its own set of challenges. Income diversification in fisheries can be costly. To get an idea, consider that an individual can sit at home anywhere in the United States and purchase shares of Apple and Exxon Mobil within a matter of minutes while incurring the same, often nominal, transaction costs. That means, with a few keystrokes and pocket change in transaction costs, they can diversify their investments into two very different industries (consumer technology and energy). On the other hand, a fisher may have to make large investments into purchasing quota and gear in order to diversify into a different fishery. There may also be management restrictions that make it difficult or prohibitively expensive to diversify[7] [6], [12]. Thus income diversification within fisheries, while possibly a good solution, can be a challenging endeavour in its own right.
In conclusion, fish are a unique natural resource that occupy an important place on our global food plate. However, a fisher must face large economic risks and uncertainties while being armed with limited risk management options. Under such conditions, income diversification can be a handy tool in the fisher’s risk management toolbox. My own research will further look into the relationship between income diversification and economic risk in the Norwegian fisheries. So keep an eye out on this blog as I share my findings in our time ahead!
Bibliography
[1] D. Drudi, “Fishing for a Living is Dangerous Work,” Bur. Labor Stat., 1998.
[2] S. A. Sethi, “Risk management for fisheries,” Fish Fish., vol. 11, no. 4, pp. 341–365, 2010.
[3] BLS, “National Census of Fatal Occupational Injuries in 2016,” 2017.
[4] K. Brander, “Impacts of climate change on fisheries,” J. Mar. Syst., vol. 79, no. 3, pp. 389–402, 2010.
[5] L. C. Hamilton and R. L. Haedrich, “Ecological and population changes in fishing communities of the North Atlantic Arc,” Polar Res., vol. 18, no. 2, pp. 383–388, Dec. 1999.
[6] S. Kasperski and D. S. Holland, “Income diversification and risk for fishermen.,” Proc. Natl. Acad. Sci. U. S. A., vol. 110, no. 6, pp. 2076–81, 2013.
[7] R. I. C. C. Francis and R. Shotton, “‘Risk’ in fisheries management: A review,” R.I.C.C. Fr. R. Shotton. 1998. “Risk” Fish. Manag. A Rev. Oceanogr. Lit. Rev. 45 1228., vol. 7, no. 45, p. 1228, 1998.
[8] D. E. Lane and R. L. Stephenson, “A framework for risk analysis in fisheries decision-making,” Ices J. Mar. Sci., vol. 55, no. 1, pp. 1–13, 1998.
[9] R. S. Johnston, “Fisheries development, fisheries management, and externalities,” World Bank Discuss. Pap., 1992.
[10] M. Minnegal and P. Dwyer, “Managing Risk, Resisting Management: Stability and Diversity in a Southern Australian Fishing Fleet,” Hum. Organ., vol. 67, no. 1, pp. 97–108, 2008.
[11] S. A. Sethi, M. Reimer, and G. Knapp, “Alaskan fishing community revenues and the stabilizing role of fishing portfolios,” Mar. Policy, vol. 48, pp. 134–141, 2014.
[12] S. C. Anderson et al., “Benefits and risks of diversification for individual fishers,” Proc. Natl. Acad. Sci., p. 201702506, Sep. 2017.
[13] L. Sievanen, “How do small-scale fishers adapt to environmental variability? Lessons from Baja California, Sur, Mexico,” Marit. Stud., vol. 13, no. 1, p. 9, 2014.
[14] T. J. Cline, D. E. Schindler, and R. Hilborn, “Fisheries portfolio diversification and turnover buffer Alaskan fishing communities from abrupt resource and market changes,” Nat. Commun., vol. 8, p. 14042, Jan. 2017.
[15] “Futures Market,” Investopedia. [Online]. Available: https://www.investopedia.com/terms/f/futuresmarket.asp. [Accessed: 28-Feb-2018].
[16] S. Cooper, “Spawning Stock Biomass - In Other Words,” 2015. [Online]. Available: http://www.ices.dk/news-and-events/Blogs/Inotherwords/Lists/Posts/Post.aspx?ID=18. [Accessed: 26-Feb-2018].
[1] Any policy intended to keep price level at a level different (usually higher) than a competitive market price.
[2] See [15] for a simple explanation of futures markets.
[3] Unfortunately is no such thing as fish stock insurance, but in agriculture there is crop insurance.
[4] See [16] for an clear explanation on spawning stock biomass
[5] Water can obviously be tricky, since it can also face common pool resource problems, but the case for fisheries is more evident [9].
[6] A resource available to all but difficult to exclude people from using it, hence risking depletion
[7] Management restrictions are not necessarily a bad thing and can often be in place to protect the fish stock. However, they can make diversification difficult for fishers.