The Economics of The Economics of Maori Fishing Maori Fishing - - PowerPoint PPT Presentation

The Economics of The Economics of Maori Fishing Maori Fishing

Basil Sharp Basil Sharp Department of Economics Department of Economics University of Auckland University of Auckland

Introduction Introduction

• Rob McLeod (

Rob McLeod (Hui Hui Taumata Taumata, 2005) , 2005) – – economic models are relevant to Maori economic models are relevant to Maori assets assets

– – Ingredients of economic success not unique Ingredients of economic success not unique to Maori to Maori – – no ones knows formula no ones knows formula – – Assets are capital Assets are capital – – income is the flow income is the flow – – Organisations play key role Organisations play key role

Outline Outline

• Significance of initial entitlements

Significance of initial entitlements

• Rights that attach to settlement quota

Rights that attach to settlement quota

• Possible organisational arrangements

Possible organisational arrangements

• Maori rights derive from two not one

Maori rights derive from two not one statutory sources statutory sources

– – Fisheries Act 1996 Fisheries Act 1996 – – Maori Fisheries Act 2004 Maori Fisheries Act 2004

Facts Facts

• Value of output from sector ~ $1.5b

Value of output from sector ~ $1.5b

• Employs 20,000+

Employs 20,000+

• NZ

NZ’ ’s s QMS is a world leader QMS is a world leader

– – Economically Economically – – Sustainable utilisation as best we know Sustainable utilisation as best we know

• Not

Not “ “free market free market” ”, it is a market based , it is a market based system of governance based on the system of governance based on the principle of sustainable use principle of sustainable use

Initial Entitlements Initial Entitlements

• Initial entitlements matter because they

Initial entitlements matter because they provide the opportunity for economic provide the opportunity for economic growth growth

– – Endowments determined by statutory rules Endowments determined by statutory rules

• Transaction costs

Transaction costs – – the cost of doing the cost of doing business matter too. High transaction business matter too. High transaction costs limit commercial opportunity, reduce costs limit commercial opportunity, reduce the liquidity of the asset the liquidity of the asset

Property Rights Property Rights

• Existed before Europeans arrived

Existed before Europeans arrived

• Rights embedded within QMS are

Rights embedded within QMS are generally of high quality by international generally of high quality by international standards. standards.

• I suspect that the tag attached to

I suspect that the tag attached to settlement quota and voting rules settlement quota and voting rules governing use lowers its value relative to governing use lowers its value relative to regular quota rights regular quota rights

Asset Specific Investment Asset Specific Investment

• Return from next best alternative is low

Return from next best alternative is low

– – Thermal power plants, hydro dams, oil rigs Thermal power plants, hydro dams, oil rigs

• Settlement quota is asset specific

Settlement quota is asset specific

– – Use right is to a degree asset specific Use right is to a degree asset specific – – Value derives from right to fish Value derives from right to fish – – Compared with land Compared with land

• Asset specificity

Asset specificity -

• > opportunistic

> opportunistic behaviour behaviour

Asset Valuation Asset Valuation

• Settlement quota is an asset

Settlement quota is an asset

• Economic rent is the

Economic rent is the “ “payment payment” ” to the to the asset asset

• Value of the asset is the present value of

Value of the asset is the present value of returns to exercising the right returns to exercising the right

• Diminish the right

Diminish the right -

• > diminish the value

> diminish the value (rent) of the asset (rent) of the asset

Participation Participation

• Background

Background

– – QMS offers huge advantage to commercial fishers QMS offers huge advantage to commercial fishers

• International markets

International markets

• Leverage off asset

Leverage off asset

– – NZ is to large degree a price taker NZ is to large degree a price taker – – Demand for seafood positively related to income Demand for seafood positively related to income – – Sensitivity of demand to price varies across products Sensitivity of demand to price varies across products – – Freedom and incentive to innovate Freedom and incentive to innovate

• Lower unit costs

Lower unit costs

• Product development

Product development

Economic Objective Economic Objective

• Maximise rent; maximise profit; enhance

Maximise rent; maximise profit; enhance value of asset value of asset

• Maximising export value is not criterion

Maximising export value is not criterion – – scarce assets and maximise net return to scarce assets and maximise net return to settlement quota settlement quota

• Rent enhancement and not rent

Rent enhancement and not rent dissipating activity dissipating activity

Possibilities Possibilities

• 1. Adjustments to established entities
• 1. Adjustments to established entities

– – Leverage off settlement quota to gain Leverage off settlement quota to gain economies of scale and scope economies of scale and scope – – Evidence of economies of scale in NZ Evidence of economies of scale in NZ

• 2. ACE trader
• 2. ACE trader

– – Discrete contracts, annual Discrete contracts, annual – – Relational contracts, longer term Relational contracts, longer term – – Maui contract not a good example Maui contract not a good example

Possibilities Possibilities

• 3. Joint ventures
• 3. Joint ventures

– – Rather than acquire, JV Rather than acquire, JV – – Horizontal, vertical JVs Horizontal, vertical JVs – – Shared equity enterprise, mutual reliance Shared equity enterprise, mutual reliance – – Reasons for formation Reasons for formation

• Create market power

Create market power

• Economies of scale

Economies of scale

• Access to technology and skill

Access to technology and skill

• Reduce risk

Reduce risk

• Manage rivalry and possibly contractual hazards

Manage rivalry and possibly contractual hazards

Concluding Thoughts Concluding Thoughts

• Twenty years have passed since the High Court decision.

Twenty years have passed since the High Court decision.

• Bottom line: settlement quota is an asset and economic

Bottom line: settlement quota is an asset and economic performance of that asset is critical to your performance of that asset is critical to your iwi iwi’ ’s s future future

• Enhancing the income flow to settlement quota is

Enhancing the income flow to settlement quota is enhancing wealth enhancing wealth – – it becomes a platform to launch it becomes a platform to launch investment elsewhere investment elsewhere

• Avoid rent dissipating activity

Avoid rent dissipating activity – – zero zero-

• sum games are not

sum games are not wealth enhancing wealth enhancing

• Adopt the opportunity cost principle and know what is

Adopt the opportunity cost principle and know what is given up when a decision is made given up when a decision is made

• The choice is yours to make

The choice is yours to make