Commercial Fishing Subsidy Reform

EXECUTIVE SUMMARY

Today, the way that we are managing commercial fishing subsidies is wrong. Under the current model, which mostly includes subsidies in the form of discounted fuel, we are not only causing detrimental impacts on the environment but also not providing over 1.7 million Americans with the financial stability that they need. With over 200M tons of CO2 being produced by the fishing industry annually, it is paramount that we direct the money away from fuel subsidies to minimize the environmental impact of this industry. While many advocate for the outright abolition of commercial fishing subsidies altogether, data suggests that subsidies can be a useful tool in restoring–and maintaining–life in our aquatic ecosystems. Instead, we must reform the existing fuel subsidy programs. By eliminating fuel subsidies, hundreds of millions of dollars become available to allow preexisting fleet management organizations to distribute the money to fishermen in times of need. By eliminating cheap fuel, less of it will be consumed, reducing the industry’s carbon footprint along with a host of other environmental benefits.

INTRODUCTION

As our aquatic ecosystems face increasing threats, we must begin to reevaluate how human activities impact sustainability goals moving forward. Commercial fishing subsidies have come under scrutiny today, with many experts citing them as the main culprit for overfishing and the overall destruction of aquatic environments. Yale University categorizes fishing subsidies in three ways: beneficial, ambiguous, and capacity-enhancement (Hollander, 2023). Unsurprisingly, these capacity-enhancement subsidies have been the subject of controversy.

Capacity enhancement subsidies make up roughly 56% of the $713 million that the fishing sector receives annually (EWG, 2009). Capacity enhancement subsidies are intended to increase the productivity of an industry artificially and usually feature some negative externality in doing so. While the effect of every subsidy varies from fishery to fishery, the main concerns lie with the advantaged price that fishermen receive on fuel and the ease with which one can purchase or build a new vessel. These subsidies were originally introduced in the 1940s to help jumpstart an emerging industry and make it more profitable (Hollander, 2023). Now that technology has made fishing far more profitable, surely fishermen make extreme profits due to the reduced costs?

Unfortunately for the men and women at sea, this is far from the truth. Rolf Willman, a senior Fishery Planning Officer for the Food and Agriculture Organization describes the situation in his book The Sunken Billions: The Economic Justification for Fisheries Reform as follows:

“Right now, no one is winning. The real income levels of fishers are depressed, much of the industry is unprofitable, fish stocks are depleted and other sectors of the economy foot the bill for an ailing fishing industry” (Willman, 2008)

How can the fishing industry receive hundreds of millions of dollars in subsidies while the people keeping the industry afloat receive wages that they cannot sustain themselves with? Ultimately, the mismanagement of these subsidies has failed an industry with over 1.7 million workers and is actively killing the ecosystems that support their livelihood (NOAA, 2016). It is time that we reform our commercial fishing subsidies.

RATIONALE

No, we can’t remove subsidies altogether

A popular idea circulating in the environmental preservation community is that commercial fishing subsidies should be discontinued altogether. Brookings Institution describes this as an opportunity to “protect vulnerable people and their livelihoods, promote healthier oceans, and fulfill one of the United Nations Sustainable Development Goals” (Okonjo-Iweala, 2021). Most environmentalists arrive at the simple conclusion that fewer subsidies will result in fewer fishermen which is always the best thing for the environment. While this is a very positive outlook on a situation in desperate need of reform, this analysis fails to consider the unique needs of the many fisheries all over the country that are extremely different from one another.

The problems that plague the commercial fishing industry can be divided into two categories: protecting the environment and the people. Without some control over the people, the environment will be no better off. Firstly, environmental threats are largely due to poor management. Without formally established and effectively enforced environmental regulations, no amount of subsidy removal will help. In contrast, when used correctly, subsidies can make fisheries far easier to manage. Financial stability can be very effective in controlling the fleet and eliminating subsidies effectively surrenders that control. By diverting funds away from fuel subsidies, the management groups can control the fleet’s behavior by paying them to behave in ways that benefit the environment.

If it is determined that the fish populations need to recover, the fishermen can be compensated in exchange for remaining tied to the dock. If the fish price is poor but failure to harvest would put the ecosystem at risk, fishermen can be paid to stabilize the population and protect the ecosystem.

Both situations are rather uncommon and most fisheries could operate normally without having to incentivize fishermen to behave in a certain way, but in instances where this is needed, subsidies provide a simple remedy.

Environmental Consequences of Commercial Fishing Subsidies

By far the most pressing issue when it comes to commercial fishing subsidies is the impact that they pose on the environment. Unlike farming subsidies which take the form of direct payments to farmers, fishing subsidies mostly exist as fuel discounts. Approximately 44% of annual subsidies received in the US are in the form of fuel subsidies. The only other notable category is “research subsidies” which falls under the ambiguous label and frankly, should not count toward the broad commercial fishing subsidy category (EWG, 2009). When adjusted to exclude the research category, fuel subsidies represent over 80% of the total.

Fuel subsidies work by diesel companies receiving government payments to sell fuel to fishing vessels/processors at a lower price without sacrificing profits. In practice, this enables a commercial fishing vessel to purchase a gallon of diesel for roughly market price, which is quite a remarkable savings when considering the logistics of getting it to these vessels in most situations. Consequently, the cheaper fuel makes the fishing more profitable and the fishermen see the money in the form of lowered fixed expenses.

However, basic economics tells us that if something is cheaper, people will use more of it. Especially since the fishermen only reap the benefits of this subsidy by burning more cheap fuel to catch more fish to sell. This lowers the entry cost of the industry as a whole and creates an industry with more boats and one that rewards burning more fuel. More boats in the water burning more fuel introduces many problems for the aquatic habitats that these fish live in. In 2019, Marine Policy published a study showing that commercial fishing vessels were responsible for over 207 million tons of CO2 emissions in 2016 alone (Greer et al., 2016). Moreover, in many fisheries, the presence of fishing vessels contributes directly to higher levels of seafloor destruction and microplastic quantities in the ocean (USGS, 2016). While not all of the blame can be attributed to fuel subsidies, it is easy to correlate lower fuel prices with increases in CO2 and microplastics in the oceans.

The Pew Research Trust estimates that roughly 54% of fisheries would not be profitable if it were not for these fuel subsidies (Finley, 2022). This demonstrates that these subsidies have artificially made fishing sustainable for more vessels than what the environment and the market can naturally sustain. Therefore, eliminating fuel subsidies will force boats out of the market and bring the industry back to a natural equilibrium where fewer boats can catch more fish while still operating at a profitable level and reducing the industry’s carbon footprint. It will also free up roughly $300 million to implement other solutions.

Overfishing and Underfishing

The greatest threat that aquatic life experiences is overfishing. The University of Washington estimates that approximately 34.2% of all fisheries are overfished, and subsidies can certainly hold part of the blame. As aforementioned, under the current incentive structure, fishing vessels are encouraged to fish as much as humanly possible as that is the only way they can achieve profits. Naturally, one could attribute overfishing to being a consequence of this mentality of fishermen. Additionally, from a management standpoint, it would be very challenging to pause an entire fishery without substantial government support since the people in this industry require income.

On the flip side, there are instances where the market for a particular fishery is so poor that fishermen cannot financially justify leaving the harbor. In these instances, the lack of catch leaves the ecosystem in a very vulnerable state. Underfishing occurs when not enough fish are harvested and the larger population negatively affects the ecosystem. This can be due to a high number of predators compromising the food chain, or lack of food to sustain new fish populations, leading to a mass die-off (NFFO, 2017). The negative effects of underfishing are far less talked about but far more lethal as one season of unchecked population growth can devastate entire aquatic ecosystems. In instances where the market is so poor, fish stocks are at extremely high risk of becoming victims of underfishing and ultimately being subject to irreversible damage.

By pivoting back to agricultural subsidies, we can observe a potential framework to resolve this issue. Farmers on farmland supported by the Colorado River have been receiving payments not to farm since 2021 (Brown, 2021). Since there are many government buy-back programs in place to ensure that farmers can sell their crops regardless of market conditions, farmers often receive payments from the government to not grow said crops to prevent the process of selling the crops to the government, storing them, allowing them to rot, and eventually cleaning out the rotted crops from silos (Frank, 2009). These instances demonstrate the government responding to an environmental crisis by altering the incentive structure to make farmers act more sustainably while preserving their livelihoods.

The Money Never Gets to Those Who Need It Most

One of the most fundamental problems with the distribution of commercial fishing subsidies is that they do not provide financial stability to those who need it most. In agriculture, the two main subsidies that allow farmers to have some stability are the Agriculture Risk Coverage and the Price Loss Coverage programs, which create an artificial bottom threshold of profit that farmers will receive regardless of market conditions or crop conditions. They can do this by paying farmers if their revenue per acre meets a financially unsustainable level (Edwards, 2018). The National Institute of Health finds that “agricultural subsidies in major grain-producing regions have significantly increased rural household grain yield” (Yang et al., 2023). These subsidies enable farmers to produce more crops, providing them with greater financial stability when it would otherwise be compromised. This eliminates much of the risk posed by uncertainty in the fluctuating market and crop returns and allows them to continue producing their vital goods.

This safety net is the exact thing that fishermen lack. Since most of the subsidies in the fishing industry are designed to make it more profitable, very little money is left over to aid when the industry isn’t profitable to begin with.

In 2022, Alaska Governor Mike Dunleavy requested $287 million in disaster aid for the winter crab fishing season that was not profitable for the fishermen. While this money could go a long way in helping the fishermen in dire need, Congress’ slow pace will likely take years for these fishermen to receive this money, which in commercial fishing is far too slow.

“About 60 vessels go out for Bering Sea snow crab each year. Goen said skippers and crew still have bills to pay, and without some sort of rapid relief, many won’t make it to the next season.” (Dobroth, 2022)

The lack of an effective subsidy has made it so fishermen rely on government intervention which, at best, can deliver aid far after the damage is done. Diverting funds out of harmful fuel subsidies into a fund that can quickly be dispersed to fishermen as needed could provide the fast-acting aid that this industry requires.

ACTION PLAN

Step 1:

First and foremost, fuel subsidies need to go. Surveys show that across all fisheries, fuel typically represents 10–20% of the total cost of operation. (It should be noted that this number likely varies widely depending on the type of fishery and the skill of the fisherman reporting this data). Additionally, most captains self-report that higher fuel costs affect how they fish and force them to fish in more fuel-efficient ways to save money, thus reducing their environmental impact (Rice et al., 2008). By eliminating fuel subsidies, the government will free up roughly $300M annually to be allocated elsewhere in the industry.

Consequently, these higher fuel prices will make the industry non-profitable for the boats that make the catch the least, ultimately pushing them out of the industry. While this will harm the few whom the new bottom line excludes, it is a necessary component since we have determined that there are already too many vessels fishing. With fewer boats in the water, the industry’s carbon footprint and microplastic contribution will be reduced allowing ecosystems to heal and fish stocks to increase. Moreover, the boats that are still fishing should eventually reach a new equilibrium where they can catch more fish since there are fewer boats to compete with which would offset the increased fuel costs.

Step 2:

The next step would be to put the $300M to work to create a program similar to the Agricultural Risk Coverage and Price Loss Coverage programs for fishermen. This money could be divided between the various fish management groups nationwide and used in many ways. When there are too few fish, fishermen could receive payments not to go fishing, ensuring they have the financial stability to return the following season if the conditions are appropriate. On the flip side, if the market is struggling and fishermen cannot cover their expenses, they can be paid out of these funds to meet their bottom line and ensure they fish to prevent underfishing and deliver an essential good to society. Since these management groups already exist, giving them a purse to work with to preserve their fisheries would not require a massive rehaul of the industry. Having this money already within the fishery allows for swift aid to get to the fishermen in the case that it is required.

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