Globalisation, Transformation and the Hake Fisheries of Mossel Bay, South Africa

Transcription

1 Globalisation, Transformation and the Hake Fisheries of Mossel Bay, South Africa Paper to the conference of the IASCP Victoria Falls, Zimbabwe June 2002 Moenieba Isaacs Programme for Land and Agrarian Studies, University of the Western Cape, South Africa and Carl-Erik Schulz, Department of Economics and Management, NFH, University of Tromsø, Norway Contents Abstract 1. Introduction 2. Transformation in the South African Fishing Industry: 3. The hake fishery in South African waters 4. The local community of Mossel Bay, and the hake fisheries of previously disadvantaged groups 5. Globalisation and fish resources 6. Comparing the market with the Mossel Bay situation 7. Possible policy options and concluding remarks References Abstract Why are the South African fisheries still dominated by the old stakeholders? How will the external and internal factors interact to halt this process? This paper will discuss these questions based on the situation in Mossel Bay, a South African south coast town. The South African fisheries are involved in different and interrelated processes. On the one side the national management system is changed due to the lifting of apartheid and the new legislation. This is a process full of conflicts, and the national policy, the market forces and the local communities are all parts of this picture. However, there exists also an international factor, the globalisation process. This includes trade liberalisation, increased enforcement of property rights all over the world, and an enormous pressure for commercialisation of the fisheries. This paper studies if, and if so, how the national and the international factors can 1

2 explain the lack of development for the black fishermen in the Mossel Bay area, Western Cape. We concentrate the study on the inshore line fisheries for hake. Hake is a species with large differences both in the fishing gears and the markets. We use an economic model to explain the fisheries and the different groups involved, and we compare this way of thinking with what is happening in Mossel Bay, with an emphasis to the marketing of the yield. The hake fisheries are split in an offshore and an inshore part, and the quotas are distributed to trawling, long lining and hand lining. The potential most profitable part of the hake fisheries is the fresh hake sold in European markets, mainly Spain. However, for this market fish supplied by the trawlers are not feasible due to their low quality. This opens for less capital-intensive fisheries, and easier access for disadvantaged groups. However, we can hardly observe that this basic difference is reflected in the fisheries, and we analyse the factors that can explain this. There are two main areas that make up the problem. First, the owners of boats, gears, and the onshore industry control the access to the industry. Second, the marketing sector is decisive to extract the additional rent from fresh hake. The paper also discusses possible policy interventions to improve the situation for the black fishermen. 1. Introduction Globalisation has been a popular concept to describe the ongoing process of closer connection between the countries of the world. While 'internationalisation' was a way to glorify some similar process last century, 'Globalisation' now is introduced as the big issue. Some will argue that globalisation includes new aspects of super-national control and world dominance, while internationalism is the true multinational co-operation, Daly (1999). Others will emphasise that globalisation is the present form of imperialism. It is important to see what is going on in a setting of history, economic interests, and power play. We know many parts of the real changes in world institutions, international agreements, and policy interventions from the main players on the international agenda. However, to understand the implications of these changes, and to reveal the moving force of the emerging international system is a needed puzzle to give arguments for how to name the baby. We concentrate on effects of closer trade connections due to globalisation. They come both from lower transport costs and the trade liberalisation inside the WTO-negotiations. From 2001 fisheries are included in the negotiations. There is an extensive literature on globalisation, which will not be surveyed here. WTO (1999) gives an overview of their way of thinking concerning the interrelationship between trade liberalisation and the environmental resources. Zaelcke et al (1992) presents different views on the trade-environment connection. WTO (1999a) presents how this organisation argues in support of the globalisation process. An early presentation of the critics to trade liberalisation is presented in Lang & Hines (1992). This study draws on Trebilcock & Howse (1999) to describe the world trade regulations. We use the situation in Mossel Bay as the empirical background for our discussion. This town is situated in Western Cape, South Africa, 390 km east of Cape Town. The reason for this choice is both our knowledge of the situation in South Africa as a late entrant to the globalisation process after the lifting of apartheid. We will focus on economic globalisation. Hake is the dominant species of the South African fishery. It is a white fish, a close substitute for cod. For the hake fisheries globalisation makes marketing on the international markets 2

3 easier. The reason for this is first of all the end of the sanctions against South African exports (lifted after the abolition of apartheid). However during the 1990s the world trade has been in a process of liberalisation. This has happened in the WTO framework, and for South Africa also through the new trade agreement with the. While quotas in the fisheries are formally distributed on an equal base to many stakeholders, all with access to the international markets, there is an extreme difference in the real opportunities. First, the information of the new situation is not spread to all participants. Second, the supply of credit is restricted for most of the potential participants in the fisheries. Third, the business network is not in place for the disadvantaged groups. This sets in place a wedge between the disadvantaged groups and the market opportunities, and it opens for rent extraction of the groups who control the bridge from the fisheries to the global markets. We confront the observations from Mossel Bay with the potential theoretical outcome of globalisation for this sector. The evidence seems to fit in with the theory, even if no formal testing is conducted. The organisation of the paper is straightforward. First we survey the fisheries policy of South Africa, we give an overview of the hake fisheries, and we sum up the situation and the development in the Mossel Bay fisheries for fresh hake. Thereafter we present a theoretical approach on how globalisation works for the exploitation of a renewable resource. We then discuss how this theory fits to our experience from Mossel Bay, and the paper ends by a short discussion on policy implications. 2. Transformation in the South African Fishing Industry: In September 1998 Parliament passed and President Mandela signed into law the Marine Living Resource Act 18 (MLRA). The law was hailed as cornerstone of a bold new transformation marine policy that would redress the imbalances of the past. The Act promised dramatic change for the previously disadvantaged by creating an enabling environment or action space to participate in the decision-making process. Action space in this context is a concept indicating a possibility for the previously disadvantaged to challenge their working and living conditions and to create alternatives, adapted from Barberton et al (1998). In three years, since the inception to the MLRA, the implementation process reflects: formal structure with wide and partly unspecified goals; large number of actors bureaucrats, biologists, fishermen, commercial (large and semi), potential entrants, existing entrants, subsistence, associations, and sport /recreational fishers; a political structure that are limited by sunset clause and negotiated revolution, and a procedure of fixed quota applications and administrative set-up. However, considerable pessimism and concern about government inability to deliver, even when the law has been legitimately enacted. The incapability of government to put policy into action was plagued with court interdicts against the government s redistribution strategy and corruption in the implementing agency (Isaacs, forthcoming). One of these unclear and unspecified goals is transformation, a key issues to many previously disadvantaged communities and fishers. On transformation the MLR Act of 1998 states: to facilitate the fair and equitable access to rights, assist in the development and capacity building of persons form historically disadvantaged sectors of society and small and medium enterprises, (section 32, d. MLR Act 1998). Furthermore, the transformation criteria that influenced the allocation of fishing rights are as follows: Provides employment for historically disadvantaged sectors of the community. Addresses gender imbalances. 3

4 Addresses historical imbalances in the structure of the company. Has implemented affirmative action programmes. Has promoted human resource development, training and skills transfer. Meaningfully involves members of local and previously disadvantaged community in the operations and management of the company. Developed empowerment partnerships. Developed joint ventures with previously disadvantaged or small or medium sized operations. Provided opportunities for all workers to own shares. The vague goals and definition of transformation in the MLR Act 18 of 1998 provided the already under resourced and overloaded Marine and Coastal Management (M&CM) with no guidelines to redistribute access rights from white individuals and companies to new entrants. Transformation of the established companies has most often been interpreted as meaning a change in ownership and leadership in order better to reflect the general composition of the South African population, while for organised labour transformation has also included an important element of improved labour practices, comprising training as well as empowerment. Unfortunately this term was never defined very precisely, leaving transformation policies to be defined by the companies themselves. Consequently, the magnitude and degree of transformation has varied widely. While transformation of the existing companies has been a key issue for the insiders, most coastal dwellers have been even more occupied with the second aspect of transformation, in the meaning of redefining access to the resources. In the period this was interpreted by the Quota Board, occasionally admitting also some nonwhite applicants, most often from the coloured community. However, with the advent of the MLR Act in 1998, the issue of redistribution and a fair and equitable access was firmly put on the agenda 1 (Hersoug and Isaacs, 2001). For many participants, also within MCM, transformation has been centred on numbers, the percentage of TAC to be allocated to the previously disadvantaged. Furthermore, the actual reallocation process has also, so far, been concentrating on seemingly neutral numbers, to rank all applicants on a composite scale including several dimensions. But transformation is more than a number. Transformation could be seen as having at least three different dimensions: an economic, a social and a political. The economic dimension includes the need to distributed fishing rights more widely than the limited number of companies still dominating the bulk of the industry. Thus, getting more small and medium sized companies involved is clearly a goal, but precisely how many is difficult to assess on a scientific basis. Certain fishing operations seem to require economies of scale and nobody (not even the new entrants) would be served by a multitude of small companies all competing with each other in the same narrow markets. Similar problems arise when assessing the social transformation needed. More people should get a slice of the pie, and within a number of companies, new as well as old, a good argument can be made for a more equal distribution, giving fishers and workers more and owners less. But also this type of redistribution has limits, regarding what is viable in terms of size and what can be distributed versus reinvested. In certain fisheries it is also worth considering what will 1 Expectations varied wildly, from the 5-10% of the TACs suggested by the Access Panel to the 70-80% indicated in the submission from FAWU, the most influential union within the fishing industry. Later CAF tried to specify a more diversified transformation schedule, but this proposal never made it to the Minister. 4

5 give the largest employment (using this to widen the distribution of benefits). A ton of hake can for example be used for a freezer trawler, processing at sea, a wet-fish trawler delivering for onshore processing, a long-liner or a hand-liner delivering for the fresh fish markets, yielding very different results in terms of employment and value added, all other conditions equal. 2 Whatever dimension s or indicators used, there remains an element of political discretion in such a transformation process. (The alternatives would be lottery or auction with allocation to the highest bidder mechanisms that have been resisted so far for political reasons). Regarding the last dimension, the political transformation can be conceived at two levels. First of all that resource management is now performed by a democratically elected government with a professional bureaucratic administration. While the first element indisputably is in place, the quality and representativity of the administration is more in doubt, although some progress has been made in transforming the service. Political transformation is also used to describe a transformation of management at local level, ritualistically referred to as co-management, without much thought as to what should be administrated co-operatively and through which structures. In our four communities there is not much interest in co-management, with most people claiming that co-management without some type of ownership is a rather farfetched idea. Hence, the primary interest is geared towards obtaining quotas, with a reservation for certain communities in Kwa-Zulu Natal where co-management structures have already been tested out with promising results. At the same time it is obvious that all coastal dwellers cannot be owners of commercial quotas, not even through community quotas. They may nevertheless have an interest in management of the fishing resources, as recreational or subsistence fishers. Others may have an interest in marine resources as amenity values that is as a resource for recreational or educational purposes. Hence, the challenge is to find structures at local level that are not only reflecting the interests of the quota owners, but of the larger community of user groups. This is definitely a long way ahead, and in the first instance South Africa needs to define who should be qualified as potential recipients of the more permanent quotas (up to 15 years) (Hersoug and Isaacs, 2001). In this paper we shall concentrate on the distribution of rent from the fisheries. 3. The hake fishery in South African waters: The demersal fishery is the most valuable sector of the South African fishing industry, in terms of income generated, bringing in over 500 million rand per year. The fisheries are dominated by deep-sea trawling for the Cape hakes. This fishery grew rapidly after World War II to peak at more than tons in the early 1970s, and then declined. In 1982 saw the introduction of an individual quota system for demersal fishery with the subdivision for inshore hake allocation as a result of three years of negotiation between boat owners, Department of Sea Fisheries and the government (form of corporatist co-management in this sector). At this stage 23 quotas were allocated that was soon reduced to 11 in This also resulted in the reduction of trawlers from 54 in 1982 to 34 in In the period between the advantages of the new system were recognised that resulted in quotas being bought, sold and amalgamated into an established inshore trawl sector. The established sector includes companies such as I&J and Sea Harvest, and some small operators that are dominated by the white segment of society. This prompted the implementation of a larger mesh size and 2 This is of course often not the case, as when accessibility and gear selectivity severely restrict which group of users that are able to access the stocks. Allocating a quota to a certain gear group may also have unintended consequences in terms of by-catch, for example of species that are already threatened. 5

6 declaration of the 200 nautical mile fishing zone. The exclusion of foreign vessels and conservative management strategy led to the gradual recovery of catch rates by mid 1990s to the levels last seen in 1960s. Thus, since the 1970s, the hake fishery has been controlled by company allocated quotas within the Total Allowable Catch (TAC), including limitations on the number of vessels and closed areas. The deep-sea trawling is concentrated with six pioneer companies controlling 81% of the TAC, which amounted to tons in However, there was a 19% cut in the established deep-sea hake industry s TAC in the past five years, as a step towards redistribution. In addition, there have been an increasing number of new entrants within the deep-sea hake fishery since 1993 to 1998 has risen to 33 candidates (Isaacs and Hersoug, 2001 and Economic and Sectoral Study, 2002). Inshore trawling is currently and important component of the economy of the Mossel Bay, with inshore demersal (bottom fishing) fishing activities on the Agulhas forming an integral part of the national demersal fishing effort. Approximately 80% of the inshore demersal catch was landed and processed at Mossel Bay and contributing to diversification of satellite and support industries. In 1995 the wholesale value for the inshore demersal fishery was approximately R80 million and the catch contributed R55million. National corporates I&J and Sea Harvest export fresh wet fish from Mossel Bay to international markets. The main commercial fisheries in this region are mainly hake (M. capensis), Agulhas sole, squid jigging and line fishing. The by-catch species include panga, gurnards, and sharks with amount to 21%. The inshore fishery employs 320 sea-going and 790 land-based personnel. The processed value of inshore trawl catch is approximately R80 million which represents round about 8% of the total value of the demersal fishery. The TAC for inshore demersal fishery are of tons (inshore trawl TAC of 9500 tons, hake inshore long line tons and hake hand line tons). For documentation of the hake fisheries, see Economic and Sectoral Study (2002) Fishing Industry Handbook-FIH (1997, 1998); Fishing Industry News, (2001) Raakjaer-Nielsen and Martin (1997); Marine Fisheries White Paper for South Africa, (1997); and Payne and Cochrane (1994). 4. The local community of Mossel Bay, and the hake fisheries of previously disadvantaged groups (Isaacs, forthcoming). Mossel Bay has a productive fishing harbour with a steadily growing commercial and industrialised sector. The oil and fishing industries play an important role in the job creation but mostly on a temporary basis. Mossgas a project established in 1989 produced synthetic fuels and by-products from offshore gas have capitalised on the unskilled labour of the Mossel Bay area during the first phase of the project, however at this stage more skilled labour and specific expertise are required. The Mossgas plant and the inshore demersal fishery have attracted a large number of people from the Eastern Cape to settled in Mossel Bay (Isaacs, forthcoming). The fishing industry is part of the options to make a living in the area. Part of the TAC for hake is now set as a quota specifically directed for the previously disadvantaged communities. This forms part of the redistribution and transformation strategy of the government. Two segments of the fisheries are of particular interest: Longlining and handlining. Both options are less capital intensive than trawling. 6

7 Longlining is regulated by use of quotas, and a policy to set aside quotas for members of previously disadvantaged groups was introduced in the late 1990ies. However, to apply for fishing rights they need to form legal entities on a form of co-operation, closed corporation or private companies. Thus this strategy of allocations immediately illuminates the majority of the poor and unskilled fishers. Court interdicts against hake long-line allocations resulted in delays of 1999/2000 and 2000/2001 allocations. With the 1999/2000 allocations only made in September 2000 of which only 43 of the 894 applications received were successful. In Mossel Bay, 5 Closed Corporations (CCs) were successful with 33.9 tons hake long line where the group decided pool their resources in a partnership and form a joint venture with two boat owners. These successful new entrants are insurance broker, priest, debt collectors who formed a CC with a couple of fishermen. Very soon after they receive a quota many companies approach them with a price of R3, 25 to R3, 75 /kg for doing absolutely nothing. Many of these companies do not have any boats, infrastructure, networks and knowledge about marketing and fall prey to making deals with established companies, whilst the quota holder receives a generous amount for sitting back the establish company is making huge profits as the result of lack of physical, human, social and financial capital. Many in the community perceived the 33.9-ton was just a handout of R to the lucky applicants. Since 33.9 ton is not a viable quota that forces new entrants into being paper quota holders, indicating that new entrants who sell their fishing rights to established industries for a handsome profit. A paper quota holder receives part of the resource rent as a windfall gain. Many of those successful with the 33.9 tons have later successfully achieved quotas of 65 tons with the medium term allocations set 2001 (Isaacs, forthcoming). Some of the responses in the community to the long line allocations are: that it is a Zama- Zama (lottery system) a political mistake that creates huge amounts of expectations with the communities with lots of conflicts, unhappiness and animosity between the haves and the haves nots Hake is a high-value specie and it adds to the conflict. The long line effectively requires expertise, the right vessels, entrepreneurial skills, and knowledge of fish behaviour and good fleet management. The catch differs from trawling. Long lining yields high quality, selectively large size fish. The marketing is also highly specific the long line fishery supplies a unique fresh-fish market overseas and stability and interest are strongly dependent upon the export prices, quality and exchange rates. A market-saturated effect is likely to influence the development of the fishery. Catch rate data suggest that hake-directed effort could approximate 500 kg per 1000 hooks. There is a tendency however to direct effort in specific areas and that there will definite seasonal, species, area and market-related trends, (Japp, 1997). Hence, redistribution of rights in the new distribution of quotas meant that some few benefited with a generous sum of money, the established companies made huge profits (business as usual) and on the other side there were a huge amount of unsuccessful applicants. The money of these long lining quotas are not invested in the communities but used for self-enrichment schemes. However, this was not the case with all the new entrants, as these rights were allocated at a critical period (September 2000) in transforming the industry and the release of restructuring allocation system. Many of the 33,9 went into the dubious joint venture agreements to remain in the industry to get a foot in the industry and to benefit from long-term quota rights. Still many of the CC s are not representative of the fishing community and many who benefit are the elite in the communities. The elite in the fishing community benefits and goes into joint ventures with white boat owners, family companies (Lusitania and Viking), established companies (I&J and Sea Harvest) that results in a rent a black, paper quotas, cardboard quota and entrenching the status quo white established companies sharing the privilege to an elite black and coloured group (Isaacs, forthcoming). 7

8 Whether co-operative, corporate company, holding company or Closed Corporation, the new entrants, although lucky to have received quotas, have only passed the first hurdle. The next is to compete successfully with the established companies from the very first day, not having any business training nor any form of secure credit. Some are, as shown above, able to pull themselves up with the bootstraps while the majority seems to be ending up as passive owners, receiving a payment on their quota holding (nowhere near its "real" value), not having any influence on the important decisions regarding investments and strategies. To what extent this passive ownership will qualify for the next round of more permanent quota allocations, remains to be seen. What should be evidently clear is that reallocation is only one step in the process of transformation, and that it is in fact possible to have a massive reallocation of rights and quotas, without much transformation in terms of empowering the new entrants to be active participants in the new industry (Isaacs, forthcoming). The quota allocation is only a resource rent transfer, while active participation demands a lot more. The hake hand-line industry is a fairly new industry since 1998 that spark a great interest on the Spanish and Portuguese markets. The hand-line industry is dominated by small to medium enterprises that export fresh hake to the Spanish and Portuguese markets. It is a white dominated industry that saw a gap in the market for fresh hake and took advantage of the action space created by the new fisheries policy and the uncertainty and instability caused by the restructuring process. There are four small-scale hake hand-line industry operators in Mossel Bay. The Mossel Bay hand-line industry is worth 50 million Rand, that is labour intensive that yields high quality hake. They use petrol-operated ski-boats that launch and land their boats daily; the species include hake, shark, kingklip and cob. This industry creates work for 1500 fishermen of the previously disadvantaged communities with a guarantee of 15 sea days per month. Furthermore, it employs at least 1000 people directly. There is no formal quota yet set for this fishery, however entrance is restricted due to boat licenses. As the result of a moratorium on the quotas for the commercial (A) and semi-commercial permits for ski-boats; more ski-boats owners entered the industry and currently in Mossel Bay a total of 120 ski-boats operating daily where the majority are fishing without any permit. Suddenly, hake handline industry has become the livelihoods also of many white farmers in the area. All of them also applied for hake long-line, shark and sardine but has been unsuccessful in that the transformation process does not benefit the whites. Furthermore, the government does not recognise the hake as a hand-line industry. This resulted in the formation of South Cape Handline Hake Industrial Association (SCHIA) in August 2000 to lobby for access rights of the hand-line industry. SCHIA try to influence government opinion on the industry that creates jobs for fishermen, pays them more per kg than the big companies. In 1998 the United Handline Fishing Committee (UHFC) was an initiative of a Spanish businessman to address the unemployment in Mossel Bay in that not all could benefit from a quota. The idea was to provide fishermen with permits attached to a boat so that they to a certain degree have job security. The UHFC was formed to address the same issues as the SCHIA, however both these organisations have been criticize for favouring the white boat owners and not addressing the needs of the fishermen on these boats that has been used to secure access rights. Furthermore, this organisation made agreements with Spanish and Portuguese companies for market delivery and the fishermen were mainly used to secure their access. This group of small-scale enterprises in Mossel Bay states that they are also entitled to the access rights as stated in the new law (MLRA 18 of 1998). Hence, by taking away the permits that these operate means taking away their only livelihood (Isaacs, forthcoming). 8

9 The hand-line hake industry caught 5000 tons in one year and the price per kg for delivery (free on board, fob, airplane at the nearest airport at George) for the international market ranges from R40 and sometimes more if fresh. If the prices drop below R20 per kg the fishery in not economically viable to run from ski-boats. From the fishermen there are two for the international market. Local middlemen, mainly in shops and wholesale trade buy the fish and they have the network to Europe. Additionally, at least two factories (I&J and Viking) specialise in the export of hake that employ 160 workers and are reliant of handline fishermen for the supply of fresh hake. The market is volatile and susceptible to over-supply, seasonality, exchange rates and costly freighting and packaging. Besides the international market they also supply the local supermarkets, hotels and restaurants with their fish. This industry yields an annual turnover of R60 million. In Mossel Bay, 97% of the ski-boat owners targeting hake handline are whites. There are 117 ski-boats and 11 deck boats with only 3 ski-boats owned by coloureds and no boat ownership amongst the blacks in the community. The hand line and the longline hake sectors get a higher market price, as their catches are less damaged; it is processed fresh and within 48 hours for the international markets mainly Spain, Italy and Portugal. There is a specific demand for this quality of hake, and since 1998 both for the large size prevalent from long lining, and the small size from the hand lining. In this market cod is a substitute for hake, but not to a degree that denies a premium for the specific hake qualities. The hand line fishery is a job creator for 4-8 fishers of the disadvantaged sector of Mossel Bay per ski-boat. Fishermen get R3 per kg of hake, whilst the boat owner gets R9per kg to cover his costs and profit. For delivery fob aircraft for the international market fresh hake is valued R40 or more a kg. Uncontrolled growth in the informal hand line fishery on the South Coast continued during 1999, 2000 and The landings have increased to an estimated tons in 1999 to more than 5000 tons in This sector is fast becoming a major component of the South Coast hake fishery. Boat owners who operate in the hand line fishing have had their commercial (A) and semicommercial (B) fishing permits extended since 1998 although technically they are not recognised by the MLRA. The semi-commercial activity that do not depend on fishing for their livelihood, can lose their licences in the next round of permit allocations (cut in the no of licences from 2600 to 450) permits in order to address the problems in the line fishery as stated by Marc Griffiths head of MCM line fish research unit, still not permits has been allocated in this sector, Fishing Industry News (2000). We observe that the hake of specific quality from the hand-lining and long-lining industries are paid much better than hake from the trawling industry. We also observe that the products are different: It is a much higher quality and more selective catch outside the trawling industry. We also observe that this does not change the structure of the industry in a way that benefits the historically disadvantaged groups. They still work as crew and in the onshore processing, paid a standard part per kg of the revenue. However, other stakeholders seem to be attracted of the specific market overseas. The established industry works like middlemen, buying the high quality segment for a somewhat higher price, and selling to Europe by use of traders with a network in the European market, and both economic resources and technology to conduct the process of marketing of the fish. We have not observed or estimated the premium gained from this business. If it is correct, as cited above, that the ski-boat fishery is viable for a fob price of R 20, there exists a premium of up to R 20 a kg to the business in control of the international marketing. We can state that some premium exists, due to the traders joining in, and the position of the traditional companies as middlemen, blocking the access to the market for the fishermen involved. This leaves the questions: Why do not the disadvantaged groups benefit from this new segment of the fisheries? What is needed to ensure them a more favourable 9

10 position? To study this we turn to a study of the principles for segmented markets and globalisation. 5.Globalisation and fish resources To find the reasons for the market premium for fresh hake we must study the international market. Globalisation makes it easier to access foreign markets. This is due to among others lower transport costs, less trade barriers and tighter commercial networks worldwide. For South Africa the lifting of trade sanctions adds to this effects, and for fresh products airfreight is essential to open for exports. Trade protection in different forms tariffs, quotas, non-tariff barriers (NTBs) etc are all negotiated within the WTO framework. During the 1990s new issues were included in the negotiations. At the WTO meeting in Doha, November 2001 fish products were set on the agenda for the forthcoming round of negotiations. We first sum up some main effects of trade liberalisation on renewable resource management, and then discuss how the globalisation process will work out for the hake fisheries of Mossel Bay. Natural resource extraction has two main effects in developing countries. First it is an opportunity to make a living an option that is important in regions with poverty and lack of production options. Second, it is a source for the extraction of economic rent. A way to model this situation is to link the first argument to an open access exploitation of the resources. If so, producers will crowd in, exploit the resource, and the profit from this activity will be driven down to zero the resource rent will be dissipated. However, this does not mean that resource exploitation is meaningless. When the resource rent is dissipated, it means that return to inputs of resources (like manpower and equipment) is equal to the returns from other activity in the area. This makes up an opportunity for employment, income, and of course 'learning by doing' supporting economic activity and development in the area. However, this is no real opportunity in areas where other employment options are easily available. If so, the other effect of the resource extraction is the attractive one: the resource as a source for economic rent, a potential extra profit for the resource owner. The base for this effect is the exclusivity of the natural resources. The effects of globalisation and better market access for natural resource products can be studied in a standard bio-economic model. Less protection means increased demand for foreign products in the importing countries, which again will yield an increased producer price for foreign supply of these products. This effect is robust, even if the effects on the equilibrium harvest rate is ambiguous, for details see Schulz (1998). The improved market access and the higher producer price induce a smaller long run stock. Under Open Access management the increased price will attract more resource extraction, increase the efforts used (and this way employment), and this process will go on until the resource rent is fully dissipated. Under optimal management or co-management the owner will want to transfer some of his increased wealth to other assets, and this is done by decreasing the nature stock. Under Open Access to the resource the rent is anyway completely dissipated. However, in the two other management options, the improved access to world markets, yielding a better price, will also increase the value of the resource, the rent increases, and so does employment. So far the effects are obvious. Globalisation increases the wealth of resource exporting countries, and it adds to employment. The owner of the resource exploits the increased wealth. The nature stocks will be somewhat depleted, but this is to achieve the 10

11 benefits of globalisation. The increased trade opportunities must be in the interest of the resource owner. Table 1 summarises some effects from trade liberalisation. Table 1. Effects from trade liberalisation for a renewable resource, producing for exports. Regime Stock size Harvest rate Rent Employment Sole owner - +/- + + Co-management - +/- + + Open Access Source: Schulz (1998) Even if the exporting country has no direct influence on the world market price of the resource product (which seems reasonable for renewable resource products) they extract the resource rent by restricting their supplied quantity of the products. From the importing country this works like using market power in this case due to the exclusivity of the resource. This is so even if the resource owners are not organised. One way to shift some of the profit to the importing country is to introduce a tariff on the products of the resource. If the importing country is large, this will make up a negative shift in the demand curve facing the exporter, and this way shifts some profit to the importing country. Even in the Open Access case, as the extraction will become less profitable if the products are taxed abroad, some harvesting (and hence some employment) will be lost, and some parts processing activity is likely to be moved (or kept) in the importing country. The effects are like reversing Table 1. If the access to the resource rent is the intention and logic behind trade policy measures, we must expect that the same goals will be pursued by other means if trade liberalisation is part of globalisation. For the marine resources an obvious way is to try to get access to quotas. A quota is in this respect direct the right to exploit the resource rent. This makes logic to the observed pressure for access to marine resources in trade negotiations. The EU has for instance extensively used this option in negotiations for trade agreements, which also was the case in the negotiations with South Africa. South Africa declined this claim during the negotiations, but it is still on the agenda during future adjustments of the agreement. Less protection for the products is offered in exchange for access to quotas. Onshore we must look for easier ways of buying natural resources, i.e. direct foreign investments. Summing up: Trade liberalisation increases the producer price for natural resource products, and hence the opportunities for making a living for people living from them. However, we must expect that importing countries will try other ways for exploitation of the resource rent. In Southern Africa trade liberalisation and the end of Apartheid as such opens for increased opportunities for people living of nature. Marine products will get better paid on the international market however parts of these effects are further out, and probably more exposed to pressure for foreign access to the resources. It is important to underline that trade liberalisation is an influence from abroad to the domestic markets. There is no automatic 'trickle down' effect that makes the local producers better off. The ones in control of distribution and exports will enjoy the benefits. But still, globalisation of trade increases the opportunities for the local producers. The reason is that the potentially 11

12 resource rent increases due to the better price internationally. However, the distribution of the rent is not decided, and the rent can very well be dissipated due to the management system. Rent dissipation will occur if there is open access to the fisheries, or if the stakeholders spend the rent in their lobbying to get hold of it or increased costs in the fisheries. We can rule out open access in the long lining industry, but in the short run it may occur in the hand lining, and thus could influence the total efforts of the hake fisheries. The small part of hand lining in the hake fisheries indicates that this is a fringe part of the total industry. However, this is not far from the situation in other South African fisheries: The abalone fisheries are dominated by huge poaching activities that both are costly and threaten the long run yield. We observed in Mossel Bay that the quotas so far hardly are distributed among historically disadvantaged groups. However, some of them are window dressing other entrants, and many of them get jobs linked to the new activity. The market for fresh hake The special situation for the handline and longline hake fisheries is that the yield can be sold in two markets. It is a standard market for hake, the international market for white fish. However, there is also a small, but exclusive, market for fresh hake. This market is mainly in Southern Europe, concentrating on Spain, van Zyl (1995). Hake used for frozen fillets is part of the world market for frozen white fish, which has a standard price. Fresh hake sold in Southern Europe, mainly Spain, can get a much better price. This market demands only the fresh hake, and it pays a very high price for this supply, van Zyl (1995). Hake is a substitute for cod. However, there is a specific demand for fresh hake in Spain. The demand is restricted, and trawled hake has a too low quality for this market. Longlined hake is preferred due to its size, but there is also a market segment preferring small sized, fresh hake which is caught by the hand line fleet. It is possible to target these markets, but their limited demand means the suppliers are facing a downward sloping curve of demand, and not the standard world market price of the white fish market. Information available, van Zyl (1995), supports that other countries in Europe are not parts of the fresh hake market. In economic terms it is possible to segment the demand for hake due to its quality, and this way exploit a high willingness to pay for the fresh hake 3. To exploit this opportunity the seller must be able to segment the market, he must be able to access the high price segment, and to restrict the sales in the segmented market. Since part of the demand is completely elastic to the price, it is needed to separate the market for fresh hake from the rest. If the buyers can avoid this, they can buy the high quality for the low quality price, because this is the only other option for the fishermen. Figure 1 demonstrates the situation. In the figure p denotes the price, and Q denotes the quantity. D fresh illustrates the demand for fresh hake in a restricted market (the Spanish one), and MR is the marginal revenue to the supplier by sale in this market. Further, p w is the standard world market price for white fish, while p fresh denotes the possible producer price for fresh hake in a segmented market for fresh hake. The supplier can sell for the standard price, which makes Q pw his optimal quantity. A better option is available if the suppliers can segment 3 A similar situation occurs for the North Atlantic herring, where a small quantity is for upmarket consumption, while most of the catch is sold as oil or meal to a standard, low price. 12

13 the market for fresh hake from the rest, and exploit the better price achieved there. If, so, their best price will be p fresh, with the restricted quantity supplied Q seg. They can still sell the rest of the yield for the standard price p w. If they succeed, they have a net gain of profits, (p fresh - p w )Q seg. Two elements are needed for this operation to take place: The suppliers must be able to segment the markets, and they must also be able to restrict the supply to the high price segment. If not, additional supply will press the price down to the standard one. p p fresh D fresh p w MR Q seg Q pw Q Figure 1. The market for fresh hake. The picture in Figure 1 simplifies the situation somewhat. There are additional costs for supply to the fresh segment, which must be cared for. However, there is no competition from the trawling industry, since they cannot supply the quality needed. Longlined hake is restricted in supply due to the quotas, while hand lined hake is an open access fishery. It is restricted by the higher cost per unit catch, the additional costs of transport (fresh, airborne to Europe), and the limited market for fresh hake. It is also restricted due to the upcoming regulation of this fishery. New entrants are exposed to a situation without future quotas, while presence in the fishery increases the chance to receive a quota allocation. All together, this opportunity constitutes an opportunity that is additional to the standard resource rent. 6. Comparing the market with the Mossel Bay situation We see that some basic conditions for market segmentation are in place in Mossel Bay. There exist two markets for hake, and only a specific quality can access the European market for fresh hake. There exist the means to segment the markets, in this case a system of traders that are able to organise the network and to restrict other supply. We observed in Mossel Bay that the fishermen are selling to traders, who constitute the middlemen for transactions to the Spanish market. The fishermen receive a standard price that is somewhat better than the standard one. Information on this situation, and control over the link from the fisheries to the markets are crucial to exploit the rent. As long as only the fishermen are unaware of the option, the situation leads to increased consumer surplus for the consumers in the high price market. However, there is a chain of distribution that receives information from the market, and that is 13

14 able to segment the well-paying part of the consumers. They are able to access the market, and also to exclude others from entrance. As for now, the information of this market is available for the fishermen. But their business ability and their network exclude them from direct access. Delivery to Spain must be done within 48 hours from the fish are landed to ensure fresh fish quality. This requires a modern transport infrastructure. In the Mossel Bay case the fish are iced and sent by lorry to George airport, some 50 km away. From there the fish is sent by plane via Johannesburg to Spain. Several elements are needed to conduct this operation. First of all the seller needs a trustworthy contact in Spain. Second, he needs access to immediate transport by plane, and to refrigerated transport. He also needs access to the high quality fish on a stable base. Last, but not least, he needs to know how to handle the risk of the operation, he needs credit to let the process run, and he must be able to exclude other suppliers. None of this is in place for the new entrants to the fishing industry. This is the way the middlemen can deny access to the market, and exploit the benefits from market segmentation. It is not even enough to get the institutions and the tenure rights in place. Business trust and knowledge, and the linkage to the Spanish importers are also a question of trust and relationship that either must be built or enforced. This opens the agenda for middlemen who can exploit this business opportunity, and this is what we can observe in the Mossel Bay case. The existence of middlemen indicates that it is possible to extract some of the rent from the fisheries this way. The existence of a price for fresh hake (on first hand), not definitively exceeding the standard price, indicates that close to all profit from the market segmentation, the differential rent from price discrimination, benefits the middlemen. The fishermen are not harmed they still receive a standard price. However, they are unable to extract the extra benefit from the segmented, European market for fresh hake. Looking to the middlemen, they have both benefits and costs linked to this operation. They carry the risk of the transport. Fresh hake is vulnerable, and the seller needs a premium to compensate for the risk. They can more easily handle unstable supply, since they trade with different fishermen, and they can also buy on the Atlantic seaboard if the weather differs. The arrangement shifts the risk of the fishing part of production entirely on the fishermen. They share this risk with the skipper, since they all are paid on a 'crop sharing' base. However, as we observed, this is not the full picture. The fishermen receive only a standard price per kilo delivered, while the skippers or the quota holders in the longlining case receive the benefit from a market premium due to seasons. 7. Possible policy options and concluding remarks The outcome of the fisheries in Mossel Bay is not supporting the transformation policy of South Africa. The disadvantaged groups do not receive the benefits, neither from the resource rent nor from the additional opportunities in the specific market for fresh hake. There exist, however, other ways to organise this market, that will make more benefits available for the fishermen. Given the segmented market, the core of business is to get hold of the means for exploiting this opportunity. However, this is not possible based on the small quotas for each fisherman. The buyers overseas need more stable delivery, and larger quantities. And there exists economics of scale in the management part of the process: The costs of contracts, marketing and even transports all have elements of fixed costs which makes larger quantities more profitable. Hence, to get access to the market for fresh hake four elements must be in place: 14