Getting The Best Economic Benefits From Tunaff

Tuna plays a huge role in the global food industry and much of the tuna caught, canned and eaten annually around the world comes from the Pacific. But Pacific Islands governments increasingly believe they are not capturing the full economic benefits of their tuna resources.

This belief is supported by the results of a recent study by the EU-funded DevFish project, which outlines the best options for capturing the maximum economic benefits of the industry.

The study examined various models of purse-seine operation and measured the economic benefits generated by tuna purse-seine fishing and the associated processing industry, with the aim of guiding domestic development decisions.

Most of the tuna caught in the Pacific are taken by purse-seine fishing—an efficient method in which a large net is set around a school of tuna and closed or ‘pursed’ at the bottom to trap the fish.

Most purse seiners operating in the Pacific catch an average of 30 tons of tuna per day, and can carry over 1000 tons on board.

A new vessel of this type now costs more than US$12 million and may require up to 30 crew. Operating costs can exceed US$2 million a year.

In the Pacific, purse-seine fishing is concentrated near the equator with nearly all the catch coming from the exclusive economic zones (EEZs) of eight Pacific Islands countries—Papua New Guinea, Federated States of Micronesia, Kiribati, Solomon Islands, Marshall Islands, Nauru, Tuvalu and Palau.

Processing the catch: Nearly all the catch of the purse seiners is used to make canned ‘light meat’ tuna. This is a huge industry, with a global demand for around 7 billion cans per year.

In the Pacific Islands, there are canneries in Solomon Islands, Fiji and two in Papua New Guinea, but these are small by international standards.

Cannery production in the Philippines and American Samoa is higher, but the world’s biggest producer of canned tuna is Thailand.

Preparing tuna for canning is a labour intensive process and has become very expensive in countries with high wages. Tuna canneries in Europe, for example, now mainly import loins (cooked, cleaned tuna fillets), which are prepared in factories nearer to the fishing grounds.

This saves on both labor and freight costs. All the Pacific Islands canneries now also export loins. One factory in Papua New Guinea only produces loins and a loining plant that operated in the Marshall Islands for some years will re-open soon.

The high capital and operating costs of purse seiners have made it difficult for Pacific Islands companies to participate and the fishery has been dominated by the fishing fleets of other countries.

Currently, the catch is mostly taken by foreign-owned vessels under license arrangements with Pacific Islands governments. Their catches are landed for processing in Japan or trans-shipped in large refrigerated ships to canneries in Thailand, American Samoa, Korea and the Philippines.

The access fees paid to Pacific Islands countries by these foreign fleets are substantial—around US$60 million per year—and make up a high proportion of government revenue in countries such as Kiribati and Tuvalu.

Development aid is often linked to access agreements, and there may be some benefits to the local economy through the payment of port dues and the local purchase of supplies and services during trans-shipment.

Despite these benefits from foreign access arrangements, most Pacific Islands governments have thought for some time that they are not capturing the full economic benefits of their tuna resources.

Papua New Guinea, in particular, has pursued a determined strategy to attract foreign investment in locally-based tuna purse seining and processing operations.

The DevFish study measured the economic benefits that could be secured by the domestic development of this industry, using six measures of economic impact. 

These measures were value added (this key measurement is calculated as the value of goods produced by an enterprise, less the cost of goods and services purchased from other firms. It can be considered as the net gain to the national economy of a fishing or processing activity); net local purchases (total value of supplies bought by fishing companies, less the cost of import of supplies from overseas); employment earnings (wages paid to crew and onshore workers resident in the country); gross profit (earnings before interest, tax, depreciation and amortization (EBITDA); contribution to the balance of payments (value of export sales less the cost of imported goods used); and government revenue (from license fees and other charges).

All these measures were standardized in US dollars and calculated per tonne of tuna. Further actual financial data from ‘locally based’ purse-seine tuna fishing and processing companies in Marshall Islands, Papua New Guinea and Solomon Islands were used.

These economic measures were then used to assess the level of impact resulting from the six general operational categories of the purse-seine industry in the Pacific.

These categories are domestic purse-seine vessel catch and trans-shipping in a local port; domestic contract loining operation; domestic canning operation; combined domestic catch and loining; combined domestic catch and canning; and foreign licensed—fishing offshore and trans-shipping elsewhere. Each of these operational modes has a different level of impact on the local economy.

Returns: The results of the study (see table above) showed that returns to the national economy from surface tuna fishery were significantly enhanced when vessels were locally-based combined with a higher level of on-shore processing of the catch.

This finding supports the policy direction of countries that have sought to develop locally based purse-seine fishing operations and onshore processing, particularly canning. 

However, under current tax regimes, the returns, particularly direct government revenue, are small compared to the returns to the fishing enterprises. Despite the various incentives, the scale of on-shore tuna processing from the surface fishery in the region remains small.

It is suggested the main reason why these government interventions have failed to achieve more significant on-shore processing is that policies have been directed at vessel operators in attempts to persuade them to become food processors.

This has often been ineffective because, as shown by this study, vessel operators are already making adequate profits without getting into the unfamiliar business of on-shore processing.

A policy option that directs vessel operators to land their catch for on-shore processing in the host country, without requiring them to get involved in processing themselves, may be more successful in increasing the volume of processing in the Pacific Islands.

A strategy is also needed to restructure tax and operational and management regimes applied to the surface tuna fishery to improve the balance between resource owners and enterprises exploiting the resource.

Forum Leaders Declaration, Vava’u, November 2007: “We the leaders of PIF, hereby reaffirm the importance of fisheries to the economies of all Pacific Forum countries and commit ourselves to promoting domestic fisheries, in particular, the development of national tuna industries.”