Finding Cod

Where have all the fish gone?

Photo: Joachim Müllerchen. Source: Wikimedia

It can be hard to find good fish today. Fresh-caught seafood used to be abundant and cheap at the market. Cod was a staple on New England tables. By some accounts, the rich cod fisheries in the Grand Banks and Georges Banks were the foundation for American prosperity in the 17th century. Captain John Smith was famous as a colonial leader in Virginia, but he got rich fishing for cod off the New England coast. The Pilgrims initially settled on Cape Cod before moving to Plymouth.

But cod stocks collapsed in the early 1990s, an economic catastrophe for many commercial fishing enterprises. This is often attributed to “the tragedy of the commons”: when individuals used a shared resource, their own self-interest can encourage them to act in such a way that their collective action spoils the common good. The collapse of cod fisheries is also blamed on new fishing technology like radar, sonar, and electronic navigation that allowed crews to bring in huge catches. Today, many deep-sea fish, like tuna and orange roughy, are similarly endangered. Since no one owns the deep-sea waters, there’s no government authority that can regulate that resource.

Source: Millenium Ecosystem Assessment, Wikipedia

But what if it’s not about technology and the commons? Overfishing is a problem, but what if governments actively encouraging overfishing?

Deep-sea fishing is dominated by six countries: China, Taiwan, Japan, Indonesia, Spain, and Korea. Together, they account for about three quarters of the $8 billion total deep-sea catch. It’s estimated that commercial fishing operations netted about a billion in profits from their enterprise. But it’s also estimated that governments provided about $4 billion in subsidies for this $8 billion industry. Without government subsidies, over half of the high-seas fishing grounds would not be profitable.

How do governments subsidize fishing? By providing refueling bunkers and at-sea transshipments for the catch. This allows deep-sea trawlers to continue operating for months or years at a time, limited only by their own refitting and maintenance needs. By providing special tax subsidies and guaranteed loans for operators. By subsidizing low-cost labor, a major problem in many Asian countries. These countries need to avoid urban unemployment in order to maintain political stability. And by maintaining and supporting port facilities. The largest fish-market in the world is the Tsukiji fish market, close to Tokyo’s airport.

Tuna auction at Tsukiji. Photo: Derek Mawhinney. Source: Wikimedia

On the one hand we’re concerned about the sustainability of global fisheries, and governments impose catch limits and strict seasonal controls. On the other, governments provide subsidies and support to a politically sensitive industry. This is like the tobacco industry in America, where farmers get crop insurance and Federal Farm Credit loans, while we also limit sales and put massive taxes on cigarettes. Then we use the tax revenues to pay for tax-exempt tobacco settlement bonds. There’s an intricate global web of rent-seeking and resource exploitation in commercial deep-sea fishing today.

Is it any surprise that it’s hard to find good seafood? The wonder is that nature remains so resilient, despite the abuse that it takes from foolish practices. Investors need to be aware: what governments support, governments can take away.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-06-08T06:47:09+00:00June 8th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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