APRIL 1997 

COST-BENEFIT ANALYSIS 

OF PACIFIC WHITING ALLOCATION 

Prepared by 

Dale Squires, Steven Freese, 

James Herkelrath, and Samuel F. Herrick, Jr. 

ADMINISTRATIVE REPORT LJ-97-05 
PART I 

Executive Summary of Cost-Benefit Analysis of Proposed Alternatives 

Cost-benefit analysis evaluated three alternatives to measure the net 

economic benefits to the nation of allocating Pacific whiting among three 

user groups. These groups were the offshore catcher-processors, catcher 

vessels delivering to motherships, and to catcher vessels delivering to 

onshore producers of surimi, headed and gutted, and fillets. Net economic 

benefits were measured as the present value of producer surplus and were 

evaluated over a twenty year time horizon starting in 1997. For the first 

time in fishery economics, an attempt was made to include fixed costs. 

However, data on fixed costs proved inadequate for a detailed analysis, and 

the analysis confined itself to net benefits measured using total revenues 

and variable (operating) economic costs. 

Options Analyzed 

The cost-benefit analysis evaluated three options. The first option was 

continuation of the current regulation that expires in December, 1996. The 

second option was the "no action1' alternative, in which the fishery would 

revert to open competition within the license limitation system. This second 

option could form the basis of comparison, i.e. comparing "witht1 and 

"withoutv1, since the second option is that expected without an explicit 

agreement (and the first option expires). The third option was the option 

preferred by the Pacific Fishery Management Council (Council). It established 

a three-way allocation split that will be reviewed after five years, although 

the regulation would not sunset at that time unless the Council adopted a new 

regulation. 

The preferred option divides the annual harvest guideline, with 42% to 

vessels delivering shoreside, 24% to vessels delivering to motherships, and 

34% to catcher-processors. Motherships and catcher-processors must declare 

which sector they will process in prior to the start of the season. 

Crossovers will not be allowed during the season. Catcher-processors may 

receive deliveries from catcher vessels, but these deliveries will count 

against the catcher-processor share. In the preferred option, catcher boats 

are not required to declare which sector to which they deliver. In the 

preferred option, any unused allocation will be released on a pro rata basis 

to the other two sectors on a date established by the Council. 

Results 

The results, reported in Table 1, indicated that Alternative 2 was 

preferred to Alternatives 1 and 3, i.e the rank in terms of Net economic 

benefits to the nation was: first, Alternative 1; second, Alternative 1; 

third, Alternative 3. Alternatives 1 and 3 had net benefits that were nearly 

equal and could be considered tied in rank given the uncertainty in the data 

1 
and market place. 

The differences in net economic benefits between Alternative 2 on the 

one hand, and Alternatives 1 and 3 on the other hand were apparantly 

substantial. However, these differences are certainly overstated since 

retaining the open-access “race to fish” could well lead to excessive 

operating costs, harvesting in economically inefficient periods of the year, 

and continued and socially excessive investment. Moreover, the net benefits 

under open access come from the higher net benefits per metric ton of whiting 

for the offshore sector combined with a large open-access production level 

by the offshore sector. However, the net benefits per metric ton of the 

onshore sector are quite probably understated since one of the three onshore 

surimi processors did not report 1995 cost data and 1992-1993 data were used 

instead, where the 1992-93 costs do not reflect improvements and gains in 

efficiency realized by all surimi processors onshore and offshore. 

In sum, the trade-off between economic efficiency and policy 

alternatives could be minimal. This follows from the uncertainty and 

unreliability in the data and market place, the indistinguishable net 

economic benefits to the nation among the Alternatives 1 and 3, and the 

overstated and unsustainable net economic benefits from the open-acess 

Alternative 2 suggest that . 

The offshore catcher-processors and motherships enjoyed somewhat higher 

surimi prices than did the onshore processors. The sensitivity of rankings 

of present value of net benefits were evaluated by employing a common surimi 

price of $1.20 per pound. The rankings remained unaltered, with Alternatives 

1 and Alternative 3 virtually tied. 

The net economic benefits per round pound of Pacific whiting from waste 

utilization added important economic benefits to both onshore and offshore 

whiting processing. A sensitivity analysis using a common waste price per 

pound for all surimi processors, accounting for discards, left the rankings 

unaltered (Table 3). Again, the differences in net economic benefits between 

Alternatives 1 and 3 remained negligible. In this particular sensitivity 

analysis, the amounts of onshore waste not processed by secondary processors 

was uncertain. 1 

Sensitivity of the results to the harvest costs of catcher vessels 

delivering to motherships was also assessed. Due to data limitations, the 

base case analysis (Table 1) assumed the same harvest costs per round pound 

of whiting. The sensitivity analysis evaluated the impact on net economic 

benefits to the nation of a twenty-five per cent lower harvest cost per round 

pound of whiting for catcher vessels delivering to motherships (due 

especially to lower fuel costs). The results remain unaltered (Table 4). 

To summarize the analysis, including the sensitivity analysis, under all 

scenarios evaluated Alternative 2 (the open-access agreement) consistently 

’ The analysts are in the process of contacting state agencies 

to document waste disposal for onshore processors. 

2 
ranked first. Alternative 3 (the preferred option) either tied Alternative 

1 (the sunsetting agreement) or was extremely close in value. Given the 

uncertainty in the data, the differences among Alternatives 1 and 3, under 

all scenarios evaluated, are indistinguishable. Finally, the net economic 

benefits of the open-access alternative, Alternative 1 (which forms the basis 

for comparison without an agreement), are certainly overstated. 

Table 5 reports mean cost and price data for offshore catcherprocessors, motherships, and the onshore surimi sector.;! The highest net 

economic benefits per round pound of Pacific whiting, with observed prices, 

were in order from highest to lowest: (1) offshore catcher-processors (2) 

mother ships (3) onshore production of head-and-gutted and filleted whiting 

(4) onshore producers of surimi and fillets and (5) onshore surimi. Offshore 

catcher-processors demonstrated the lowest unit costs. Uncertainties in the 

data (discussed below) preclude clear distinction of economic efficiencies 

on the basis of the unit costs. 

Net economic benefits per round pound of retained Pacific whiting varied 

within each sector as well as between sectors. Standard deviations, reported 

in Table 7, were calculated as weighted standard deviations for each sector. 

Coefficients of variation (standard deviation divided by mean) of net 

economic benefits per round pound of Pacific whiting were: (1) offshore 

catcher-processors 28.60% (2) motherships 53.80% (3) onshore surimi 

processors, surimi wastes, and catcher vessels delivering onshore 70.45% (4) 

onshore traditional processors of headed-and-gutted Pacific whiting, their 

secondary processors, and vessels delivering onshore 45.87%. Hence, offshore 

catcher-processors displayed the lowest variation among operations, 

reflecting the greater relative homogeneity among vessels comprising this 

sector. 

The cost-benefit analysis used 1995 data from offshore catcherprocessors and mother ships and onshore surimi processors. An insufficient 

number of 1995 observations were obtained from the lltraditionalll headed-andgutted and fillet processors, requiring the use of the 1992 and 1993 data 

used in previous cost-benefit analyses (adjusted to 1995 prices). User groups 

supplied data on costs, earnings, and production. 1995 surimi prices were 

from the National Marine Fisheries Service Processed Products Survey. Based 

on the National Marine Fisheries Service Processed Products File, 75% of the 

onshore allocation went to surimi production and 25% to headed-and-gutted. 

Data from previous surveys were not used for either onshore or offshore 

surimi processors, with one exception discussed below, since these data would 

Means are weighted by share of landed catch for each firm in 

each sector. 

3 
reflect an industry in its initial stages of development (an "infant 

industryv1), rather than an industry which has made substantial strides in 

improving its product recovery rates and utilizing byproducts of whiting 

processing. One onshore surimi processor apparently misreported final surimi 

production (otherwise an absurdly high product recovery rate was obtained), 

so that the final surimi production used in its place was from the National 

Marine Fisheries Service Processed Products Survey. Because the same company 

was unable to provide variable cost data for 1995, the previous cost-benefit 

analysis total variable economic cost (accounting for transfer payments but 

not external costs) for that company was adjusted for the change in product 

recovery rate and for inflation. Adjustments for changes in product recovery 

rate were intended to reflect changes in productivity and efficiency that had 

occurred since 1992-1993. This adjustment, however, cannot account for any 

changes in variable input usage due to changes in input prices or any changes 

in economic efficiency arising from changes in the capital stock and its 

configuration. 

An insufficient response rate to the survey of catcher vessels 

delivering onshore and/or offshore required use of the only source of current 

catcher vessel variable costs. These costs were taken from Hans Radtke, 

llWindows on Pacific Whiting: An Economic Success Story for Oregon's Fishing 

Industry, 1995 Update," Report prepared for the Oregon Coastal Zone 

Management Association, Inc., June, 1996. A common cost of $0.0226 per round 

pound of Pacific whiting was used for all catcher vessels. The sensitivity 

analysis assessed the impact of a common cost on net economic benefits. 

The cost-benefit analysis used economic costs and benefits. Hence, 

transfer payments such as taxes, interest payments, and depreciation were 

excluded, and secondary costs and benefits and economic multipliers were not 

included since opportunity cost or willingness to pay was used to measure 

economic values. 

Economic costs and benefits, or equivalently net economic benefits, were 

discounted using a real (constant-dollar) discount rate of 7%, recommended 

by the Office of Management and Budget, over a time frame of twenty years to 

provide net present values.3 Following conventional financial practice, 

costs and benefits were assumed to occur at the end of the year, and hence 

were not discounted the first year. 

In accordance with standard practice, each firm or individual received 

equal weights. That is, individual gainers and losers in society receivedthe 

same considerations; no group received special treatment.4 Foreign leakage 

Twenty years was chosen to correspond to the expected 

economic life of engines and other major harvesting and processing 

equipment. 

The Kaldor or potential Pareto compensation test applies 

where equally weighted gainers can potentially (rather than 

actually) compensate the equally weighted losers, and if the 

remaining net benefits are positive, there has been an increase in 

4 
of net benefits should ideally be subtracted from net economic benefits, 

since the focus of the analysis is on net national benefits, but difficulties 

in determining firm ownership prevented this adjustment. 

Each sector was evaluated as a vertically integrated group from 

harvesting through processing through waste utilization. Hence ex-vessel fish 

prices and revenues serve solely as transfer prices and payments, and are 

thereby excluded. The model is a linear model in which unit net benefits 

remain constant over all harvesting and processing volumes. 

The economic opportunity cost of bycatch for yellowtail rockfish and 

salmon was evaluated using bycatch rates supplied by Oregon Fish and Wildlife 

Department (for the shoreside sector) and NMFS (for the at-sea sector). As 

most of the shoreside bycatch of yellowtail rockfish and widow rockfish is 

sold in headed-and-gutted or filleted form, shoreside bycatch made a small 

positive contribution to the estimation of shoreside benefits. Bycatch of 

these two species is either discarded or converted into fish meal by the 

offshore sector as opposed to being sold in headed & gutted or filleted form. 

Bycatch of Chinook salmon was explicitly valued as a external economic 

cost. Bycatch rates were supplied from the same sources as those for 

yellowtail and widow rockfish. Since these rates were in numbers of salmon 

per mt of Pacific whiting, these rates were converted to round weights by a 

common expected weight per fish of 5.18 pounds, taken from the National 

Marine Fisheries Service Observer Program. The bycatch rates were then valued 

by the exvessel Chinook price per pound. This valuation ignores both 

processing and harvesting costs (the latter are joint with Pacific whiting 

and other bycatch species). This valuation further ignores existence or 

preservation value attributed to Chinook salmon. 

The effects of license limitation were handled as follows. Purchases of 

groundfish permits by offshore vessels represent transfer payments from one 

group in society to another and as such, do not alter net economic benefits 

to the nation as a whole. However, in a financial analysis from the 

perspective of the private firm, as opposed to an economic analysis from the 

perspective of the nation, values of groundfish permits would be counted as 

fixed costs, since these costs would be paid whether or not the vessel 

fishes. 

Harvest guidelines for 1998 through the next eighteen years (a total of 

nineteen years) used the moderate hybrid F total yields, adjusted for a 

eighty percent - twenty percent USA - Canada split, from Table 14 of Martin 

Dorn, "Status of the Coastal Pacific Whiting Resource in 1996," August, 1996, 

National Marine Fisheries Service, Seattle, Washington. The 1997 harvest 

guideline was used that recommended by the Groundfish Management Team. All 

harvest guidelines were adjusted for an assumed tribal whiting allocation of 

25,000 mt. 

Option 1, continuation of the current regulation that expires in 

net economic benefits to the nation. 

5 
December, 1996, allocated whiting among the three sectors according to their 

average of 1995-1996 production, giving 42.45% to vessels delivering 

shoreside, 22.70% to vessels delivering offshore, and 34.80% for catcher 

processors. Option 2, the "no action" alternative, in which the fishery would 

revert to open competition within the license limitation system, allocated 

whiting based on recent historical production per day by each sector. This 

gave 16.2% to vessels delivering shoreside, 35.1% for vessels delivering 

offshore, and 48.6% for catcher-processors. This allocation reflected the 

faster turn-around time of catcher vessels delivering offshore compared to 

catcher vessels delivering shoreside. As indicated above, Option 3, the 

preferred option, allocated 42% of the harvest guideline to vessels 

delivering shoreside, 24% to vessels delivering to motherships, and 34% to 

catcher-processors. 

Risk Analysis 

Risk analysis deals with the problem of uncertainty associated with data 

and key parameters used in a cost-benefit analysis. Risk analysis provides 

a more comprehensive yet complementary analysis to sensitivity analysis as 

a means to evaluate uncertainty. Risk analysis provides information about the 

variance, or spread, of the statistical distribution of potential net 

benefits and the probability of realizing a particular value. The risk 

analysis is carried out by the Monte Carlo simulation technique. 

The risk analyses for each option show the distribution of net present 

values (NPV) of benefits around the expected value (Figures 1-3). Figure 1 

gives the risk analysis for Option 1, Figure 2 for Option 2, and Figure 3 for 

Option 3. In each Figure, the vertical axis indicates the probability of the 

NPV and the horizontal axis indicates the value of the NPV (in $million). The 

expected value is that value which is expected on average, and given the 

assumed normal distribution, corresponds to the value lying under the highest 

point on the graph. 

The results indicate that the probability of the expected value is 

slightly higher for Options 1 and 3 compared to Option 2, the open-access 

option. The variance of the NPV, which gives the distribution around the 

expected value or central point, is also somewhat greater for Option 2 than 

for Options 1 and 2. The wider variance for Option 2 indicates greater scope 

for a value other than the expected value. In contrast, the narrower 

distributions around the expected NPVs for Options 1 and 3 indicate that 

there is less dispersion of values. The range of potential NPV values for 

Option 2 reaches a higher positive value than for Options 1 and 3; there are 

negative NPVs under Options 1 and 3. But the probabilities of negative NPVs 

for Options 1 and 3 are so small that they can be disregarded for all 

practical purposes. 

Risk analysis was also conducted on the net economic benefits per round 

pound of Pacific whiting to evaluate the nature of these unit net benefits 

by usergroup (Figures 4-8). Figure 4 gives the distribution for catcherprocessors, Figure 5 for motherships and their catcher vessels, Figure 6 for 

onshore surimi processors, their catcher vessels, and their secondardy waste 

G 
processors, Figure 7 for onshore headed and gutted, their catcher vessels, 

and their waste processors, and Figure 8 for the onshore sector in its 

entirety (onshore surimi processors, headed-and-gutted processors, catcher 

vessels, and waste processors). 

The results indicate that catcher-processors should never experience an 

economic loss but that there is a very small probability that others will 

experience economic losses. The greatest probability that the expected value 

of net benefits per round pound of Pacific whiting will be realized is for 

onshore headed-and-gutted processors (in conjunction with their catcher 

vessels and secondary waste processors). The combined onshore sector 

interestingly gives a slightly bi-modal distribution (two peaks), indicating 

that there is a distinct albeit slight difference between the expected net 

benefits per round pound for the two primary processors. 

7 
Table 1 

Present Value of Net Economic Benefits 

Observed Surimi Prices 

Alternative c/ p Mothers Shoreside Total Rank ................................................................ 1 283 137 190 610 2 

3 276 145 188 609 2 

2 395 212 0.73 680 1 

_______-________________________________-------------

NOTE: $1,000,000 

C/P = catcher-processor 

Shoreside = head-and-gutted, fillet, surimi, waste 

processing and catching 

Mothers = mothership and catchers 

Table 2 

Present Value of Net Economic Benefits 

Common $1.20/lb Surimi Price 

Alternative C/P Mothers Shoreside Total Rank ................................................................ 1 310 144 230 684 2 

2 434 223 0.88 744 1 

3 303 152 228 683 2 ................................................................ 

NOTE: $1,000,000 

C/P = catcher-processor 

Shoreside = head-and-gutted, fillet, surimi, waste processing 

and catching 

Mothers = mothership and catchers 

8 
Table 3 

Present Value of Net Economic Benefits 

Offshore Secondary Product Price 

Same as Onshore Surimi Producers' 

Alternative c/ p Shoreside Mothers Total Rank ................................................................ 1 309 161 177 646 2 

3 302 170 17 5 647 2 

2 432 248 0.68 748 1 

................................................................ 

NOTE: $1,000,000 

C/P = catcher-processor 

Shoreside = head-and-gutted, fillet, surimi, waste processing 

and catching 

Mothers = mothership and catchers 

Table 4 

Present Value of Net Economic Benefits 

Lower Harvesting Costs for Catchers Delivering to Motherships 

Alternative c/ p Mothers Shoreside Total Rank ................................................................ 1 283 164 190 639 2 

2 395 256 0.73 723 1 

3 276 175 188 639 2 

................................................................ 

NOTE: $1,000,000 

C/P = catcher-processor 

Shoreside = head-and-gutted, fillet, surimi, waste processing 

and catching 

Mothers = mothership and catchers 

25% lower costs for catchers delivering to motherships than 

catchers delivering onshore 

9 
Table 5 

Net Economic Benefits ($) per 

Round Pound of Pacific Whiting ($/lb) 

1995, Observed Surimi Price 

Off shore Onshore --_-c--------- ......................... 

c/ p Mothers Surimi H&G Combined ..................................................................... 

Total Revenue per lb 

Surimi finished product 1.1593 1.1674 1.0563 

Surimi rnd wt 0,1949 0.2089 0.1624 

Head-and-gutted finished 0.3623 0.0906 

Head-and-gutted rnd wt 0.1392 0.0348 

Meal finished product 0.2268 0.3092 0.2247 0.2808 0.2387 

Secondary products rwt 0.0070 0.0115 0.0166 0.0574 0.0268 

benefit 

Yt & rock external 0.0020 0.0200 0.0020 

PRR Surimi 0.1703 0.1789 0.1529 

PRR Meal 0.0433 0.0398 0.1560 

PRR Head-and-gutted 0.5896 

Processing costs 0.0850 0.1118 0.0905 0.1643 

Secondary processing 0.0140 

Yt & rock external cost 0.0024 0.0040 

Chinook salmon bycatch 0.0004 7.53E-05 0.0001 0.0001 0.0001 

All costs except harvest 0.0873 0.1156 0.1046 

Harvest costs 0.0226 0.0226 

All economic costs 0.0873 0.1382 0.1272 0.1644 0.1365 

per lb rnd wt 0.1126 0.0837 0.0555 0.0818 0.0660 

per mt rnd wt 248.2879 184.4427 122.4488 180.3363 136.8505 

Variable Economic Costs per lb rnd wt 

Net Economic Benefits 

__-__-________-_________________________-------------

NOTE: Headed-and-gutted information is the average of 1992 and 1993 

data adjusted for inflation. 

Net economic benefits exclude fixed costs (both financial and 

economic due to insufficient data). 

Insufficient data required use of same catcher costs for vessels 

delivering both on- and offshore. 

Insufficient data required use of 1993 variable cost data for 

one onshore surimi plant, adjusted for inflation and changes in 

PRR . Weighted averages (weighted by share of landed catch). 

10 
Figure 1. Distribution for NPV: Option I 

0.16 , 

0.04 

0.02 

0 00 

- - - - - 

($22) $04 $29 $55 $80 $105 $13 1 

Values in $Millions 

- 

Figure 3. Distribution for NPV: Option 3 (New 

Agreement) 

0.16 

($20) $05 $30 $55 $80 $105 $130 

Values in $ Millions 

1 Figure 2. Distribution for NPV: Option 2 

$03 $22 $40 $59 $77 $96 $114 

Values in $Millions 
Figure 4. Distribution of Net Economic Benefits: 

Catcher Processors 

002L-A 00 

82'868Z7Frn:: 

0000000000 

696969t96969696969b9 

DOLLARS PW PW 

Figure 6. Distribution of Net Economic Benefits: 

Onshore Surimi Processors 

Figure 8. Distribution of Net Economic Benefits: 

Onshore Combination Processors 

DOLLARS PW PWFA) 

Figure 5. Distribution of Net Economic Benefits: 

Motherships 

DOLLARS PW POUND 

-_______ __________ 

Figure 7. Distribution of Net Economic Benefits 

Onshore Headed and Gutted Processors 

0.14 

0.12 

x 0.10 

0.08 

n 

n 

.- - 

g 0.06 

0.04 

0.02 

0.00 

< 
PART I1 

Methodology of Cost-Benefit Analysis 

1. Approach and Scope of Analysis 

The objective of the analysis is to measure the net national 

economic benefits .or losses that would follow from alternative 

proposed allocations for Pacific whiting. Quantitative estimates of 

net benefits are developed through a standard benefit-cost analysis 

which uses the best available data. 

2. Producer and Consumer surplus 

Benefit-cost analysis in principle evaluates the net benefits 

arising from changes in both consumer surplus and producer surplus. 

Consumer surplus is the difference between the price the consumer 

is willing to pay for a product and the price actually paid. 

Similarly, producer surplus is the difference between the price for 

which producers are willing to supply a market and the price they 

actually receive.5 The sum of changes in producer and consumer 

surplus less management and enforcement costs is the net benefit 

from allocating Pacific whiting. 

Consumers can gain or lose from the proposed allocations if 

the allocations change the quantity, price or quality of the 

product. Consumer benefits may change in three ways: (1) lower 

price for the same product (which involves transfer of value from 

producers to consumers): (2) changes in the amount of product 

(additional product is a net gain to society); and (3) allocation 

to producers that create a higher quality, and hence higher value, 

product. 

This benefit-cost analysis focuses upon net changes in 

producer surplus following the proposed allocations. Changes in 

consumer surplus are largely ignored. There are several reasons for 

this approach. Most of the whiting production by at-sea and shoreside operations will be for surimi which is predominately exported. 

Export sales do not benefit domestic consumers and can be excluded 

from the analysis. Minor amounts of fillets and headed and gutted 

(H&G) whiting products are produced and consumed domestically. 

Changes in consumer surplus due to production of fillets and H&G 

products will likely be small, however, because the market for 

these products is small and for reasons described below. 

Consumer surplus is the area under the demand curve and 

above the price line and producer surplus is the area above the 

supply curve and below the price line. 

11 
Another reason for the focus on producer surplus in this 

analysis is that processed products made from Pacific whiting, 

especially fillets and surimi, are sold in very competitive markets 

with a number of substitutes so that prices to consumers are not 

likely to depend on allocation decisions. Markets for whitefish 

products, especially surimi, are global and Pacific whiting 

accounts for only a very small market share.6 Alaska pollock, for 

example, is often substituted for whiting so that changes in supply 

of H&G whiting or fillets would probably be made up for by pollock 

with no appreciable impact on consumers. Furthermore, surimi 

sources are expanding to include additional species from other 

parts of the world. Hence, it is reasonable to assume that prices 

to consumers will not be affected by allocation of Pacific whiting. 

If Pacific whiting prices are unaffected by the allocation then 

there will be no change in consumer surplus. 7 

Another important part of the rationale for focussing on 

producer surplus in the benefit-cost analysis for Pacific whiting 

is that the at-sea and shore-based sectors both are increasingly 

utilizing all whiting harvested, including weighbacks and other 

waste, for additional production of fish meal, oil, compost, and 

fish food. Hence, allocation of whiting will not materially affect 

the quantity of processed product and consumer surplus. However, to 

the extent quality differences between groups are reflected in 

surimi prices, there could be differential impacts upon consumer 

surplus. 

One important source of potential effects on consumer surplus 

from allocating whiting is the difference in product recovery rates 

(the shore-based sector enjoys somewhat higher product recovery 

rates). Differences in recovery rates affect the total quantity of 

processed product available and consumer surplus. Even this source 

of consumer surplus gain or loss might be counter-balanced by 

quality and price differentials if the sector with a lower product 

recovery rate produced a higher quality and higher valued product. 

There are several technical factors that make measurement of 

changes in consumer surplus difficult. The number of different 

products and possible price changes make estimation of changes in 

consumer surplus difficult. In addition, a path-dependency problem 

might arise since the measure of costs and benefits would depend 

' The market for white fish products among the U.S., Europe, 

and Japan is today an international market without significant trade barriers in the form of quotas and tariffs. There is a high 

degree of substitution between products of different species and 

between different products made from the same species. 

Product prices equal consumers' marginal willingness to pay 

(wTP) for the goods in question. Constant product Prices imply 

constant consumers' marginal WTP. 

12 
not only on the terminal prices but also on the paths to terminal price. 8 

Producer surplus will be affected by the proposed allocations 

for whiting if either at-sea or shore-based processors of surimi, 

fillets, or headed and gutted whiting: (1) have lower production 

costs: (2) produce a higher quality product, and hence receive a 

higher price; or (3) produce a greater quantity of processed 

product per unit of whiting harvested. 

Lower production costs, i.e. greater efficiency, generate 

higher producer surplus. There are several possible ways to improve 

efficiency. Less time may be spent in steaming, searching, 

harvesting, and bringing the fish to market. A pulse fishery may 

give higher catch per unit effort than a prolonged fishing season. 

The season during which harvesting occurs can affect abundance and 

size of fish, product recovery rates, flesh quality, and catch 

rates. These or other factors might differ between the onshore and 

offshore sectors and lead to lower production costs, differences in 

efficiency and higher producer surplus. 

A higher quality product tends to receive a higher price. In 

the Pacific whiting fishery, the rapid deterioration of the fish 

quality immediately following harvest is the single biggest source 

of quality differential (fish delivered to shoreside processors may 

have more time to deteriorate). The more quickly the fish are 

processed following harvest, the higher quality tends to be, other 

things equal. 

A greater quantity of processed product (surimi, fillets, or 

headed and gutted) per unit of whiting harvested can result from 

higher product recovery rates, lower discards, or reduced waste in 

the processing process. 

Production of fish meal, oil, pet food, fish food, or compost 

from whiting discards, weighbacks, or processing waste can also 

impact producer surplus. That is, full utilization of fish 

harvested can generate additional producer surplus if product price 

is higher than the economic costs of production. When the harvest 

is not fully utilized, producer surplus is lost. As discussed 

below, this lost producer surplus forms an opportunity cost, which 

is an external cost to society. 

Unless the consumer's preferences can be represented by a 

homothetic or a quasi-linear utility function, areas to the left of 

the consumer's Marshallian demand curves cannot be used to evaluate 

the welfare gain/loss. Willig (1976) showed that Marshallian 

measures can satisfactorily approximate consumer surplus in many 

instances if the income effect is small. Compensating variation as 

a measure of consumer surplus is the generally preferred measure, 

but its measurement requires estimation of Hicksian demand curves. 

13 
3. Linear Model 

There is little, if any, disagreement among economists about 

what we are trying to measure in a benefit-cost analysis. The 

difficulty lies in the techniques used for measurement. These will 

vary depending on the availability of data, the difficulty of the 

problem, and the preferences and training of those preparing the 

study. 

The analysis focuses upon measuring producer surplus changes 

with different allocations using a linear model based upon a 

budgeting approach. This approach is the most suitable for analysis 

of the Pacific whiting sector since the short time series of 

observations and limited number of observations in any given time 

period preclude statistical analysis of supply and demand curves. 

Data, in the case of the Pacific whiting fishery, consist primarily 

of cost and production records for firms currently working in the 

fishery . 

The approach used in this analysis assumes constant returns to 

scale, i.e. that unit production costs are constant for any level 

of production. This assumption is reasonable for allocation 

options that are not too different from the status-quo. The results 

of the benefit-cost analysis for Pacific whiting are estimates of 

net benefits per unit of Pacific whiting allocated to the onshore 

and offshore sectors. Net benefits per unit allocated are the 

difference between benefits and costs. Quality differentials, to 

the extent that they can be accurately measured, are captured in 

the analysis by differentials in prices and product recovery rates. 

4. Fixed Costs 

Previous economic analyses of whiting allocation options did 

not include the economic cost of physical capital (e.g, fishing 

vessels, processing plants, and other equipment). In addition, 

other economic costs assumed to be fixed in the short run, such as 

insurance, were also excluded. Long-run economic analyses help 

evaluate long-run policy effects that might follow from a series of 

short-term, incremental decisions. 

A workshop held in November, 1995 at the Southwest Fisheries 

Science Center, National Marine Fisheries Service, in La Jolla 

addressed the issue of incorporating economic fixed costs and 

allocation of any joint or common economic costs between the 

whiting fishery and other fisheries in which harvesters and 

processors may participate. Full consensus was not reached on the 

best way to incorporate fixed costs and to allocate any joint and 

common costs among alternative outputs harvested or processed. This 

analysis adopts one of the principal alternatives. The adopted 

approach which will be discussed next. Definitions of technical 

14 
terms are presented in an Appendix. 

Economic fixed costs would be valued in the cash flow of 

economic costs and benefits according to whether they already exist 

at the time of analysis or whether they were reinvestment or new 

investment. An existing fixed input has a positive social 

opportunity cost, and thus positive fixed cost, if the input is 

deemed malleable for the period of analysis and the alternative use 

of this input generates a positive net social benefit. These fixed 

costs are from assets which provide a flow of services over the 

time period of analysis, and it is the annual value of this flow of 

services that is placed into the cash flow for each year. This flow 

of services is valued by what is called a capital services price, 

which for each year is the initial period's economic opportunity 

cost of that asset multiplied by a depreciation rate and an 

interest rate. When economic fixed costs pertain to new investment 

or reinvestment, they are entered into the cash flow at their full 

value at the time of expenditure. 

Economic fixed costs and any other costs that are jointly 

shared among whiting and other species must be allocated among 

these alternative uses. The workshop recommended an approach 

called, the "Use of Facilities Method. Three alternative 

approaches exist for the Use of Facilities Method: (1) by time 

spent fishing for whiting and other species; (2) by the revenues 

received fishing for whiting and other species; and (3) by the 

quantity of landings for whiting and other species. 

The analysis assumes that the allocation of any joint costs 

existing at the time of the survey for the whiting industry, will 

continue under all policy options and over the length of the 

analysis. That is, there will be no change in fixed costs. To the 

extent that this assumption is violated, i.e. that firms reallocate 

their fixed costs under different policy alternatives or options, 

biased results will follow. Nonetheless, without this assumption, 

data must be collected for the entire range of activities of all 

firms harvesting whiting, including non-whiting activities. 

5. Economic vs. Financial Analysis 

The benefit-cost analysis for Pacific whiting is an economic, 

rather than financial, analysis. Some payments that appear in the 

cost data used in financial analysis do not represent direct claims 

on the country's resources. These financial payments merely reflect 

a transfer of control over resource allocation from one member or 

sector of society to another. From the perspective of society as a 

whole, these transfer payments are irrelevant and are not 

considered in benefit-cost analysis. Transfer payments excluded 

from the analysis include taxes, interest payments, and 

depreciation. Subsidies, in contrast, represent real resource costs 

to society and must be accounted for. Taxes are merely transfers 

from firms to the public sector and hence are excluded from the 

15 
analysis, unless the taxes are payments from foreign firms (which 

would otherwise be lost as a foreign leakage). 

Costs in an economic analysis are usually measured at the time 

of actual expenditure, since the concern is on real resource use at 

the societal level. Principal and interest repayments on domestic 

loans simply transfer purchasing power to the lender and are not 

included in an economic analysis of net benefits to society. The 

financial cost of a loan occurs when the loan is repaid, but the 

economic cost occurs when the borrower actually spends the loan 

(thereby using the resources entailed). Depreciation allowances may 

not correspond to actual use of resources, and should therefore be 

excluded from the benefit-cost analysis for Pacific whiting. 

The following table summarizes the key differences between an 

economic and financial analysis. The table indicates whether or not 

a cost or benefit is an economic or financial one. 

Item Economic Financial .............................................................. 

Taxes by domestic firms No Yes 

Taxes by foreign firms Yes Yes 

Subsidies Yes Yes 

Benefits to foreign firms No Yes 

Interest No Yes 

Depreciation No Yes 

Financial analysis of whiting processors and harvesters which 

includes financial joint or common costs for fixed assets, such as 

interest and depreciation that are otherwise transfer payments, 

also requires an allocation of these joint and common costs between 

Pacific whiting and other products. The firms interviewed indicated 

that they allocate these costs by amount of time spent harvesting 

and/or processing Pacific whiting and other products. 

6. Secondary Costs and Benefits and Multiplier Effects 

Secondary costs and benefits are not included in benefit-cost 

analysis when opportunity cost or willingness to pay is used to 

measure economic value because all costs and benefits are adjusted 

to reflect their effect on national income. Inclusion of increased 

output and incomes through secondary spending would be double 

counting, since the valuation already reflects the gains to 

suppliers and processors. These secondary costs and benefits are 

frequently transfer payments in economic rents from one sector of 

society to another and are therefore not included in a benefit-cost 

analysis which uses opportunity cost or willingness to pay. 

16 
7. Decision Criterion 

The decision criterion for public policies which do not suffer 

from a budget or investment constraint is to maximize net present 

value. That is, the allocation which maximizes net present value 

generates the greatest net benefits to society and is selected if 

the sole concern is to maximize economic efficiency. The decision 

arising solely from the efficiency criterion, i.e. maximize net 

present value, may be modified to account for distributional, 

social or other concerns. Standard benefit-cost analysis gives 

equal weight to all gainers and losers in society, but it may be 

felt that some groups in society should receive greater or lesser 

weight. 

A fundamental problem in benefit-cost analysis is that 

resources are used or benefits are created at different times. The 

net present value approach used in this analysis recognizes that a 

dollar of a net benefit in a future year is worth less to society 

than a dollar of net benefit in the current year. Hence, to 

properly give standard units to net benefits over a number of 

years, future benefits are discounted to place all dollars of net 

benefits in current value.' The discount rate (which includes 

inflation) recommended by the Office of Management and Budget is 7% 

per year. Following conventional financial practice and most costbenefit analysis in the United States, we assume that cash flows 

occur at the end of each time period, so that the first year of net 

benefits is not discounted. All dollar values in the benefit-cost 

analysis for Pacific whiting were expressed in constant, real 

dollars. 

The time horizon used for computing net present value in this 

study was twenty years, since this time period seems to most 

closely correspond to the expected economic life of many major 

pieces of equipment. 

8. Sensitivity Analysis 

Any benefit-cost analysis is ultimately based on a set of 

assumptions. Hence, there may be considerable uncertainty about 

The general formula is: 

(1 + 6)t 

where NPV = net present value, t = 0 is current time, T is terminal 

time, NB, is net benefits in time t, 6 is the interest rate, and C#I 

= l/(l+&), is the discount factor. Net benefits in time t (NB,) = 

B, - C,, where B, is the dollar value of benefits in time t and Ct 

is the dollar value of costs in time t. 

17 
several of the variables essential to a benefit-cost analysis. The 

most important variables for Pacific whiting include product 

recovery rates, variable (operating) costs, product prices, 

discards, and fixed costs. Simple averages of important variables 

may not fully represent the diversity seen in the fishery for 

Pacific whiting. In addition, markets and production conditions 

might be subject to considerable fluctuations so that simple 

averages based on a few observations might not be accurate. Surimi 

markets, for example, have recently experienced considerable 

softness and volatility. 

A sensitivity analysis was used to investigate effects of 

variations in key variables or central assumptions on unit net 

benefits and unit variable economic costs. This approach varies the 

value of key parameters in a systematic way to evaluate the effects 

upon point estimates of unit net benefits to the nation and unit 

variable economic costs. 

9. Risk Analysis 

Risk analysis is essentially a method of dealing with the 

problem of uncertainty associated with data and key parameters in 

a cost-benefit analysis. lo Risk analysis provides a more 

comprehensive yet complementary analysis to sensitivity analysis as 

a means to evaluate this uncertainty. 

Risk analysis eliminates the need to restrict analysis to a 

single best estimate of key data and parameters. Risk analysis also 

eliminates the need to evaluate the effects of simply changing the 

values of data and parameters one-by-one as in sensitivity 

analysis. For example, sensitivity analysis gives equal weight to 

all values of a range for each variable considered, whereas some 

values are less likely to occur near the extremes of their 

plausible ranges. Sensitivity analysis generally changes values of 

variables or parameters one-by-one, or at best, two at a time, 

which does not allow for simultaneous changes in the values of 

several variables or parameters. sensitivity analysis also does not 

allow for correlation among variables and does not provide 

information about the variance, or spread, of the statistical 

distribution of net benefits. 

Risk analysis instead incorporates into the analysis a 

complete judgement on the possible range of each variable and on 

the likelihood of each value within this range. These judgements 

lo This exposition of risk analysis follows Louis Pouliquen, 

Risk Analysis in Project Appraisal. Baltimore: The Johns Hopkins 

Press, 1970, and Anthony Boardman, David Greenberg, Aidan Vining, 

and David Weimer, Cost-Benefit Analysis: Concepts and Practice. 

Prentice Hall, 1996. 

18 
take the form of probability distributions. As a result, the 

product of the analysis is not just a single value of the decision 

variable, net present value of economic benefits, but a judgement 

on the possible range around the expected net benefits, and a 

judgement on the likelihood of each value within this range. 

Risk analysis thus provides information about the variance, or 

spread, of the statistical distribution of realized net benefits 

and the probability of realizing different possible values of these 

net benefits. 

The risk analysis is carried out by the Monte Carlo simulation 

technique. The basic steps for doing Monte Carlo analysis are as 

follows. First, specify probability distributions for all the 

important uncertain quantitative assumptions. The normal 

distribution was specified for this analysis. The only parameter or 

variable given a probability distribution was net benefits per 

round metric ton of whiting. Second, execute a trial by taking a 

random draw from the distribution to arrive at a set of specific 

values for computing realized net benefits. Third, repeat the trial 

described in the second step many times to produce a large number 

of realizations of net benefits. The average of the trials provides 

an estimate of the expected value of net benefits. Two thousand 

trials were selected for this study. 

10. Effects of Product Recovery Rates for Surimi 

In a linear model such as the one used in this analysis, 

changes in surimi PRR primarily affect total revenue from surimi 

production. PRR and prices for surimi were the parameters in this 

study around which the greatest uncertainty centered. Fixed costs 

also generate considerable uncertainty, given the difficulty in 

their measurement. PRRs have considerable effects upon the total 

revenue received from the final product since more product is 

generated from a unit of catch if PRR is increased. This can be 

readily seen from the following equation: 

$ 

---- s lb, 

$ s lb $ 

[retcat PRR] = TR = ---- [retcat ---- 3 = ---- 

s lb r lb s lb s lb 

where TR represents total revenue, s lb is pound of surimi, r lb is 

round weight pound, $/s lb is price per pound of surimi, retcat is 

retained catch measured in round weight pounds, and PRR = s lb/ r 

lb or the product recovery rate. Hence, an increase in the PRR 

raises the total revenue received. If TR is measured in units of 

pounds of round weight of retained catch, then the effect of an 

increase or decrease in the PRR is the analogous, i.e.: 

19 
In a linear model, such as the one used in this analysis for 

Pacific whiting, unit costs remain the same for any level of 

output. Hence, increases in the PRR for surimi do not affect unit 

costs of surimi production, whether unit costs are measured in 

pounds of surimi or round weight pounds of retained catch. Changes 

in the surimi PRR do not affect harvesting costs or unit costs of 

production for fish meal, oil, or related products. 

Changes in the surimi PRR do affect surimi waste sent to fish 

meal production and can possibly affect weighbacks (depending upon 

the source of PRR changes). Changes in surimi processing machinery 

might, for example, affect weighbacks. In turn, these effects might 

marginally affect the PRR of meal to the extent that meal PRR is 

sensitive to the composition of waste and size of weighbacks. 

The product recovery rate (PRR) is one of the most important 

determinants of profitability and net benefits. The PRR depends on 

the size and availability of fish, the type of vessel and equipment 

used, length of time between harvesting and processing, and 

technical expertise. The PRR is therefore a function of economic 

and technical decisions. Processor decisions are a blend of choices 

concerning these economic and technical decisions as well as the 

choice of product form. If the market is for lower quality surimi, 

processors have a higher recovery rate since fewer fish are 

discarded during the processing stage. If the market is for higher 

quality surimi, a lower recovery rate usually results, since only 

the best parts,perhaps only the ttwhitestlf parts, are used in 

processing surimi. 

11. Round Weight Equivalents 

Surimi production involves three product forms: round catch, 

surimi, and secondary products (fish meal, fish oil, pet food, fish 

food, compost, and fertilizer) that cannot be directly compared in 

units of weight (this would entail "comparing apples and orangest1). 

Round weight equivalents were therefore adopted as a standard unit 

of weight for measuring all products. This approach facilitated 

calculations and comparisons. In particular, offshore catcherprocessors and mother ships are vertically integrated catchers and 

producers of surimi and fish meal. To allow comparison with the 

onshore sector, onshore catching, processing, and meal production 

had to be combined to form a single, vertically integrated unit. 

In the model, onshore catcher vessels were assigned 

allocations in units of round weight pounds of retained catch. 

Onshore surimi processors were assigned round weight pounds of 

retained catch, since weighbacks were often diverted to meal and 

20 
oil production.” Production of meal and oil and related products 

was assigned round weight pounds of both weighbacks and retained 

catch. Retained catch was included since shore-based meal and oil 

producers used both weighbacks and landed catch. Nonproduction of 

meal and oil was explicitly evaluated as an external cost since the 

resource was not fully utilized for social benefits (see below). 

Offshore catcher-processors were assigned round weight pounds 

of retained catch. Not all offshore catcher-processors produced 

fish meal from discards and waste from surimi production. Discards 

and nonproduction of fish meal were explicitly evaluated as an 

external cost (see below) . 

Total revenues and total costs were evaluated per pound of 

round weight of retained catch. These values were calculated by 

dividing total revenue by pounds of round weight whiting. 

12. Economic Costs 

The economic costs used in this study were variable 

(operating) costs that excluded transfer payments such as taxes, 

interest payments, and depreciation (see above). Fixed costs were 

included as discussed above. Labor costs for catchers were 

determined from shares received by labor and skippers. Labor costs 

for processors were determined from wage payments. 

The relevant costs for estimating changes in producer surplus 

for the onshore sector are the costs incurred by catcher vessels in 

their fishing operations and by plants for surimi, meal, oil, pet 

and fish food processing operations. Processing plant costs, when 

considered in isolation, include payments to catchers for raw 

product costs. When calculating costs of the entire integrated 

operations of onshore catching and processing of surimi and fish 

meal/oil/fish food, raw product costs were excluded from the 

analysis since they represent transfer payments from processors to 

catchers. 

The offshore catcher-processors are inherently a vertically 

integrated production process. However, some of these vessels did 

purchase fish from catcher vessels. Since these catcher vessels 

were not part of the catcher-processor production process, these 

raw fish payments were calculated as part of the catcher-processor 

Because onshore is a vertically integrated process from 

catching through surimi or headed-and-gutted processing and fish 

meal/oil/food/compost/fertilizer processing, weighbacks from 

onshore processing are counted in meal (etc.) processing. 

l2 Alternatively and equivalently, the costs of one group 

equal the revenue of the other group and hence net out to zero. 

21 
costs of production. 

The economic costs of mother ships and catchers per se were 

calculated in the same manner as costs for onshore catching and 

processing. 

13. External Costs 

An external (production) cost is said to exist if the actions 

of one producer adversely affect other producers or consumers 

without the mediation of a market. Under these circumstances there 

is said to be an llexternalityll giving rise to a "market failurell. 

The Pacific whiting fishery is an example of a situation with 

external costs since there is no market for harvest rights and no 

one owns the fish stock (it is llcommon pr~perty~~)'~. A proper 

benefit-cost analysis must account for external costs. 

In this study, one external cost was explicitly valued, 

bycatch of yellowtail rockfish, widow rockfish, and salmon. Bycatch 

of the prohibited species salmon (predominately Chinook) represents 

an external cost. Discards of other species represent an external 

cost since the full social benefits from the publically owned 

resource are fully realized. Offshore catcher-processors and 

motherships discard all salmon and virtually all of the rockfish, 

although some unspecified amount is retained as Ilhorne pack1'. 

Catcher vessels delivering onshore or offshore discard salmon at 

sea. From onshore processing plant interviews, most yellowtail and 

widow rockfish appear to be processed when landed onshore. 

The external cost of discarded bycatch is calculated as an 

opportunity cost by the gross revenue foregone to another 

harvester. This approach overstates the external cost since net 

revenue foregone is the appropriate measure, but calculation of 

this net revenue measure requires operating costs of all impacted 

gear groups. In contrast, salmon probably have an overlooked 

existence or preservation value, which is not calculatable nor 

included in the analysis. 

The discard rates for yellowtail and widow rockfish and salmon 

were obtained, individually, for catcher-processors and motherships 

from NMFS observers for the Vancouver, Columbia, and Eureka areas 

combined. The discard rates for catcher vessels delivering onshore 

were obtained from the Oregon Department of Fish and Wildlife for 

California, Oregon, and Washington combined. The discard rates for 

these rockfish are in units of metric ton of rockfish per metric 

ton of whiting. The discard rates for salmon were in number of fish 

l3 This includes a fishery under license limitation, since 

property rights remain incomplete. The following discussion closely 

follows P. Neher, Natural Resource Economics. Cambridge: Cambridge 

University Press, 1990. 

22 
per metric ton of whiting harvested. Based on NMFS observer data, 

5.18 pounds per Chinook salmon was selected to convert the salmon 

discard rate from number of fish to weight of fish. 

The prices for yellowtail and widow rockfish and Chinook 

salmon were mean prices derived from PacFin. 

The discard rates and prices used were as follows: 

Prices 

............................. 

Yellowtail rockfish ($/lb) 0.37 0.37 0.37 

Widow rockfish (S/lb) 0.33 0.33 0.33 

Chinook salmon (S/lb) 1.79 1.79 1.79 

Another external social cost was explicitly valued, lack of 

full utilization of whiting wastes and discards. From a social 

perspective, this reflects a lack of full use of a publically owned 

resource. Offshore catcher-processors or mother ships not making 

fish meal were charged the opportunity cost or lost revenue from 

not making fish meal. This lost revenue was calculated as the mean 

revenue of those offshore vessels making fish meal. This value 

overstates the opportunity cost since it overlooks cost of 

production. The cost of fish meal production was not explicitly 

provided. 

The social opportunity cost of lack of secondary processing of 

whiting waste for onshore surimi plants was more difficult to 

gauge. One secondary processing company returned a complete survey, 

which when matched with the onshore surimi plant providing waste, 

allowed calculation of the amount processed by the secondary 

processing firm. For these two companies, not all of the waste was 

utilized, and a social opportunity cost was charged charged at the 

same value as the secondary product made: this probably overstates 

the social value of lack of full utilization. 

A second onshore surimi processor sends a percentage of its 

waste to a fish meal plant. Fish meal prices and costs of fish meal 

production were unavailable from the survey. The fish meal price 

used was the mean fish meal price of offshore producers, both 

catcher-processors and mother ships, that actually produced fish 

meal and oil. A fish meal product recovery rate from waste was 

unavailable, so that direct calculation of the quantity of fish 

23 
meal produced, and hence fish meal revenue, was not possible. 

Instead, total revenues from the onshore fish meal plant are 

calculated using the mean fish meal and oil price per pound of 

round weight of retained catch from the offshore catcher-processors 

and mother ships actually producing fish meal, multiplied by the 

quantity of retained whiting catch of the onshore surimi processor, 

multiplied by the percentage of waste actually sent to the onshore 

fish meal plant (the latter obtained by telephone interview). The 

onshore fish meal production cost was taken from H. Radtke, 

"Windows on Pacific Whiting: An Economic Success Story for Oregon's 

Fishing Industry, 1995 Update." Report prepared for Oregon Coastal 

Zone Management Association, June, 1996. 

The secondary processor associated with a third onshore surimi 

processing plant did not provide a completed survey. The waste from 

the onshore surimi processor was valued at the same revenue and 

cost as from the secondary processor that did not produce fish 

meal. 

Other external costs exist, but there was no clear way to 

explicitly attach values to them in this study. Hence, they are 

mentioned as additional factors to consider when interpreting 

results. These additional external or social costs include: (1) 

possible congestion or pollution effects from rapid growth of 

onshore processing and the subsequent expanded demand for labor; 

(2) marine pollution from both onshore and offshore processing 

plants (possible adverse impacts on marine life or tourism, hazards 

to human health, and reduced water quality); (3) external costs 

associated with exploiting an unpriced resource. 

External costs which are equally shared by both the offshore 

and onshore sectors may also exist. Examples of these costs include 

effects upon the ecosystem, and hence the production of other 

species; losses to any recreational fishers, etc. 

Additional external costs may be generated by the allocation 

decision. Early harvesting of whiting by the offshore sector may 

affect: (1) catch per unit effort; (2) seasonal trends in rockfish 

by-catch; and (3) whiting sex ratio. These issues are beyond the 

scope of this report. 

14. Fish Waste 

The values of fish meal, oil, pet or fish food, compost or 

fertilizer was calculated using the implied prices (for only those 

producing the product) converted to a round weight value. Since 

fish meal prices are relatively fixed and many substitute sources 

of supply are available on world markets, it is assumed that 

changes in consumer surplus from this source remain negligible. 

Some onshore weighbacks and fish processing wastes are also 

diverted to composting or fertilizer for agriculture. In Crescent 

24 
City, some of these weighbacks and waste are composted at a land 

fill without charge. One ton of fish waste is mixed with three tons 

of bark (which has no cost). The mixture makes one and one-half 

yards of compost with a value of $20 per yard. This gives a value 

of approximately $0.01 per round pound of Pacific whiting. These 

values are assigned to two headed and gutted plants. 

One onshore surimi plant in 1995 sent approximately 75% - 85% 

of its waste to a fish meal plant. Some waste was also sent to 

composting. Another onshore surimi plant in 1995 had a serious 

waste disposal problem. Another onshore surimi plant sent its waste 

to a secondary processor, who used what it could and then legally 

disposed of the balance. Another onshore surimi plant appeared to 

dispose all of its waste with a secondary processor. 

Several unique situations were handled as follows for this 

last secondary processor. This plant produces two products. An 

aggregate product price was formed by weighting each product price 

by its share of final product. An aggregate product recovery rate 

was similarly formed as a weighted average. The aggregate final 

product price per pound was converted to round weight equivalent 

for whiting by multiplying this aggregate final product price by 

its aggregate PRR to convert units from price per pound of final 

secondary product to price per pound of whiting waste. This value 

was in turn multiplied by (1-PRR for the surimi processor) to 

convert the price per pound of whiting waste to price per round 

pound of retained whiting. 

Offshore catcher-processors and motherships converted all or 

part of their waste to fish meal or disposed at sea. 

Because of the considerable uncertainty over disposal of 

whiting waste, a "best guesst1 of 80% was assumed as used by 

secondary processing and the balance disposed of at sea or in some 

other manner for onshore. Because of the uncertainty, each sector 

is given this same 80% rate of waste utilization. This unused waste 

is calculated as an opportunity cost foregone and valued at 

fishmeal prices for offshore and an average of fishmeal, secondary 

byproducts such as fish pellets, and composting prices for onshore. 

15. Calculation of Means 

An issue arose for ratios such as cost per pound and price. 

Means of these values could be calculated as the means of 

individual ratio values or as the ratio of means. The two methods 

produced dissimilar results in some instances. For this analysis, 

means were calculated as the means of ratios. 

A second issue arose when calculating mean fish meal 

production and prices. As mentioned above, mean meal prices were 

calculated only for those processors producing meal; this gave the 

25 
implied market price. 

16. Foreign Ownership 

In benefit-cost analyses, leakages of net national benefits 

(positive or negative) that accrue to foreign owners are not 

generally included in the present value of net benefits. That is, 

the accounting stance is the present nation-state. Tax payments by 

foreign owners would nonetheless accrue as a benefit to the nation 

and hence is one transfer payment that would be included in the net 

benefit stream. 

As described in the recent GAO report, llSeafood Processing: 

Foreign Ownership of Facilities in Alaska, Oregon, and Washington," 

federal and state agencies do not collect sufficient information to 

analyze the degree of foreign ownership or of foreign financing. 

On this issue, the November 1991 Council Analysis states: 

Ownership and the flow of capital and interest payments 

are difficult to identify. Interest payments for at least 

one-half of these vessels flow to foreign banks as do 

capital payments. Since by law these vessels are at least 

51 percent domestically owned, the assumption is that 

capital payments are savings (in the long run if the vessel 

is profitable and can be sold at some time) and therefore 

personal income for U.S. citizens. The considerations of 

these flows would most likely reduce the impacts of the 

fishing activities of the factory trawlers (as well as 

motherships and shoreside plants for foreign owned or 

financed plants) by anywhere from 5 to 20 percent, 

depending on the assumption of the ownership or 

profitability. 

In this analysis, foreign ownership and financing are 

acknowledged but are not evaluated due to the imprecise knowledge 

about it. In addition, the mix of offshore catcher-processors, and 

thus the mix of their foreign ownership, may change from year-toyear: this would further complicate this issue. 

17. Future Investment and Economic Life of Existing Investment 

The analysis had to grapple with expected and unexpected 

future reinvestment and new investment over a time period long 

enough for capital to be malleable and for future investment and 

reinvestment. As the result of pretesting and interviews with 

companies in onshore and offshore plants, it became apparent that 

reinvestment could be broadly classified into two categories: (1) 

on-going, investment and (2) periodic, lllumpyll 

investment. 

26 
The on-going investment is represented by continual and 

incremental innovations in plant design and layout, upgrading 

performance and flexibility of existing machines (e.g. conveyers, 

engines, screw presses, roter machines, headers, mincers, cold 

storage, wastewater treatment) by rebuilding and repair, 

modifications to counter obsolescence, and so on. This approach 

allows perpetual use of equipment until some significant innovation 

arises, after which the lloldll equipment is sold. Comparatively 

llsmallll innovations that are more or less 'on-going and accounted 

for in repair and maintenance budgets would also be included. In 

this case of on-going, incremental investment, the growth in 

technology occurs slowly and incrementally, and new states of 

technology are more disembodied than embodied in the capital stock. 

Incremental investment costs would be included in repair and 

maintenance costs. While repair and maintenance costs would be 

counted as investment costs rather than as routine variable 

(operating) costs, they would be included in the time stream of 

costs and benefits since these costs are annual as opposed to 

lllumpyll or llone-timell. 

Periodic investment and reinvestment embodies discrete, new 

innovations in the capital stock.14 There is a "vintage effect", 

in that new innovations in processing and harvesting equipment, 

when embodied in new capital assets, are more valuable because they 

are the state of knowledge and best production practices at the 

time the asset was produced and installed. In this approach, 

capital investment may be viewed as a vehicle of a specific type of 

technical change, discrete and with vintage effects. These vintage 

effects also incorporate decisions made with expectations about 

prices and availability of economic inputs such as labor, energy, 

raw materials (whiting); expectations about future processed 

whiting prices and other substitute products in markets, and market 

conditions in general; expectations about future states of property 

rights (open access, individual transferable quotas) and fishery 

regulations; expectations about competitive pressures from other 

processors and also about the resource stock conditions, and so 

forth. 

The capital stock in place beginning in 1995 also reflects the 

best practices and vintages, and hence economic efficiencies, at 

the time of their occurance. This vintage effect might explain, in 

part, relative differences in product recovery rates, economic 

efficiency, variable (operating) costs, and quality between 

processors in different sectors, especially surimi processors. 

Another important determinant of comparative economic efficiencies 

and quality could be differences in raw whiting due to time 

l4 See W.E.G. Salter, Productivity and Technical Chanqe, 

second edition. Cambridge, MA: Cambridge University Press, 1966. 

27 
differentials between catching and processing and also fish size 

differences from depth and latitude and date of harvest. 

Differences in labor, management, organization, etc. also play a 

role in comparative productivities. 

Processing plants and fishing vessels are comprised of many 

individual capital assets, most notably individual filleting and 

mincing machines, sorting and transfer operations (e.g. conveyer 

belts), refrigeration and cooling systems, etc. In most processing 

plants, there will be a broadly diverse range of these assets, 

reflecting different vintages and hence states of technology and 

economic efficiency. 

Several issues impact upon selection of the equipment to 

replace and the rate of replacement when there is a diverse range 

of assets, with different vintages. There are unequal rates of 

technical advance and depreciation, so that some items of equipment 

may require more frequent replacement than other items. In 

addition, with semi-independent machines there is the issue of 

complementarity between different items of equipment. Replacement 

equipment should be fundamentally complementary to the existing 

plant, equipment, lay-out of the plant, etc. 

The most significant surimi processing equipment facing 

periodic lllumpyll investment is the Baader and Toyo filleting 

machines. These machines play a central role in realizing higher 

product recovery rates, and productivity and efficiency in general, 

through higher yields, boning, faster throughput rates, higher 

degrees of automation. Much of the reinvestment in these machines 

appears to be driven by new innovations and even planned 

obsolescence, coupled with competitive pressures from open access 

fisheries and shortening seasons, as well as intra-industry 

competition. The rate of technical advance appears to be higher for 

these pieces of equipment than for, other items, such as 

refrigeration or transfer machinery or mincing or distilling 

equipment. Changes in prices do not seem to directly force the 

abandonment of llobsoletell or "dated" pieces of equipment. Rather, 

price movements appear to have more of a long-run disciplinary 

effect in that failure to replace obsolete equipment can eventually 

limit the ability to deliver a competitively priced, quality 

product. The complementarity of these filleting machines with 

existing equipment is high, in that additional new equipment and/or 

rearrangements of production lines are not required. This 

complementarity lowers the cost of replacement and allows boosts in 

productivity for many pieces of existing equipment, e.g. transfer 

equipment , etc. 

Each company does not replace the filleting machines at the 

same time as other companies. However, it became apparent from the 

interviews and plant visits that there was a somewhat consistent 

rate of replacement for each sector, which differs between sectors. 

The offshore catcher-processors seem to have the fastest rate of 

28 
replacement due to the competitive pressures that arise when 

fishing in Alaska. The onshore surimi processors also face 

competitive pressures to improve efficiency (through a higher 

product recovery rate and lower costs) but these pressures, while 

strong, appear less compelling than those facing the offshore 

catcher-processors. Hence, the reinvestment rate should be lower 

than that for offshore catcher-processors. 

In addition, the reinvestment rate is somewhat irregular, 

particularly for any given company in a sector, and difficult to 

predict. Interviewees did not express difficulties in accepting a 

constant rate of reinvestment across companies in a sector and a 

reinvestment rate that differs across sectors. 

To summarize the approach to periodic investment and 

reinvestment, it was assumed that each company will reinvest at the 

same rate as other companies in its sector but that the 

reinvestment rate differs between sectors. Each sector's 

reinvestment rate was to be determined fromthe questionnaire, with 

each company given the sectoral average. It was also assumed that 

each company would maintain the same number of machines as it 

presently has. 

If the economic life was beyond about twenty years, 

discounting reduces most values to very small amounts. For this 

reason, scrap and terminal values of plant and equipment were not 

evaluated in the analysis. 

Finally, the analysis assumes that there will be no more 

investment onshore and no further purchases of groundfish permits 

for offshore catcher-processors. 

18. Problems with Economic Fixed Costs in the Survey Instrument 

No simple way existed to measure the economic opportunity cost 

of existing plant and equipment and for any future II1umpyll new 

investment or reinvestment. The onshore processing firms are very 

heterogeneous, having been constructed at different times and in 

many instances piecemeal over time, and over a wide geographic 

range from Eureka, California to Bellingham, Washington. Most 

onshore plants process a heterogeneous mix of fish species. The 

Pacific Coast Seafoods surimi plant was the most recently 

constructed. Onshore surimi equipment is relatively new due to the 

recent development of this industry onshore, but most buildings and 

other equipment were purchased considerably earlier and/or 

piecemeal over quite a few years. In contrast, offshore catcherprocessors and motherships form a relatively homogeneous fleet, 

homeported in Seattle (or nearby in Annacortes). 

Book or historic value is unrepresentative of current economic 

opportunity costs, with the exception of the newly constructed 

29 
Pacific Coast Seafoods plant. This unrepresentative nature was 

particularly true for the onshore sector, with the above-mentioned 

heterogeneity and many plants and pieces of equipment purchased in 

a considerably earlier time period and/or piecemeal over several 

years, and with plants located over a wide geographic range. Book 

or historical value may also differ widely from observed market 

values if the asset is obsolete and no longer being produced.15 

It may also differ from market value owing to imperfections and 

uncertainties in the market place. 

It might have been possible to use a llDelphill approach to 

value the offshore catcher-processors and motherships. These 

vessels are from a homogeneous fleet home-ported in Seattle. A 

limited number of parameters primarily determine the value of one 

of these vessels. Companies could be asked the value of all vessels 

harvesting Pacific whiting in 1995 based on the unencumbered sale 

of the offshore catcher-processor Ocean Rover. After a first round 

of estimates, companies would be given the opportunity to revise 

their estimates in a second and final round. However, while this 

approach was deemed suitable for the offshore catcher-processors 

and motherships, it was not deemed possible for the onshore sector 

due to the extreme heterogeneity of the processing plants. 

Moreover, it was deemed crucial to apply the same methods to all 

sectors involved, thereby eliminating this llDelphill approach for 

the offshore sector. 

The method selected was to ask questions on tax value, insured 

value of replacement costs, and insured actual cash value of plant 

and equipment, and for onshore processors, the tax value of land. 

Based on previous discussions with both onshore and offshore 

processors, it was acknowledged that any estimates obtained from 

this approach would likely be subject to potentially serious 

measurement error. However, there was no feasible alternative that 

could be documented, was readily accessible to firms, and could be 

consistently applied to all firms in all sectors. 

Several problems readily became apparent upon receipt of the 

completed questionnaires and upon interviews with companies when 

they were completing the questionnaires. 

First, only nine firms could be surveyed for each sector, and 

of those firms surveyed, several companies elected to leave 

responses to a number of the questions blank. This was the most 

significant difficulty. The remaining difficulties stemmed from 

shortcomings in the survey instrument and complexity in the fishery. 

See p. 79 of Jack G. Faucett, Comment" to Allan H. Young 

and John C. Musgrave, "Estimation of Capital Stock in the United 

States,11 in Dan Usher, ed., The Measurement of Capital, Studies in 

Income and Wealth, Vol. 45, National Bureau of Economic Research. 

Chicago: University of Chicago Press. 

30 
Second, on fillet equipment values, one company advised that 

it was inaccurate to limit the question to fillet equipment only. 

The company instead suggested that it was better to recognize the 

complementarity of related investment, and to thus start with the 

fillet equipment and include complementary equipment (e.g. the 

plate freezer). Along these lines, the difficulty in distinguishing 

between fillet equipment and other equipment was also expressed. 

One company indicated that there is not an insured value for just 

fillet equipment. Yet another company suggested that rather than 

ask for lllumpylf investment, such as fillet equipment, it would be 

better to ask for budgeting capital expenditures. This company 

indicated that firms now have sufficient experience in the Pacific 

whiting fishery and are able to rather accurately estimate the 

expected capital expenditures, which this firm routinely does. 

Third, one company advised to substitute the word llreplacingll 

with "replacing and/or adding" when surveying fillet (and related) 

equipment. 

Fourth, one company suggested asking for current replacement 

values rather than taxed or insured values. 

Fifth, some offshore catcher-processors are multi-vessel 

companies, and firms were required to first allocate some fixed 

costs among vessels which harvested and processed Pacific whiting 

and others which did not, before completing the fixed cost and 

capital goods questions, the allocation method used by some of 

these firms was time spent while another allocated these costs 

equally among all vessels (e.g. 50 percent to each of two vessels 

in a two-vessel firm). 

Sixth, it was not clear to offshore firms whether capital 

goods costs for "All Plant and Equipmentll referred to the 

vessel/hull or not, and some completed surveys included hull value 

while others did not. 

Eighth, a separate question should have been asked regarding 

the cost of groundfish permits for offshore catcher-processors. 

Companies gave amortized values with different amortization 

periods. However, a common amortization time period was required to 

treat all firms uniformly and consistently. A follow-up question by 

telephone was required to obtain the correct cost of permits. 

Ninth, one company indicated that both model type and model 

number should be asked under 8, Ifcapital Goods Costs1I. 

Tenth, the question on future new investment or reinvestment 

should have made clear that this includes both new and used assets, 

costs of installation and margins and commissions of dealers and 

31 
16 brokers on transactions involving both new and used assets. 

For all of the above reasons, the estimates of economic value 

of existing capital assets and any new investment or reinvestment 

are problematic, suffered from important measurement error, or were 

simply missing, giving an inadequate number of observations. Hence, 

the cost-benefit analysis was not able to include an accurate and 

detailed analysis of fixed costs. The cost-benefit analysis instead 

analyzed only economic benefits and variable economic costs (as was 

done in previous cost-benefit analyses). 

Future research should consider both refining the survey 

approach and also applying the perpetual inventory method.17 The 

capital stock at any time period depends on the rate of economic 

depreciation and past investments, so that the capital stock each 

year is the sum of the increments in every preceding year. Hence, 

the perpetual inventory method presents problems of its own, 

requiring the relevant gross investment series, methods of 

depreciation, and economic lives of the assets. A third possibility 

is to simply estimate the net present value of the expected stream 

of quasi-rents (total revenue less variable costs) available to 

firms over the expected economic lifetime." Refinement of the 

direct survey method is probably the preferred approach to future 

measurement of the fixed capital stock and any future investment 

(new or reinvestment). 

Another refinement to the survey questionnaire would be to ask 

each company to explicitly indicate how fish waste is disposed and 

the quantity or percentage of waste going to each secondary 

treatement source. 

19. License Limitation 

See p. 38 of Allan H. Young and John C. Musgrave, 

"Estimation of Capital Stock in the United States," in Dan Usher, 

ed. , The Measurement of Capital, Studies in Income and Wealth, Vol. 

45, National Bureau of Economic Research. Chicago: University of 

Chicago Press. 

l7 For discussions of the perpetual inventory method, see 

Usher op cit. and Angus Maddison, "Standardized Estimates of Fixed 

Capital Stock: A Six Country Comparison," Research Memorandum 570 

(GD-9), Institute of Economic Research, Groningen Growth and 

Development Centre, University of Groningen, April, 1994. 

'' For an example of this approach, see A.C. Harber, "On 

Estimating the Rate of Return to Capital in Columbia," Chapter 6 in 

A.C. Harberger, Project Evaluation: Collected Papers. Chicago: 

University of Chicago Press, 1972. 

32 
Under license limitation, the expenditure by one vessel to 

purchase the rrA1l permit of another represents a real cost to the 

firm. From the standpoint of society, however, this expenditure 

simply represents a transfer from one group to another, and thus 

does not affect net national benefits. Hence, the effects of permit 

prices are not considered in an economic cost-benefit analysis. 

Permit prices are, however, included in financial analyses, 

since they represent real costs to the purchasing firms. Different 

offshore catcher-processor firms amortized the permit costs over 

different numbers of years. To give standard results for all firms, 

the total permit costs were amortized over twenty years. 

20. Other Issues 

None of the alternatives allows the various sectors to 

optimize production with respect to quality or economic efficiency 

while alternatives 1 and 2 constrain the ability of catcher-vessels 

to select which markets to sell to. 

GLOSSARY 

Fixed costs are those costs which are invariant with respect to 

output in the short run and are independent of the scale of 

production. l9 Fixed costs include any set-up costs. Fixed costs 

also include costs that are shared among different outputs and 

costs that are product-specific. Over the long run, costs which are 

deemed to be fixed in the short run are variable, except in the 

extreme case in which the rate of depreciation with respect to a 

piece of capital is zero. 

Joint costs are production costs incurred by the firm when two or 

more outputs are jointly produced. Joint costs and joint production 

can arise from either an interdependent production process or the 

presence of allocatable fixed factors.20 Jointness occurs because 

a firm finds it less costly to incur costs relating to two or more 

l9 J. Tirole, The Theory of Industrial Orqanization. 

Cambridge, Mass: MIT Press, 1989, p. 307. 

2o For further discussion, see Baumol, Panzar, and Willig op 

cit.; Sharkey op cit., page 38; G. Biddle and R. Steinberg, 

"Allocations of Joint and Common Costs , Journal of Accountinq 

Research, Vol. 3, 1984, pp. 1-45; J.C. Loughlin, "The Efficiency 

and Equity of Cost Allocation Methods for Multipurpose Water 

Projects,tt Water Resources Research, Vol. 13, No. 1, 1977, pp. 99- 

105; H.P. Young, ed., ltCost Allocation," Chapter 34 in R.J. Aumann 

and S. Hart, Handbook of Game Theory, Vol. 11, Amsterdam: Elsevier, 

1994. 

33 
cost objects than to incur costs individually for each. 

For example, the annual cost of having a vessel or plant ready 

to participate in the whiting fishery and other fisheries is a 

joint cost. Joint costs can occur when the cost of an input is a 

fixed cost and when that input is used to produce multiple outputs 

either concurrently or consecutively. In the case of concurrent 

outputs, a variable cost can be a joint cost. 

Common costs result when multiple products are produced together 

although they could be produced separately.21 Common costs occur 

if the costs for two (or more) outputs contain a fixed element 

common to both. Common costs apply to a setting in which production 

costs are defined on a single intermediate product or service which 

is used by two or more users. Common production is undertaken due 

to cost savings related to economies of scale. Joint and common 

costs are often used interchangeably, but joint products and costs 

may be distinguished on technological grounds and common costs may 

be distinguished on organizational and institutional grounds. 

Common costs in the whiting and pollock fisheries could refer to 

marketing or other home office services shared by both fisheries. 

These costs are common to both fisheries but are not 

technologically part of the harvest process. 

Opportunity cost is defined as the foregone value of resources used 

in their best alternative use; a currently available alternative 

that is sacrificed.22 For example, if the most a fisher could earn 

from another endeavor is $20 per hour, the opportunity cost of his 

or her labor services as a fisher is $20 per hour. 

Externalities occur when the actions of one person or firm directly 

affect the welfare of another person or firm.23 An external cost 

occurs when the action diminishes the welfare of the affected 

person or firm and an external benefit occurs when the action 

enhances the welfare of the affected person or firm. In both cases, 

there is no compensation. The externality drives a wedge between 

private and social costs or benefits. 

Physical capital is the plant and equipment that are used to 

produce goods and services. In a commercial fishery, they include 

vessels, plants, and the equipment of both. The services of 

physical capital, which are provided over time, are important 

inputs in harvesting and processing fish. In this report, capital 

21 See Biddle and Steinber op cit., pp. 4-5. 

22 R.L. Miller, Intermediate Micro-Economics: Theory. Issues, 

23 A. Mas-Colell, M.S. Whinston, and J.R. Green, Microeconomic 

and Applications. New York: McGraw-Hill, 1978, p. 216. 

Theory. New York: Oxford University Press, 1995, p. 350. 

34 
refers to physical capital. 

Malleable capital is that capital for which there is an opportunity 

to sell or use for another purpose the capital over the time period 

of consideration. Non-malleable capital refers to the existence of 

constraints upon the disinvestment of capital assets utilized in 

production or exploiting a natural resource stock. Perfectly nonmalleable capital has no alternative uses (the resale price is 

zero) and a depreciation rate identically equal to zero. Quasimalleable capital also has no alternative uses (and a resale price 

of zero) but a positive depreciation rate.24 In sum, the 

opportunity cost of perfectly non-malleable or quasi-malleable 

capital is zero and hence it is a sunk cost. 

Stand-alone cost is the cost of producing a particular good or set 

of goods and services with production of the other goods and 

services at a zero level.25 

24 See Clark, Clarke, and Munro op cit., p. 25. These authors 

" Formally, C(S,O) and C(0,Sl) are stand-alone costs for 

outputs S and SI in the cost function C(S,S1), where S and St 

use the concept of quasi-malleable capital. 

represent two distinct sets 

producing the collection of 

Sharkey op cit., p. 41 and 

71. 

of outputs and C( ) denotes the cost of 

goods. Tirole op cit., p. 20. See also 

Baumol, Panzar, and Willig op cit., p. 

35 
PART I11 

Comparison of 1992-1993 and 1995 

The Pacific whiting catching and processing industry has 

matured and become more efficient since the cost-benefit analysis 

in 1993. When the 1993 analysis was conducted using 1992-1993 data, 

the production of surimi from Pacific whiting had only recently 

started, in both the onshore and offshore sectors. The traditional 

headed-and-gutted and fillet processors onshore had operated for a 

considerable time period. 

It is expected that both the onshore and offshore sectors will 

become more efficient as they gain experience catching and 

processing whiting. This gain in efficiency should be reflected in 

higher product recovery rates and lower variable costs per round 

pound. Other factors besides increased experience could also affect 

earnings, product recovery rates, and variable costs, such as 

changes in the biomass size, harvesting season, the size and 

quality of individual fish harvested, and international surimi 

markets. In turn, these factors can fluctuate readily from year-toyear given the extreme variability possible in whiting recruitment, 

in surimi prices (due to shifts in markets, inventory build-up and 

depletion, and alternative sources of supply), and the yen-dollar 

exchange rate (affecting surimi prices). Any changes in fleet and 

processor composition could also alter costs and product recovery 

rates. 

Changes in efficiency of onshore and offshore harvesters of 

Pacific whiting and surimi processors can be examined by comparing 

the 1995 benefit-cost analysis results (Table 5) with the 1992-1993 

benefit-cost analysis results (Table 6). 26 

Offshore Catcher-Processors 

Compared to 1992-1993 (all values in $1995): 

1. The average surimi price increased from $0.82 to $1.16; 

2. The average meal and oil price decreased slightly from $0.25 to 

$0.23; 

3. The product recovery rate (PRR) for surimi increased from 0.1449 

to 0.1703; 

4. The PRR for meal decreased very slightly from 0.0473 to 0.0433: 

26 The 1992-1993 results have been converted from 1993 dollars 

to 1995 dollars by the GNP implicit price deflator. 

36 
5. 

6. 

7. 

Variable costs (excluding amortized payments for licenses 

and any payments for taxes and any external costs for bycatch) 

decreased from $0.1050 per round pound to $0.0850 per round 

pound of retained whiting; 

Variable economic costs, like number 5 in excluding payments for 

licenses and taxes but including external costs of bycatch, 

decreased from $0.1052 per round pound to $0.0873 per round 

pound of retained whiting; 

The net economic benefits (total revenue for Pacific whiting 

from all products less variable economic costs given in 6. 

immediately above) increased considerably from $0.0192 per round 

pound of retained whiting to $0.1126 per round pound of retained 

whiting. This was due primarily to increases in the surimi price 

and to a lesser extent declines in costs and higher PRRs. 

In sum, the 1995 offshore catcher-processor fleet demonstrated 

considerable improvements in economic efficiency and increased net 

benefits from 1992-1993. These improvements were fueled by lower 

variable costs (excluding taxes and licenses), higher PRRs for 

surimi, and a substantially higher surimi price in 1995. 

Offshore Mother Ships and Catcher Delivery Vessels 

Compared to 1992-1993 (all values in $1995): 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

The average surimi price increased from $0.79 to $1.167; 

The average meal and oil price increased from $0.24 to $0.31; 

The product recovery rate (PRR) for surimi increased from 0.1492 

to 0.1789; 

The PRR for meal decreased slightly from 0.0434 to 0.0398; 

Variable costs (excluding amortized payments for licenses 

and any payments for taxes and any external costs for bycatch) 

and including a presumed harvest cost of $0.0226 per round 

pound increased from $0.1097 per round pound to $0.1350 

(= $0.1124 + S0.0226)per round pound; 

Variable economic costs, excluding payments for licenses and 

taxes, including a presumed harvest cost of $0.0226 per round 

pound of retained whiting and now including external costs for 

bycatch, increased from $0.1099 per round pound to $0.1382 per 

round pound of retained whiting; 

Net economic benefits (total revenue from all Pacific whiting 

from all products less variable economic costs given in 6. 

immediately above) increased considerably from $0.0184 per round 

37 
pound of retained whiting to $0.0837 per round pound of retained 

whiting. 

In sum, the 1995 offshore fleet of motherships and their 

catcher vessels demonstrated considerable improvements in net 

benefits. These improvements were fueled by higher PRRS for surimi 

and fish meal and substantially higher prices for surimi and fish 

meal in 1995. Variable costs (excluding taxes and licenses) were 

higher in 1995 than in 1992-1993. However, two factors make 

comparisons between 1992-1993 and 1995 somewhat problematic for 

this sector. The first factor is the absence of catcher vessel cost 

data for this sector. The second factor is a substantially 

different group of vessels in the sample. In the 1992-1993 sample, 

fewer llpuretl mother ships were sampled and the sample also included 

catcher-processors that were acting solely as offshore processors. 

Onshore Surimi Processors and Catcher Delivery Vessels 

Compared to 1992-1993 (all values in $1995): 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

The average surimi price increased from $0.68 to $1.056; 

The average meal and oil price decreased from $0.27 to $0.22; 

The product recovery rate (PRR) for surimi increased from 0.1392 

to 0.1529; 

The PRR for meal could not be compared since there was only one 

observation onshore; 

Variable costs (excluding amortized payments for licenses 

and any payments for taxes and any external costs for bycatch) 

and including catching costs increased from $0.1065 per round 

pound to $0.1271 ( = $0.0905 + $0.0142) per round pound of 

retained whiting; 

Variable economic costs, excluding payments for licenses and 

taxes but now including external costs for bycatch, increased 

from $0.1065 per round pound to $0.1272 per round pound of 

retained whiting; 

Net economic benefits (total revenue for Pacific whiting from 

all products less variable economic costs given in 6. imediately 

above) increased considerably from $0.0069 per round pound of 

retained whiting to $0.0555 per round pound of retained whiting. 

In sum, the 1995 onshore surimi and secondary processors of 

Pacific whiting and their catcher vessels demonstrated considerable 

improvements in economic net benefits. These improvements were 

fueled by higher PRRS for surimi (but slightly lower PRR for meal) 

and a substantially higher surimi price in 1995. It is quite 

possible that lower variable economic costs (and higher net 

38 
economic benefits) would be observed if the analysis did not have 

to use the 1992-1993 cost observation for one firm (adjusted for 

inflation and changes in product recovery rates to 1995 levels), 

since substantially lower variable economic costs were observed for 

the other two firms compared to 1992-1993. 

39 
Table 6 

Net Economic Benefits ($) per 

Round Pound of Pacific Whiting ($/lb) 

1992-1993 

Off shore Onshore 

-------------- ......................... c/ p Mothers Surimi H&G,Fillet ..................................................................... 

Total Revenue per lb 

Surimi 0.8219 0.7869 0.6839 

Surimi rnd wt 0.1165 0.1177 0.0833 

Head-and-gutted 0.3470 

Head-and-gutted rnd wt 0.1333 

Fillets * * 

Fillets rnd wt * * 

Meal & oil 0.2470 0.2395 0.2689 0.2689 

Meal, oil, compost rnd 0.0080 0.0107 0.0211 0.0550 

Catchers in rnd wt 0.0488 0.0337 0.0423 

PRR Surimi 0.1449 0.1492 0.1392 

PRR Head-and-gutted 0.5896 

PRR Fillets * * 

PRR Meal 0.0473 0.0434 0.1560 0.1560 

Variable Economic 

Costs per lb rnd wt 

No external costs 0.1050 0.1097 0.1065 0.1573 

All Costs 0.1052 0.1099 0.1065 0.1573 

Bycatch external benefit 0.0027 0.0027 

0.0192 0.0184 0.0069 0.0858 

Bycatch external costs 0.0002 0.0002 

Net Economic Benefits 

per lb rnd wt 

per mt rnd wt 42.3874 40.4756 17.2815 223.8807 ................................................................... 

NOTE: * Confidentiality precludes reporting. Information is the average of 

1992 and 1993 data adjusted to 1995 prices by the GNP implicit price 

deflator. Weighted averages (weighted by share of landed catch). 

40 
Table 7 

Standard Deviations of Net Economic Benefits ($) per 

Round Pound of Pacific Whiting ($/lb) 

1995, Observed Surimi Price 

Total Revenue per lb 

Surimi finished product 0.3013 0.5852 

Head-and-gutted finished 

Head-and-gutted rnd wt 

Secondary products rwt 0.0017 0.0086 

Yt & rock external 

benefit 

Surimi rnd wt 0.0514 0.1050 

Meal finished product 0.0637 0.1804 

PRR Surimi 0.1703 0.0897 

PRR Meal 0.0433 0.0248 

PRR Head-and-gutted 

Variable Economic Costs per lb rnd wt 

Processing costs 0.0243 0.0563 

Secondary processing 

Yt & rock external cost 

Chinook salmon bycatch 

All costs except harvest 0.0250 0.0582 

Harvest costs 

All economic costs 0.0250 0.0787 

per lb rnd wt 0.0322 0.0450 

per mt rnd wt 70.9682 99.2354 

Net Economic Benefits 

0.5850 

0.0976 

0.1352 

0.0665 

0.0101 

0.0103 

0.0894 

0.2418 

0.0626 

0.0081 

0.0690 

0.0806 0.0628 

0.0391 0.0375 

86.2781 82.7220 

...................................................................... 

NOTE: Headed-and-gutted information is the average of 1992 and 1993 

data adjusted for inflation. 

Net economic benefits exclude fixed costs (both financial and 

economic due to insufficient data). 

Insufficient data required use of same catcher costs for vessels 

delivering both on- and offshore. 

Insufficient data required use of 1993 variable cost data for 

one onshore surimi plant, adjusted for inflation and changes in 

PRR . Weighted standard deviations (weighted by share of landed catch). 

41