### APRIL1997



### COST-BENEFITANALYSIS OFPACIFIC WHITINGALLOCATION

Prepared

### by

DaleSquires,Steven Freese, James Herkelrath,and SamuelF.Herrick,Jr.

ADMINISTRATIVE REPORTLJ-97-05PART 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 costsproved 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 optionwas 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 "witht1and "withoutv1, since the second option is that expected without an explicit agreement (and the first option expires). The third option was the option preferredby thePacificFishery Management Council (Council). Itestablished athree-way allocation split thatwill be reviewed after fiveyears,although the regulationwould not sunset at that timeunless theCouncil adopted anew regulation.
The preferred option divides the annual harvest guideline,with 42% to vessels delivering shoreside, 24% tovessels 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 ratabasis 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 1and 3 had net benefits thatwere nearly equal and could be considered tied in rank given the uncertainty in thedata

1and 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 inefficientperiods of theyear, and continued and socially excessive investment. Moreover, the net benefits under open access come fromthehigher net benefitspermetric ton ofwhiting 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 quiteprobably understated since one of the three onshore surimiprocessorsdid not report 1995 costdata 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



## . Theoffshore catcher-processorsandmotherships enjoyed somewhathigher 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 $1.20per pound. The rankingsremained unaltered,with Alternatives 1 and Alternative 3 virtually tied.
Thenet economic benefitsper 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 (Table3). Again, thedifferences in net economic benefitsbetween Alternatives 1 and 3 remained negligible. In this particular sensitivity analysis,the amounts of onshore waste notprocessed by secondaryprocessors 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 sameharvest costs per round pound of whiting. The sensitivity analysis evaluated the impact on net economic benefits to thenation of a twenty-fiveper cent lower harvest costper round pound of whiting for catcher vessels delivering to motherships (due especially to lower fuel costs). The results remain unaltered (Table 4).

Tosummarizetheanalysis, including thesensitivity analysis, underall scenarios evaluated Alternative 2 (the open-access agreement) consistently 

# ’ The analystsare in theprocess of contacting stateagencies to document waste disposal for onshore processors.

2ranked 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 theopen-access alternative, Alternative 1 (which formsthebasis 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 filletedwhiting

(4)onshore producers of surimi and filletsand (5)onshore surimi. Offshore catcher-processorsdemonstrated the lowest unit costs. Uncertainties in the data (discussed below) preclude clear distinction of economic efficiencies on the basis of the unit costs.

Net economicbenefits per roundpound of retained Pacific whitingvaried within each sectoraswell asbetween sectors. Standard deviations,reported in Table 7,were calculated asweighted 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, surimiwastes,and catcher vessels delivering onshore 70.45% (4) onshore traditional processors 

### of headed-and-gutted Pacific whiting, their secondaryprocessors,andvesselsdelivering 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 lltraditionalllheaded-andgutted and fillet processors, requiring the use of the 1992 and 1993 data used inprevious cost-benefit analyses (adjustedto 1995prices). Usergroups supplied data on costs, earnings, and production. 1995 surimi prices were from the National Marine Fisheries Service Processed Products Survey. Based on theNational Marine Fisheries Service Processed Products File, 75% of the onshore allocation went to surimiproduction and 25% to headed-and-gutted.

Data fromprevious surveys were not used for either onshore or offshore surimiprocessors,with one exception discussedbelow, sincethesedatawould

Means areweighted by share of landed catch for each firm in each sector.

3reflect 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 ratewas obtained), so that the final surimi production used in its place was from theNational Marine Fisheries Service Processed ProductsSurvey. Because the samecompany was unable toprovide variable costdata for 1995, theprevious 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 rateand for inflation. Adjustments for changes inproduct recovery rate were intended toreflect changes inproductivity and efficiency thathad occurred since 1992-1993. This adjustment, however, cannot account for any changes in variable inputusage due to changes in inputprices orany 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 onshoreand/or offshore requireduse of the only source of current catcher vessel variable costs. These costs were taken from Hans Radtke, llWindows on PacificWhiting: 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 secondarycostsand benefits and economic multipliers were not included since opportunity cost or willingness to pay was used to measure economic values.
Economiccostsandbenefits, orequivalentlynet economic benefits,were discounted using a real (constant-dollar)discount rate of 7%,recommended by the Office ofManagement and Budget, over a time frame of twentyyears 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 accordancewith standard practice, each firm or individual received equalweights. That is,individualgainersand losers in societyreceivedthe same considerations; no group received special treatment.4 Foreign leakage

Twenty years was chosen to correspond to the expected economic life of engines and othermajor 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

4of net benefits should ideally be subtracted from net economic benefits, sincethe focus of theanalysis 

### is on netnational benefits,but difficulties in determining firm ownership prevented this adjustment.
Each sector was evaluated as a vertically integrated group from harvesting throughprocessing throughwaste utilization.Henceex-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 salmonwas evaluatedusingbycatch rates suppliedby Oregon Fish and Wildlife Department (for the shoreside sector) and NMFS (for the at-sea sector). As most of the shoresidebycatch 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 tobeing sold inheaded & 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 Pacificwhiting, these rates were converted to round weights by a common expected weight per fish of 5.18 pounds, taken from the National Marine Fisheries ServiceObserver Program.Thebycatch rates were thenvalued 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 limitationwere 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 theprivate 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 eighteenyears (atotal 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, "Statusof theCoastal Pacific WhitingResource 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 allocationof 25,000mt. Option 1, continuation of the current regulation that expires in

net economic benefits to the nation.

5December,1996,allocated whiting among the three sectorsaccording 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, inwhich the fisherywould 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 analysisdealswith theproblem ofuncertainty associatedwithdata and key parameters used in a cost-benefit analysis. Risk analysis provides a more comprehensiveyet complementary analysis to sensitivity analysis as ameans toevaluateuncertainty. 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 forOption 1,Figure 2 for Option 2, and Figure 3 for Option 3. In each Figure,thevertical axis indicates theprobability of the NPV and thehorizontal axis indicates thevalue of theNPV (in$million). The expected value is that value which 

### is expected on average, and given the assumed normaldistribution, correspondsto thevalue lyingunder thehighest 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. Thewider 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 1and 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 analysiswas also conducted on the net economic benefitsper 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 formotherships and their catchervessels, Figure 6 for onshore surimi processors,their catchervessels,and their secondardywaste

Gprocessors, 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 indicatethatcatcher-processors should never experiencean economic loss but that there is 

### a very small probability that others will experience economic losses.Thegreatest probability that the expectedvalue 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 interestinglygives a slightlybi-modal distribution 

### (twopeaks), indicating that there is a distinct albeit slight difference between the expected net benefits per round pound for the two primary processors.

7Table 1 PresentValue 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 2 680 1 2 395 212 0.73


## _______-________________________________------------------------ NOTE: $1,000,000 C/P = catcher-processor Shoreside = head-and-gutted, fillet, surimi, waste processing and catching Mothers = mothership and catchers

Table 2 PresentValue of Net Economic Benefits Common $1.20/lb Surimi Price

Rank Alternative C/P Mothers Shoreside Total



## ................................................................ 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

8Table 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 2 748 1 2 432 248 0.68



## ................................................................ 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

9Table 5 Net Economic Benefits ($) per Round Pound of Pacific Whiting ($/lb) 1995, Observed Surimi Price

Offshore Onshore

--_-c--------- 

## ......................... Mothers Surimi H&G Combined 

### c/p



## ..................................................................... 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). Insufficientdata requireduse of samecatcher costs for vessels delivering both on- and offshore. Insufficientdata required use of 1993 variable cost data for one onshore surimi plant, adjusted for inflationand changes in PRR

# . Weighted averages (weightedby share of landed catch).

10Figure1.Distribution for NPV:Option I

0.16 ,

0.04 0.02 000 -- - - -

($22) $04 $29 $55 $80 $105 $131
Values in$Millions

- Figure3.Distribution for NPV:Option3(New Agreement)

0.16

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

# 1 Figure2. Distribution for NPV:Option2

$03 $22 $40 $59 $77 $96 $114
Valuesin $MillionsFigure4. Distributionof NetEconomic Benefits: CatcherProcessors

0 

# 02L-A

00 82'868Z7Frn::
0000000000 696969t96969696969b9 DOLLARSPWPW

Figure6. DistributionofNetEconomic Benefits: OnshoreSurimiProcessors

Figure8. DistributionofNetEconomic Benefits: OnshoreCombinationProcessors

DOLLARSPWPWFA) Figure5.Distributionof NetEconomic Benefits: Motherships

DOLLARSPWPOUND

__________ -_______ Figure7. DistributionofNetEconomicBenefits OnshoreHeaded andGutted 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 tomeasure the net national economic benefits .or losses that would follow from alternative proposed allocations for Pacificwhiting.Quantitative estimatesof net benefitsaredeveloped througha standardbenefit-cost analysis which uses the best available data.

2. Producer and Consumer surplus
Benefit-cost analysis inprinciple evaluates thenetbenefits arising fromchanges inboth consumer surplusandproducer 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 thedifference between theprice 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 toproducers 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 surplusare largely ignored.There are several reasons for this approach. Most of thewhiting production by at-sea and shoreside operationswill be forsurimi which is predominately exported. Export salesdo 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.

11Another reason for the focus on producer surplus in this analysis 

### is that processed products made from Pacific whiting, especially filletsand surimi,are sold invery 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 filletswould probably be made up forby 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 consumerswill notbe affectedby allocation of Pacificwhiting. 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 thequantity ofprocessed 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 fromallocatingwhiting is the difference inproduct 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 rateproduced a higher quality and highervalued 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 surplusdifficult. In addition, apath-dependencyproblem 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.

12not only on the terminal prices but also on the paths to terminal price.8
Producer surpluswill be affected by theproposed 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 severalpossible 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 duringwhich harvesting occurs can affect abundance and size of fish, product recovery rates, flesh quality, and catch rates. Theseor other factors might differ between the onshore and offshore sectorsand lead to lowerproduction 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 followingharvest is the single biggest source ofqualitydifferential (fishdelivered to shoreside processorsmay have more time to deteriorate). The more quickly the fish are processed following harvest, thehigher 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 fishmeal, 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 cangenerateadditional producer surplus ifproduct 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'spreferences can be represented by a homothetic ora quasi-linear utility function,areas to the left of theconsumer'sMarshallian demand curves cannotbe 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 itsmeasurement requires estimation of Hicksian demand curves.

133. 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 techniquesused formeasurement. Thesewill 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. Thisapproach 

### is themost 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, consistprimarily of cost and production records for firms currently working in the fishery


# . Theapproachused in this analysis assumes constant returnsto scale, i.e. that unit production costs are constant for any level of production. This assumption is reasonable for allocation options that arenot toodifferent 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 theanalysisby differentials inpricesandproduct recoveryrates.

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-runpolicy effects thatmight follow froma seriesof 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 consensuswas not reached on the best way to incorporate fixed costs and to allocate any joint and common costsamong alternative outputsharvested orprocessed. This analysis adopts one of the principal alternatives. The adopted approach which will be discussed next. Definitions of technical

14terms are presented in an Appendix.
Economic fixed costs would be valued in the cash flow of economiccostsandbenefitsaccording towhether 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 deemedmalleable fortheperiod of analysisand the alternativeuse of this input generates a positive net social benefit. These fixed costs are from assets which provide a flow of services over the timeperiod of analysis,and it 

### is the annual value of this flow of services that isplaced into the cash flow for eachyear. This flow of services is valued by what is called a capital servicesprice, 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 costspertain 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 thisassumption 

### isviolated, 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
Thebenefit-cost analysis for Pacificwhiting is an economic, rather than financial,analysis. Some payments that appear in the costdata used in financialanalysis do not representdirect claims on the country'sresources.These financialpaymentsmerely 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,incontrast,representreal resourcecosts to society and must be accounted for. Taxes are merely transfers from firms to the public sector and hence are excluded from the

15analysis, unless the taxes are payments from foreign firms (which would otherwise be lost as a foreign leakage).

Costs in an economic analysis areusually measured at the time of actual expenditure, since the concern is on real resourceuse 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 (therebyusingtheresourcesentailed). Depreciation allowancesmay not correspond to actual use of resources,and should thereforebe excluded from the benefit-cost analysis for Pacific whiting.
The following table summarizesthe key differences between an economicand financial analysis.The table indicateswhetherornot 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 jointand common costsbetween Pacificwhiting and otherproducts. 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 costsand 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 toanother and are therefore not included in abenefit-cost analysis which uses opportunity cost or willingness to pay.

167. Decision Criterion
Thedecision criterion forpublic policies which donot 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 orbenefits 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) recommendedby theOffice ofManagementand Budget is 7% per year. Following conventional financialpractice and most costbenefit analysis in the United States,we assume that cash 

### flows occur at the end of each timeperiod, so that the firstyear 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 = netpresent 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.

17several of thevariables 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 averagesbased on a few observationsmight 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 benefitsand unit variable economic costs. Thisapproachvariesthe value of key parameters in a systematicway 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 comprehensiveyetcomplementaryanalysistosensitivity analysisas a means to evaluate this uncertainty.
Risk analysis eliminates the need to restrict analysis to a singlebest estimate ofkey 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 analysisgenerally 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 orparameters. sensitivityanalysis alsodoes 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.

18take 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 analysisthusprovides informationabout the variance,or spread, of the statistical distribution of realized net benefits and theprobability of realizingdifferent possiblevalues of these net benefits.
Therisk analysis 

### is carried outby theMonte 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 distributionwas specified forthisanalysis. Theonlyparameter 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 computingrealizednetbenefits. Third,repeat the trial described in the second step many times to produce a large number of realizations of netbenefits. The average of the trialsprovides an estimate of the expected value of net benefits. Two thousand trialswere 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] = 

### 3 = 

### ---- TR = 

## ---- [retcat

## ---- s lb r lb s lb s lb
where TR representstotal revenue, s lb 

### ispound 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.:

19In a linearmodel, 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 surimiwaste sent 

### to fish meal production and canpossibly affect weighbacks (depending upon the source of PRR changes). Changes in surimi processingmachinery might, for example, affectweighbacks. Inturn,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 sizeand availability of fish,the type ofvessel and equipment used, length of time between harvesting and processing, and technical expertise. The PRR is therefore a function of economic and technicaldecisions. Processor decisions are ablend 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 theprocessing 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 (fishmeal, fish oil,pet food,fish food, compost,and fertilizer) that cannotbe directly compared in units ofweight (thiswould entail "comparingapples 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 arevertically integrated catchersand 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

20oil 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 oilwas explicitly evaluated asan external cost since the resource was not fully utilized for social benefits (seebelow).
Offshorecatcher-processorswere assigned roundweightpounds of retained catch. Not all offshore catcher-processors produced fish meal fromdiscardsand waste from surimi production. Discards and nonproduction of fish meal were explicitly evaluated as an external cost (seebelow)


# . 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, interestpayments, and depreciation (seeabove). Fixed costswere included as discussed above. Labor costs for catchers were determined from shares received by laborand skippers. Labor costs for processors were determined from wage payments.
The relevant costs for estimating changes in producer surplus forthe onshore sector are the costs incurredby 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 sincethey represent transfer payments fromprocessors 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 fishpayments were calculated aspart 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.

21costs 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 themediation of amarket. 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 forharvest rights and no one owns the fish stock (it is llcommon pr~perty~~)'~. A proper benefit-cost analysismust account for external costs.

In this study, one external cost was explicitly valued, bycatch of yellowtail rockfish,widow rockfish,and salmon. Bycatch of theprohibited species salmon (predominatelyChinook) 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 onshoreprocessing 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.
Thediscard rates for yellowtail andwidow rockfishand salmon wereobtained,individually, for catcher-processorsandmotherships from NMFS observers for the Vancouver, Columbia, and Eureka areas combined. Thediscard 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 ofwhiting. Thediscard rates for salmon were in number of fish

l3 This includes a fishery under license limitation, since property rights remain incomplete.The followingdiscussion closely follows P. Neher,Natural Resource Economics. Cambridge: Cambridge University Press, 1990.

22per 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 reflectsa lack of full use of apublically owned resource. Offshore catcher-processors or mother ships not making fish meal were charged the opportunity cost or lost revenue from notmaking fishmeal. This lost revenuewas calculated as themean 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 socialopportunity cost of lack of secondary processing of whiting waste for onshore surimi plants was more difficult to gauge.One secondaryprocessing 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 thewaste was utilized, and a social opportunity costwas charged charged at the same value as the secondary product made: thisprobably overstates the social value of lack of full utilization.

A second onshore surimi processor sends a percentage of its waste to a fishmeal plant. Fishmeal 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

23meal 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 roundweight of retained catch from theoffshore catcher-processors and mother ships actually producing fish meal, multiplied by the quantity of retained whiting catch of the onshore surimi processor, multiplied by thepercentage 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, "Windowson PacificWhiting: An Economic Success Story forOregon's Fishing Industry, 1995Update." Reportprepared for Oregon Coastal Zone Management Association, June, 1996.
The secondaryprocessor associated with a third onshoresurimi processing plant did notprovide a completed survey. Thewaste 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 impactsonmarine lifeor 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 sectorsmay 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)catchper 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 fertilizerwas 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

24City, some of these weighbacks and waste are composted at a land fillwithout charge. One ton 

### of fishwaste 

### ismixed with three tons of bark (whichhas 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 surimiplant 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 disposalproblem.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-processorsand 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 guesst1of 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 ofwasteutilization. Thisunusedwaste is calculated as an opportunity cost foregone and valued at fishmealprices for offshore and an average of fishmeal, secondary byproducts suchas fishpellets,and composting prices foronshore.

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 processorsproducing meal; this gave the
25implied 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 thepresent nation-state. Tax payments by foreign ownerswould nonetheless accrue as a benefit to the nation and hence is one transferpayment thatwould be included in thenet benefit stream.

As described in the recent GAO report, llSeafood Processing: Foreign Ownership of Facilities inAlaska,Oregon,andWashington," federaland stateagencies do not collect sufficient informationto 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 (inthe long run if thevessel 

### is profitable and can be sold at some time) and therefore personal income forU.S. citizens. The considerations of these flowswould most likely reduce the impacts of the fishing activities of the factory trawlers (aswell as motherships and shoresideplants 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, themix 

### 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.

26The 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 perpetualuse of equipmentuntil some significant innovation arises, after which the lloldll equipment is sold. Comparatively llsmallll innovations that are more or less 'on-goingand 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 aremoredisembodiedthanembodied inthe 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 innew capitalassets,aremore 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 investmentmay 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 inmarkets,andmarket conditions ingeneral;expectationsabout futurestatesof 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 inplace beginning in 1995 also reflects the best practices and vintages, and hence economic efficiencies, at the time of their occurance. Thisvintage 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 determinantof 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.

27differentials 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), refrigerationand cooling systems,etc. Inmost 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,andproductivity and efficiency ingeneral, 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. Therate of technical advance appears tobe 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 failureto replaceobsolete equipmentcan eventually limit the ability to deliver a competitively priced, quality product. The complementarity of these filleting machines with existing equipment ishigh, in thatadditional new equipmentand/or rearrangements of production lines are not required. This complementarity lowersthe costof replacement and allowsboosts 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 foreach sector,which differs between sectors. The offshore catcher-processors seem to have the fastest rate of

28replacement 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. Intervieweesdid 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, itwas assumed that each company will reinvestat the same rate as other companies in its sector but that the reinvestment rate differs between sectors. Each sector's reinvestmentrate was tobe determined fromthequestionnaire,with each company given the sectoral average. Itwas 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 simpleway existed tomeasure the economic opportunitycost of existing plant and equipment and for any future II1umpyllnew 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 developmentof this industry onshore,butmost 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 (ornearby in Annacortes).
Book or historic value isunrepresentativeof current economic opportunity costs, with the exception of the newly constructed

29Pacific Coast Seafoods plant. This unrepresentative nature was particularly true for the onshore sector,with the above-mentioned heterogeneity and many plants and pieces of equipmentpurchased 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 thesevessels. Companiescould be asked thevalue of all vessels harvesting Pacific whiting in 1995 based on the unencumbered sale of the offshore catcher-processorOcean 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, itwas 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.
Themethod selectedwas toask questions on taxvalue, insured value of replacement costs,and insured actual cashvalue 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,therewas 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 shortcomingsinthesurvey instrumentand complexity inthe 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 DanUsher, ed., TheMeasurement of Capital, Studies in Income and Wealth, Vol. 45,National Bureau of Economic Research. Chicago: University 

### of Chicago Press.

30Second, 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 startwith the fillet equipment and include complementary equipment (e.g. the plate freezer). Along these lines, thedifficulty indistinguishing 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 substitutetheword llreplacingll with "replacingand/or adding" when surveying fillet (andrelated) 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 commonamortization timeperiodwas required to treatall firmsuniformly and consistently.A follow-up questionby 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,IfcapitalGoods Costs1I. Tenth, the question on future new investment or reinvestment shouldhavemade clearthat this includesboth new and used assets, costs of installation and margins and commissions of dealers and

3116 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 importantmeasurement error, orwere simplymissing, giving an inadequate number of observations. Hence, the cost-benefit analysiswas not able to include an accurate and detailed analysis of fixed costs.Thecost-benefit analysis instead analyzed only economicbenefitsandvariable economic costs (aswas 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 livesof 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

(newor reinvestment).
Another refinementto the surveyquestionnairewould be to ask each company to explicitly indicatehow fishwaste isdisposed 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.

### , TheMeasurement of Capital, Studies in IncomeandWealth,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 theRate of Return to Capital in Columbia,"Chapter 6 in A.C. Harberger, Project Evaluation: Collected Papers. Chicago: University of Chicago Press, 1972.

32Under 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 doesnot affect net national benefits. Hence,theeffects ofpermit prices are not considered in an economic cost-benefit analysis. Permit prices are, however, included in financial analyses, since they represent real costs to thepurchasing firms. Different offshore catcher-processor firms amortized the permit costs over different numbers ofyears. Togive standard results for all firms, the total permit costswere amortized over twenty years.

20. Other Issues
None of the alternatives allows the various sectors to optimize productionwith 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 coststhat areproduct-specific. Over the long run,costswhich 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 outputsare jointly produced. Joint costsand jointproduction 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.

33cost objects than to incur costs individually for each.

For example,the annual cost ofhaving avessel orplant 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 isused toproduce 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 toboth. Common costsapply to a setting inwhich production costs aredefined on a single intermediate product or servicewhich 

### 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 costsmay 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 technologicallypart of the harvest process. Opportunity cost 

### isdefined as the foregonevalue of resourcesused in their best alternative use; a currently available alternative that is sacrificed.22For example, 

### if themost 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 actionsof oneperson or firmdirectly 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 thewelfare of the affected person or firm. Inboth 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, IntermediateMicro-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.

34refers to physical capital. Malleable capital is that capital forwhich there is an opportunity to sell oruse for anotherpurpose the capital over the timeperiod 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 (anda 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.

representtwodistinct sets producing the collection of Sharkey op cit., p. 41 and 71. of outputsand C( ) denotes the cost of goods. Tirole op cit.,p. 20. See also Baumol, Panzar, and Willig op cit., p.

35PART 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 1993analysiswas 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 onshorehad operated for a considerable time period.

It isexpected thatboth the onshore and offshore sectorswill 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 experiencecould alsoaffect 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 factorscan fluctuate readily fromyear-toyeargiven theextremevariability possible inwhiting recruitment, in surimi prices (due to shifts inmarkets, 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 surimiprocessors canbe examined by comparing the 1995benefit-cost analysis results (Table5) with the 1992-1993 benefit-cost analysis results (Table 6).26

Offshore Catcher-Processors Compared to 1992-1993 (allvalues in $1995):

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

2. The averagemeal and oil price decreased slightly from $0.25 to $0.23;

3. Theproduct recovery rate (PRR) for surimi increased from 0.1449 to 0.1703;

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

26 The 1992-1993 resultshave been converted from 1993dollars to 1995dollars by the GNP implicit price deflator.

365.

6.

7. Variable costs (excludingamortized payments for licenses and any payments for taxes and any external costs for bycatch) decreased from $0.1050 per round pound to $0.0850per round pound of retained whiting;
Variable economic costs,likenumber 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 (totalrevenue for Pacific whiting from all products less variable economic costs given in 6. immediately above) increasedconsiderablyfrom $0.0192 per round pound of retainedwhiting to $0.1126 per round pound of retained whiting. Thiswas dueprimarily to increases in the surimiprice and to a lesser extent declines in costs and higher PRRs.
In sum,the 1995 offshore catcher-processor fleet demonstrated considerable improvements in economic efficiencyand 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 (allvalues 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;
Theproduct recovery rate (PRR)forsurimi increased from 0.1492 to 0.1789;
The PRR formeal decreased slightly from 0.0434 to 0.0398;
Variable costs (excludingamortized 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 (totalrevenue from all Pacificwhiting from all products less variable economic costs given in 6. immediatelyabove) increasedconsiderablyfrom $0.0184per round
37pound of retained whiting to $0.0837per 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 catchervessel 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 shipswere sampled and the sample also included catcher-processors that were acting solelyasoffshoreprocessors.
Onshore Surimi Processors and Catcher Delivery Vessels Compared to 1992-1993 (allvalues 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;
Theproduct recovery rate (PRR) for surimi increased from 0.1392 to 0.1529;
The PRR formeal 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 allproducts lessvariableeconomic costsgiven 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 vesselsdemonstrated considerable improvements in economic net benefits. These improvements were fueled by higher PRRS for surimi (butslightly lower PRR formeal) and a substantially higher surimi price in 1995. It is quite possible that lower variable economic costs (and higher net

38economic 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 lowervariable economic costs were observed for the other two firms compared to 1992-1993.

39Table 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 0.3470 Head-and-gutted Head-and-gutted rnd wt 0.1333 Fillets 

## * * Fillets rnd wt 

## * *
0.2689 0.2689 Meal & oil 0.2470 0.2395 0.0211 0.0550 Meal, oil, compost rnd 0.0080 0.0107 0.0488 0.0337 0.0423 Catchers in rnd wt 0.1392 PRR Surimi 0.1449 0.1492 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 (weightedby share of landed catch).

40Table 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). Insufficientdata 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 (weightedby share of landed catch).

41