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Northern Prawn Fishery Voluntary Adjustment Scheme Loan Guarantee Amendment Bill 1990



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House: House of Representatives

Portfolio: Primary Industries and Energy

Purpose

To allow the Treasurer to guarantee a loan of $40.9 million to fund the Voluntary Adjustment Scheme which finances the purchase of fishing permits in the Northern Prawn Fishery to reduce the capacity of the industry.

Background

The value of Australian seafood production is forecast to total $687 million in 1989-90, 3% higher than in 1988-89 1, however, for 1990-91 the quantity of Australian fish produced is forecast to decline by approximately 3% to 122 kilo tonnes (kt) 2. A high proportion of seafood production is exported and seafood exports are forecast to rise in value by approximately 8% in 1990-91 3, following a 3% rise to $581 million in 1989-90. As regards the Australian prawn industry, Australia wide production is estimated to have fallen by approximately 10% to 17kt in 1989-90, with banana prawn catches down 75%. Australia wide production of prawns is forecast to reach 20kt in 1990-91. The value of Australia wide prawn production in 1990-91 is forecast to total approximately $170 million 4.

The Northern Prawn Fishery (the Fishery) extends across northern Australia, from Cape Londonderry in Western Australia, east to Cape York in Queensland, and covers an area of approximately 1 million square kilometres. In the past five years annual output from the Fishery varied between 7.9kt and 11.7kt per annum 5, and in 1988, the Fishery generated revenue of $135 million from a catch of 7.9kt 6. To operate in the Fishery each boat requires an entitlement to fish, and in June 1987, 246 vessels had entitlements to operate in the Fishery 7.

There are five main species of prawns harvested by the Fishery: banana, brown tiger, grooved tiger, endeavour and king. Tiger prawns make up the bulk of the annual catch, followed by banana prawn. The other species together constitute approximately 20% of the annual catch. Over 90% of the catch is exported, mainly to Japan. Demand for Australian tiger prawns fell last season as Thai and Indonesian aqua-culture farmed tiger prawns flooded the Japanese market. Australian exporters of banana prawns have also had difficulty competing with aqua-culture prawns. In 1989, export prices for banana prawns were 40% lower than in 1988. Landed export prices for banana prawns sold on the Japanese market are forecast to average $5kg in 1990 (note: by way of contrast, in 1985-86 the export price for banana prawns averaged $9.51/kg) 8.

Overfishing has been recognised for some years as the most significant long term problem facing the Fishery. Various management schemes have operated in relation to the Fishery since 1971. The current management arrangements provide:

*for seasonal closures (note: waters in the fishery cannot be fished during the months of December- March and late June to the end of July in order to allow banana prawn stocks to grow to optimum marketable size and protect tiger prawn stocks prior to spawning);

*that daylight trawling is banned during August, September and October (this is done with the aim of reducing fishing pressure on female tiger prawns which are believed to be more active than males during daylight; and

*that newcomers to the industry are required to purchase a permit for each vessel employed.

To reduce fishing capacity, an industry funded Voluntary Adjustment Scheme (VAS) (originally established with a $3 million government grant) has operated since 1985. Basically, the VAS aims to buy fishing permits from operators, which once purchased, cease to exist. An additional regulation ensures that boat replacement can only be undertaken after either purchasing another operator's permit or losing the entitlement to fish for a second vessel under the same ownership. Further, each operator is restricted to a size of boat determined by the number of permits held. Restrictions also currently exist on the number of nets that can be used. The cost of implementing and enforcing industry regulations, apart from the VAS, is shared between the industry and government. In 1986-87, the industry share was 44% of a total cost of approximately $0.5 million. Each individual operator's share of the cost is determined by the number of permits they hold. Industry contributions to the VAS currently total approximately $4 million per annum.

In January 1988, the Australian Bureau of Agricultural and Resource Economics (ABARE) issued an Occasional Paper titled A Policy Model of the Northern Prawn Fishery. In that paper, the objectives of the Fishery management measures are described as being to overcome the economic and biological problems that would be created by the indiscriminate harvesting of prawns. The conclusions of the paper included that:

*management of the Fishery has become increasingly complex as the level of regulation has increased in response to increasing fishing effort;

*the current fleet size is much larger than that needed to take the catch with maximum economic efficiency;

*most current policies are unlikely to provide long term net benefits to the industry;

*the VAS currently fails to provide benefits because a reduction in permits does not prevent the fishing effort/catch increasing from other sources; and

*current policies have not been applied tightly enough 9.

The paper canvassed a number of management alternatives, including:

*the use of individual transferable quotas; and

*the imposition of a levy on the aggregate expenditure of operators in fishing for prawns 10.

In December 1989, the Government released a policy statement titled New Directions for Commonwealth Fisheries Management in the 1990's. In relation to the Fishery, the Statement's conclusions included that:

*the industry has excessive levels of fishing capacity;

*the industry has unnecessary levels of fishing effort;

*excessive levels of fishing capacity and unnecessary levels of fishing effort has depleted stocks and wasted potential resource rents (i.e. the cost of labour, capital including depreciation, materials and an allowance for profit subtracted from the returns from selling the output of the resource); and

*the pace of industry adjustment achieved by the VAS is unacceptably slow and the final outcome uncertain (note: the conclusions on the Statement also apply to the Southern Bluefin Tuna Fishery, the South East Trawl Fishery, the Orange Roughy Fishery and the Southern Shark Fishery) 11.

In the Statement, the Government indicated that it believes that fisheries management must now place greater emphasis on preventing wastage of economic resources and ensuring that exploitation does not endanger the future viability of fisheries resources. The Government stated that it sees the existing levels of excess fishing capacity as the major obstacle to achieving management objectives in most fisheries. In relation to the VAS, the Government has indicated that it sees the VAS as having a role in actively assisting the fishery industry to reduce over-capacity and that the form of this assistance will vary with the fishery concerned and may take the form of Government funding or guarantees for a buy-back arrangement, involve assistance towards establishment costs of a quota system, or take the form of direct assistance for those choosing to leave a fishery 12.

In the Second Reading Speech to the Bill, the Minister states that the assistance package which the Government has proposed to provide for the Northern Prawn Fishery industry is one that will build on the existing VAS. The principal features of the proposed assistance package outlined by the Minister include that:

*there is to be a fixed target size for the fishery of 50 000 fishing units to be achieved by the start of the 1993 fishing season;

*if the target is not met a pro-rata compulsory surrender with special provision for single boat operators will be implemented to bring the number of units down to 50 000;

*the extended VAS will only operate for a three month period at the beginning of 1991;

*there will be a fixed price for fishing units and compensation payment which will be paid when producers take their boats out of the fishery;

*to fund the VAS, the Government will provide a guarantee for a commercial loan of up to $40.9 million, to be repaid over ten years by the industry; and

*the Government will provide a grant of $5 million over three years from the National Fisheries Adjustment Program to assist the industry to repay the $40.9 million loan in the initial years while the increased profits in the fishery are building up.

Main Provisions

Clause 3 will allow the Treasurer, at the request of the Queensland Fish Management Authority, to guarantee the repayment of, and the payment of interest on, loans made to the Authority for the purpose of funding the Voluntary Adjustment Scheme, up to $40.9 million.

References

1. Australian Bureau of Agricultural and Resource Economics, Agriculture and Resources Quarterly, Vol. 2, No. 1, March 1990, p. 31.

2. Australian Bureau of Agricultural and Resource Economics, Agriculture and Resources Quarterly, Vol. 2, No. 2, June 1990, p. 131.

3. Australian Bureau of Agricultural and Resource Economics, Agriculture and Resources Quarterly, Vol. 2, No. 1, March 1990, p. 31.

4. Australian Bureau of Agricultural and Resource Economics, Agriculture and Resources Quarterly,

Vol. 2, No. 2, June 1990, p. 131.

5. Australian Bureau of Agricultural and Resource Economics, A Policy Model of the Northern Prawn Fishery, Occasional Paper No. 103, January 1988, p. 5.

6. Government Policy Statement, New Directions for Commonwealth Fisheries Management in the 1990's, December 1989, p. 44.

7. Australian Bureau of Agricultural and Resource Economics, A Policy Model of the Northern Prawn Fishery, Occasional Paper No. 103, January 1988, pp. 6 and 7.

8. Ibid., p. 5.

9. Ibid., pp. 2 and 3.

10. Ibid., p. 3.

11. Government Policy Statement, New Directions for Commonwealth Fisheries Management in the 1990's, December 1989, pp. 51 and 52.

12. Ibid.

Bills Digest Service 13 November 1990

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

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Published by the Department of the Parliamentary Library, 1990.