The Portfolio Analysis for Multi-species Fisheries Management in New Zealand: An Application in a Fishing Firm
In recent years, maintaining the stock level of marine species and the sustainability of fisheries development have become critical issues in current scientific research due to over-harvest. The traditional method used to manage fisheries is the single species approach where policy is aimed at maximum sustainable yield. However, with the development of harvesting technology and increased competition to access stocks, the single species approach has been found incapable of dealing with problems of severe depletion of fish stocks. Studies show that when regulations are species specific and species are part of a multi-species fisheries, the catch levels of species are correlated which, in return, results in correlation of net returns across species. The single species approach ignores species correlation and should be modified to a multispecies approach which incorporates species correlation. This research applies portfolio analysis to multi-species fisheries, treats fish stocks as assets, and models the fishing firm faced with multiple targeting options, to determine the optimal targeting strategy. This method is applied to a New Zealand fishing firm operating within the Quota Management System (QMS). Species considered in this research are selected on the basis of two criteria: empirically these species have complete data; and, theoretically these species guarantee the covariance matrix is positive semi-definite so that the portfolio model has solution. The portfolio model is applied under two scenarios: first, the firm’s optimal harvesting levels are strictly within its quota holdings; second, beyond its quota holdings by acquiring additional quota rights and/or paying deemed values on over-harvest. Efficient risk-return frontiers are generated that provide a combination of optimal strategies. Comparisons between the results and actual data are presented that allow us to draw conclusions about the benefit of implementing the portfolio approach into multi-species fisheries and the potential improvements the fishing firm can make to enhance fishing profit. It is found that the fishing firm should diversify its fishing portfolio by using external harvest rights, adjusting the holdings of some species and not harvesting other species.
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