An index number decomposition of profit change in two Australian fishing sectors

Changes in net economic returns in a fishery over time can provide some indication of which direction a fishery’s economic performance is moving. However, without information on the causes of those movements, it is difficult to say if a fishery is moving closer to or further away from a point associated with maximum economic yield. A further complication is that different drivers of profitability can cause profit to move in different directions and at variable magnitudes over time. The key variables that influence a fishery’s profitability include: prices received for catch; prices paid for inputs (such as crew and fuel); vessel productivity (that is, the ability of each vessel to convert its inputs into outputs or harvested catch); and the fishery’s stock biomass, with a higher stock biomass allowing catches to be made at lower cost and greater profit. This paper presents an index number profit decomposition analysis of two sectors of the Australian Southern and Eastern Scalefish and Shark Fishery. The analysis presented decomposes and quantifies the relative contribution of each of the above-mentioned drivers to changes in vessel-level profitability over time. More specifically, the results are interpreted to reveal how historical changes in profit have come about as a result of both changes in variables that fishery managers do have some indirect influence over (fish stocks and productivity) and changes in variables that fishery managers do not have control over (output and input prices). It is shown that, for the two sectors assessed, two key factors that have influenced recent profitability changes are: a recently implemented government restructuring package; and previous adjustments to total allowable catch settings for key species.