FRE 525
Nicole Hannay
Anuar Tuleshov
                                              Tradable Fishing Allowances
                            Individual Transferable Quotas (ITQ) Policy – New Zealand (1986)

In the last two decades tradable allowance systems recommended themselves as a good approach to address many environmental and natural resource management issues such as water usage, pollution, and overfishing. Individual transferable quotas (ITQ) were introduced to the New Zealand fishing industry in 1986; the quota management system (QMS) changes were necessary to compensate for previous policy failures that had been occurring. In 1983, the government attempted to stop the overfishing of inshore fisheries; this overfishing was thought to be the result of a 1970s initiative to increase fishing and expand exports. The 1983 strategy decided to exclude permits to fishers: Earning less than 80 percent of their net income or $10,000 per year from fishing. This policy did nothing but widen the gap between the problem and the solution.

The creation of the ITQ scheme in New Zealand was centered on the assumption that the fisheries are part of a common property resource, the ocean, and that eventually it fell under government jurisdiction. The Maori population challenged this ITQ policy on the basis that common property was not entirely under government control; they were successful in this challenge. The labor party defeated the national party in the 1984 general election; results of the election saw the widened of the mandate of the tribunal to include objections dating back to the Treaty of Waitangi thereby allowing the tribunal to address the fisheries ownership problem.

The ITQ quotas are considered permanent but are subject to specific rules and regulations set out in the policy, such examples include restrictions on species type and fishable area. The quotas aggregate to a total allowable catch (TAC) this total acts as a safeguard to ensure that only a sustainable number of fish are harvested. The TAC can be increased or decreased depending on the health of the fish stock and the desired sustainable demands of the government.
The benefit of this is mechanism is tradable individual property rights create the elasticity to lower production without large scale losses in profits.

Basic application of tradable allowances is when an authorized organization issues limited permits and sets allowable level of particular activities (in our case fishing) and allocate between users of that allowances, moreover, holders of the permit can sell or transfer their permits among users. Many studies have been conducted by researchers who develop the design of that kind of institutions. For example, research on the design of institutions for trading water and pollution rights has greatly improved the performance of these institutions.

Initially a fishing permit is issued by the ministry of fisheries, from 1986 onwards ITQs became a permanent right to a part of the fish harvested measured in metric tonnes this is further divided into specific zones or locations (QMA – quota management area) – Each individual QMA included a further identified fishery management area (FMA). The FMAs are used to help measure and analyze the effects of the specific changes in species number of the entire ecosystem and then to take that data and analyze the distribution of time. Within those zones the ITQ will be designated for a specific species or group of species to be taken annually. These rights were distributed at no cost to current fishers in the industry. There was unrestricted transferability of the quotas the condition being all transactions were reported back to the ministry, this would include prices paid, dates, quota amounts etc. These quotas themselves had limits imposed by the government aggregation limits of 20% for inshore or 35% for deep-water stocks. Additional restrictions on receiving a permit included mandatory new Zealand residency this was significant in private internationally owned companies, this mandated the company must be 75% new Zealand owned.

“Under the QMS legislation, a fishing permit was to be granted to anyone who fulfilled the minimum quota holdings requirement of five tonnes for finfish. The enterprise allocation system that had been in use for deepwater species since 1983 was unified with the new QMS, with enterprise quota being converted directly into ITQ. ” (www.fao.org)
This policy is very similar to the Cap-and-Trade mechanism. Like other cap-and-trade systems, in each of these tradable allowance systems, fishery managers determine a total amount of effort (traps or days-at-sea) or landings (quota) allowed, allocate it among fishery participants, and permit them to trade their allocations. According to the most recent review of experiences with tradable fishing allowance programs, ITQ At least seven major fishing countries use ITQs as a principal component of their fisheries management systems. Arnason (2002) estimates that “over 10% of the global ocean fish harvest is currently taken under ITQs.” Moreover, many other important fishing countries, such as Argentina, Peru, and Morocco are about to introduce ITQs in their fisheries. This policy allows for market forces to determine the distribution of quotas. In theory this can lead to economic efficiency by maximizing social benefits. ITQs are beneficial in enabling individuals to leave the industry without making a loss.

There are other appealing attributes of ITQs as well. Quota markets relieve managers of most allocation decisions and allow them to devote their time and resources to conservation decisions. ITQs provide fishers with the flexibility to scale their operations to a level that best suits them. Another appealing feature is that quota markets value the right to fish, which provides fishers with greater security for retirement than currently exists. The approach creates an incentive to leave the fishery and to sell quota to new entrants. Fishers also appreciate the opportunity to value explicitly their fishing skills, and the liberation from command-and-control regulation, which can be unpredictable. Some environmental groups support ITQs because of the environmental and ecosystem benefits that result from the

However, many advantages of ITQs could not overwhelm the numerous concerns about the overall merits of these tradable allowance programs. One principal concern is concentration of ownership; that a few large operators will control the quota (or other allowance) and small operators will be pushed out of the fishery. Another concern is that ITQs will harm the coastal communities that depend on numerous small-scale fishing operations. Some fishers and managers find such programs threatening and risky because of previous experiences with high levels of price volatility. They are anxious about how they and their fisheries will be affected by unfamiliar market institutions. They tend to prefer to rely on the management methods with which they are familiar, such as size and gear restrictions. In addition, some simply believe it is wrong to allow a market to determine who can fish and the quantity of fish any one individual can catch; wrong to ‘privatize’ our public resources; and wrong to allow some fishers to reap windfall profits from initial quota allocations (Macinko and Bromley 2002).

CONCLUSION
All in all, taking into account all above mentioned aspects, tradable Fishing Allowances can somehow solve basic environmental problems, however, from economics prospective, especially if we talk about distribution and allocation, fishing allowances have their own disadvantages. Our conclusion is that this policy is good approach but has its flaws. We would suggest to make some deep analysis on this topic because New Zealand has two sides of those who will be effected by the policy, those who will be hurt and those who will benefit from it.

http://www.motu.org.nz/files/docs/MEL0278.pdf
http://www.fao.org/DOCREP/005/Y2684E/y2684e21.htm
http://ssrn.com/abstract=978115 – New Zealand’s Quota Management System: A History of the First 20 Years
http://envstudies.brown.edu/theses/02Demarest.pdf
http://www.apec.org/Meeting-Papers/Ministerial-Statements/Environment/~/media/Files/MinisterialStatements/Environment/94_envmm_Summary.ashx
http://www.nber.org/papers/w8796.pdf

According to my strategy and the theory of commodity market the price for wheat had to go down, however, it did not happened. Since my logic says me if there is enough (more than estimated) stock in the world market it should drive the price down. I took short position for wheat but I lost money. Almost all information that expert groups provided in the report implies that the price should go down. I guess only one possible explanation for this that all speculators and traders are buying stocks thus bid up the prices. I really do not understand why the changes in price in the real world do not obey to the rules that in the theory should work. So, my conclusion that more you try to predict the closest price for commodity drives you to give wrong estimation and makes you more confused.

Russia will end up this year with export rate more than 20million tonnes of sold abroad agricultural commodities (crop)- said the Ministry of Agriculture of the Russian Federation. Also, Russia wants to sell its wheat to China and Europe.

Iraq bought 300 000 tonnes of wheat from the USA and Australia. The provider of wheat from the USA will be Glencore International AG and from Australia Viterra Inc. Australian Co-operative Bulk Handling Ltd which has been Monopolist in transporting and storing commodities, was deprived its monopoly rights. This company had control on transportation and storing of the agricultural commodities in Australia. France is shipping crop to Algeria from the Roan Port and its shipment rose by 2 times.

Australia got more wheat than estimated by domestic and the USA forecasters. 25.6m tonnes were harvested this year. Moreover, Australian wheat is less expensive than wheat from Black Sea Region and way cheaper than the USA wheat. NowadaysAustralia got more wheat than estimated by domestic and the USA forecasters. 25.6m tonnes were harvested this year. Moreover, Australian wheat is less expensive than wheat from Black Sea Region and way cheaper than the USA wheat. Nowadays, Viterra the largest company that exports wheat from Australia, has started to export wheat from South Australia and the first order to export is 3 million tonnes of wheat.

U.S. wheat supplies for 2011/12 are lowered 30 million bushels this month as higher forecast winter wheat production is more than offset by lower area and production for durum and other spring wheat. Total use for 2011/12 is lowered 30 million bushels, with a reduced outlook for exports more than offsetting an increase in expected feed and residual use. Exports are projected down 50 million bushels with increased competition, particularly from FSU-12 countries(Black Sea Region), where production prospects are raised. Projected feed and residual use is raised 20 million bushels, reflecting a continuation of competitive prices for feed-quality wheat and lower projected corn supplies. Ending stocks are nearly unchanged. The 2011/12 season-average farm price range is projected at $7.00 to $8.20 per bushel, up from last month’s range of $6.60 to $8.00 per bushel supported by higher projected prices for corn. Increased wheat production in FSU-12, India, China, and the EU-27 supports this month’s larger projected world production, trade, and ending stocks. U.S. export prospects are reduced by the strong competition and lower supplies. The US supply reduced by 30 million bushels this month. Exports are projected down 50 m bushels due to high competition from Black Sea Region, Australia and Europe. So, it means that wheat is available at high rate at current market. “Ukraine’s overall grain export potential is at a high level, 22-23 million tons, including wheat, barley, and maize”- said Director of the UkrAgroConsult Analytical Center Serhiy Feofilov predicted at a conference entitled “Black Sea Grain 2011”. All above mentioned should drive the world price for wheat) a bit down. , Viterra the largest company that exports wheat from Australia, has started to export wheat from South Australia and the first order to export is 3 million tonnes of wheat. U.S. wheat supplies for 2011/12 are lowered 30 million bushels this month as higher forecast winter wheat production is more than offset by lower area and production for durum and other spring wheat. Total use for 2011/12 is lowered 30 million bushels, with a reduced outlook for exports more than offsetting an increase in expected feed and residual use. Exports are projected down 50 million bushels with increased competition, particularly from FSU-12 countries(Black Sea Region), where production prospects are raised. Projected feed and residual use is raised 20 million bushels, reflecting a continuation of competitive prices for feed-quality wheat and lower projected corn supplies. Ending stocks are nearly unchanged. The 2011/12 season-average farm price range is projected at $7.00 to $8.20 per bushel, up from last month’s range of $6.60 to $8.00 per bushel supported by higher projected prices for corn. Increased wheat production in FSU-12, India, China, and the EU-27 supports this month’s larger projected world production, trade, and ending stocks. U.S. export prospects are reduced by the strong competition and lower supplies. The US supply reduced by 30 million bushels this month. Exports are projected down 50 m bushels due to high competition from Black Sea Region, Australia and Europe. So, it means that wheat is available at high rate at current market.

“Ukraine’s overall grain export potential is at a high level, 22-23 million tons, including wheat, barley, and maize”- said Director of the UkrAgroConsult Analytical Center Serhiy Feofilov predicted at a conference entitled “Black Sea Grain 2011”.

All above mentioned should drive the world price for wheat) a bit down.

“The world reserve of agricultural commodities (crops) in period 2011-2012 is enough to meet and satisfy all demands of the world” – said an expert of UN Abdolreza Abbassian. He estimated reserve of this period for crops (506,6 million tonnes)

This year was plentiful for wheat in almost all countries that export this commodity. A sometime needed to export all wheat, so, I expect that the price for wheat will be stable or decrease through this month (but not increase) and in the end of this year the price will start to increase. Since wheat and corn substitute each other the price for both commodities will change in the same manner .

I don`t know whether my strategy is successful or not because I am not trading too often as you guys are doing. However, I do gain profits from time to time. Now my strategy is taking short position for wheat and corn.

Harvesting is completed in Kazakhstan. The amount of wheat is more than expected to be, there are too much wheat that the government initiated a schedule of exporting process for two years because in one year Kazakhstan can`t export that amount of wheat. Ministry of Agriculture estimated to gain $4.5 billion from exporting 22-24 million tonnes of wheat.

Russia gained 90 million tonnes of wheat and it is willing to export 25-30% of 90 million tonnes. Russia also added that if selling will be successful they can increase export till 35%.

Ministry of Agriculture of Ukraine released a report where was written the following, Ukraine is going to increase the export of wheat and corn from 22 million tonnes to 27 million tonnes.

The price for wheat in EU is falling down due to tremendous export of Black Sea Region.

Export of wheat from the USA will be reduced due to cheap but high quality production of wheat in Black Sea Region. So, supply of wheat in the US will rise but demand will stay at the same stage. Because of wide range of wheat is available in world market the price for this commodity will go down causing the price for wheat in the US go down.

Last but not least, Chinese demand is bigger than it is estimated to be and the demand is growing constantly through middle Asia, Egypt and and in the Middle East.

Taking into account all above mentioned the price for wheat should fall down.

Ukraine government stated (07/10/2011) that they will reduce the export of wheat and corn for almost 25-35 percent since the prices for both commodities are dropping down. Because all farmers are losing the profits, moreover, by selling for such low price they can`t cover their expenditures.

Europe Union gave permission to export 213,000 tonnes of wheat last week. In general EU exported 3,1 million tonnes this season, the last year they exported 5,3 million tonnes of wheat.

Kazakhstan didn`t change their plans to export 8-10 million tonnes of wheat. China bought 3million tonnes of wheat from Kazakhstan, moreover, in the Middle Kingdom the demand is growing and China wants to buy more an extra class wheat. Egypt is also interested in cheap wheat from Kazakhstan.

The Supply of wheat from Australia reached its maximum of last seven years. Australia has already exported almost 18 million tonnes of wheat. Demand for Australian wheat is high in Central Asia because cheap wheat substitutes American expansive corn.

Also, I would like to mention that large Russian, Kazakhstan and Europe companies (speculators) are buying wheat in large amount to store (then of course they will sell it for high price)

I think the price for wheat is going to fluctuate a little by decreasing in price soon but in the next coming month the price will increase.  

hope it will help you guys to earn some money!!!

Yesterday, I read some prity interesting article from Journal which is called “KUrsive”(all in russian language) there are a lot of articles and information about wheat trade,production and market situation in Black Sea Regions and part of Europe. Unfortunatelly, this article on Russian Language, so, I can`t just paste the link because you won`t understand. I will post the article as soon as it will be translated. Right now the demand is growing for wheat through Europe, Africa and China. I will post  the article tomorrow, hope it will help you to gain some profits in the trading game.

Frankly speaking, I was confused about trading game especially with bidding price and how to calculate all these stuff. Now I guess I am getting in this process and it seems to be not so hard to understand. Moreover, maybe you don`t know but I am from Islamic country and things like trading games and bidding, gambling are strongly prohibited. However, I will bid even against my will because it is directly connected with my future grade (but I will bid once per week, in the day that mandatory). On my first week I did a big mistake, I wrote about my strategy and I thought that it was published but it did not. However, I fixed that problem today and the problem was my computer, virus.
My strategy
I think my strategy is partly similar to all students` strategies. The point of my strategy is the following, collect the data and information from expert groups, scan some websites and listen my intuition voice. One more important point is bid price at the end of a day, right before midnight. And always probe the demand curve for certain commodities. As long as did not make money I am not going to post a profit.

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