If Lobster Landings Fall,
Profits Could Too

by Laurie Schreiber

PORTLAND—An analysis of lobster vessel-level profitability shows that, while overall state revenues might hold steady if lobster landings begin to fall, profits for individual fishermen could slump.

Speaking at the 11th International Conference on Lobster Biology and Management, hosted in Portland from June 4-9 by the University of Maine and Boston University, Alexa Dayton, a senior program manager for community training and outreach at the Gulf of Maine Research Institute in Portland, described an analysis based on current resource data, revenues, capital investment and operational costs like fuel and bait. Further iterations of the analysis also brought in activation of latent effort.

“The Maine lobster industry was thinking ahead and initiated a survey with us,” she said.

The survey encompasses lobstermen who land more than 1,000 pounds. The resulting analysis modeled three vessel classes, from large to small, and inshore to offshore, each with different operational components, and it also modeled vessel-level profitability compared with state-level economic impacts, she said. GMRI ran a test model based on 2010 data, took it to the industry to review, and recalibrated based on its input.

Then GMRI input data from 2015, which saw lower fuel costs were down, and rising prices for lobster due to increasing demand. Supply and participation were stable. The analysis showed that all of the vessels in the study were above break-even.

“That was great news, and that’ s roughly where the industry is today,” she said. The statewide results showed similar good news, with profits of $300,000 million.

The next step, she said, was to input forecasted landings that were based on the state’s settlement index. A five-year projection showed that landings will go down.

“Pretty quickly, 45 percent of the fleet is below break-even,” she said.

The picture is different at the state level, she said.

“When the market supply starts to go down and there’ huge demand being created for the product—let’s say China is looking for your product—you’ve got this price pressure that comes along,” she said. “Micro -economic theory tells you that additional firms will enter the fishery based on perceived profitability….But we can see the volume of the fishery has an inverse relationship with the price. Higher volume is actually causing downward pressure.”

Flowing a decrease in landings through the model, she said, resulted in the price going up.

“There’s less lobster available and people want it,” she said. “So we can recover some of that loss of the economic value” for some individuals in the fleet. “This shows we could, perhaps through quality handling, maybe offset some of those landings out there. But what’s interesting on the state level is that you don’t see a lot of difference from the previous picture. What’s going on is that at the individual producer level, you’re seeing significant impacts, but the statewide impact might not detect the same story. Those of you on the water will feel the pain, but the state might not pick up on this readily.”

Latent effort potentially further reduces profitability at the individual level, she said.

“There are 800 tags generating zero pounds landed,” she said. “So you’re seeing a portion of the fishery holds licenses and could go fishing tomorrow if they wanted…Of the 2.9 million tags that are issued, 2.5 million are actively fished and there’s half-a-million left over that the guys could throw in tomorrow. There are also license holders who hold the license but who don’t have tags. There are an addition 1 million tags that are available for issuance….So we said, If we activated even a portion of this, what would potentially happen?”

For that model, GMRI decreased “catchability” to account for a congestion effect.

“What happens to individual profitability? You get almost 60 percent of the vessels now falling below break-even, yet the state of Maine picture still looks the same,” she said.

Therefore, she said, activated latent effort would keep fishery production up but would knock down individual profitability.

The situation is made more complicated by factors such as demographics—aging fishermen, a long waiting list—and larger vessels and the amount of capital that’s going into the fishery.

The question to be aware of, she said, is “Why would you invest additionally into these big boats and all that risk associated with the capital, when you have a situation looming that the state of Maine is going to need to face?”

Retaining the status quo into the future is unlikely, she said.

“But we can use the information we’ve collected to support proactive change,” she said.