Volatility and vulnerability in Mexican fisheries and aquaculture: Enhancing resilience via public policy

Highlights

• In the Covid-19 pandemic context It is relevant to study the fishery sector's response to past shocks.

• A historical analysis of the Mexican fisheries and aquaculture sector is made detecting the most vulnerable resources.

• We propose an indicator to measure a resource volatility by comparing it to the whole sector's variation.

• A key finding is that fisheries and aquaculture's volatility and vulnerability to economic shocks are highly variable.

• Diversifying the sector holistically could help safeguard against future shocks.

Abstract

The COVID-19 pandemic has impacted the fisheries and aquaculture sector, and public policies are needed to mitigate it. Nevertheless, the lack of information makes it challenging to generate an adequate response. It is relevant to study the sector's response to past shocks to generate the elements to react to present and future shocks. We present a historical analysis (2006–2014) of the Mexican fisheries and aquaculture sector to detect the most vulnerable and volatile resources concerning their resilience to shocks. For this, we propose a proxy indicator of the β coefficient used in the finance context to calculate the risk premium of an asset. In this case, we measure each resource's variation compared to the whole fishery sector's variation. Several shocks were detected, corresponding to different events (i.e., economic, climatic, disease outbreaks). The most notorious is in 2009, explained by the H1N1 outbreak with the combined effect of the 2008–2009 global financial crisis. A key finding is that fisheries and aquaculture's volatility and vulnerability to economic shocks are highly variable and vary according to the resource and the shock's nature. As such, support measures will likely continue to be broad in their approach. A overarching policy shift that is perhaps necessary to mediate future shocks' impact is to support the fisheries sector's diversification. As well as building the resilience of production, this can also extend to include diversification of the supply chains, markets, and distribution systems. Diversifying the sector holistically could help safeguard against future shocks.

Introduction

As of March 2020, the world entered a different dynamic culminating in the World Health Organization’s (WHO) declaration of the COVID-19 disease as a global pandemic. Subsequent responses to this event not only resulted in the closure of restaurants and hotels, one of the main selling points of seafood products [56], but also the closure of national and international markets, which disrupted the supply and product placement for both aquaculture and fisheries.

Worldwide, a total of 179 million tons of seafood products were obtained from fisheries and aquaculture in 2018 [19], which accounted for a total first sale value of more than USD 400 billion. According to the FAO [19], the main challenge that the fisheries sector will face during the COVID-19 pandemic will be an economic shock from the rupture of the supply chain as a result of the closure of borders, markets and other sale points.

Even though many countries did not order a closure of fishing ports directly, the reduction of demand accompanied by a severe drop in prices (eg., price reduction between 20% and 70% in the Mediterranean) for instance, led to a reduction of many fisheries’ production (eg., reducing by 50% in France compared to the same period last year) [40]. Along with the potential economic impacts, this reduced production could result in a shortage of access to seafood, impacting food security. Even when food production shortages are temporary, periods when essential nutrients are lacking can negatively affect the health of vulnerable populations [6].

The public support measures decided throughout 2020 were considered, in part, insufficient to face a rapid transition to normality that would guarantee, at the same time, the maintenance of extractive and productive activities, the availability of the food supply to the population, and sustaining local economies [34], [41]. There is no doubt that confinement and restrictions on mobility directly affected the financial situation of companies and contributed to modifying the structure of spending and consumption by affecting the choice of products [7].

In the economic and scientific literature, a shock can be defined as a disturbance caused by an unexpected event that has a significant effect on the studied system [48].

On the other hand, the resilience of a system can be described as the ability of the system to respond and adapt to such interruptions while undergoing changes to retain essentially the same function, structure, identity, and feedback [59].

According to Graziano et al. [23], sectoral resilience to different types of shocks (e.g. market, environmental, social) depends, among other variables, on the organization and structure of the sector and the stability and interconnection of the stakeholders. These shocks may affect both food production and distribution systems by causing, for example, abrupt changes in production volumes, prices, or trade [20], which can limit access to food and negatively impact local nutrition and food security [21]. Such events can initiate a cascade of effects through the supply chain and/or in the value chain of the system.

The resilience of a sector, such as fisheries, can be analyzed by studying the response of the system, including the effect of public policy, to different shocks. Furthermore, the volatility (i.e. measurement of the frequency and intensity of changes in a variable) of certain sub-sectors might make certain producers and products more vulnerable, or less resilient, to such market shocks.

A commonly used strategy for reacting to a crisis or shock is to study public policies that have been successfully (or unsuccessfully) implemented in the past (e.g. [5], [24], [25]). Although there is no record in modern times of a pandemic similar in scale to COVID-19, both due to its spatial (i.e. the number of countries affected) and temporal (i.e. the quarantine period, both at the local and global scale) dimensions, there is a history of more localized epidemiological outbreaks, epidemics, and less profound pandemics around the world.

An example of this is the Influenza virus (H1N1 or swine flu), which is a human respiratory infection caused by a swine-origin influenza strain, which severely impacted Mexico in 2009 [9], with an estimated loss of 1% of the country’s GDP [55]. Worldwide H1N1 posed huge infection-control problems. The disease had varied symptomatology and a high transmission rate. It is estimated that the number of infections exceeded the number of clinically registered infections by one order of magnitude. This outbreak was classified as a pandemic by the WHO in June 2009 and resulted in an estimated 151,700 to 575,400 human deaths between 2009 and 2010.

Before the H1N1 pandemic, Mexico, as well as many other countries worldwide, followed the WHO’s recommendation of developing plans for pandemics to have a prepared and organized response rather than an ad hoc reaction [16]. Nonetheless, “the illusion of the potential effect of rapid containment protocols [was] replaced by the reality of implementing mitigating activities” [47] (p. 674). Furthermore, the plans developed for this pandemic were, almost exclusively, aimed at reducing the impacts on public health and, in second level of priority, to reduce its negative economic impact.

According to Lopez-Ercilla et al. [36] there were large socio-economic and environmental impacts as a result of the COVID-19 pandemic in Mexican fisheries, mainly during the first period of the event, including the closure of 89% of markets, associated with price drops in the period from April to June 2020, a perceived increase in illegal fishing, and an increase of 79% in solid waste generation by fishing communities in the same period. Closure of communities for safety reasons and market closures were the main reason for these impacts.

Regardless of the general confusion caused by the COVID-19 pandemic with the inherent difficulty of confronting a completely new, unexpected, and unpredictable situation, added to a lack of current and previous information; different strategies for mitigating the impacts of the pandemic on the fisheries sector have been proposed.

The first recommendation provided by the OECD and FAO [40], [20] was to continue gathering data to evaluate the impact of the current pandemic in a more informed manner. Secondly, both organizations urged governments to continue managing fisheries sustainably, helping the most vulnerable communities, but avoiding the encouragement of unsustainable practices and future market distortions. As positive enforcements, OECD recommended helping vulnerable communities by applying aid partially decoupled from fishing activities via income support or a special insurance [40]. Adhering to the guidance, the Mexican government has provided direct economic aid to fishermen with a program called BIENPESCA [12]. This program consists of direct financial aid of $7200 Mexican Pesos (MXN) (≈ USD 320) per fisher per fiscal year.

Any emergency public support programs must be appropriate and justified, and ideally fishery-specific, to ensure that a policy in response to one crisis does not create a new crisis or compound on the current one. Specifically, it is important that introduced public fisheries support measures do not remove important regulations that aim, either directly or indirectly, to protect the health of the marine environment or the livelihoods it supports. Afterall, public support to the fisheries sector can either help to protect the environment and livelihoods, or, perhaps unintentionally, may work to undermine it [49].

Mexico occupies the 17th place regarding global fisheries production, with more than 2 million tons produced both in fisheries and aquaculture in 2018 [11]. Since in Mexico more than 295,000 people are directly engaged in fishing and aquaculture [13], the impact of the shock caused by the COVID-19 pandemic can be significant from both a social and an economic point of view.

Considering that the COVID-19 outbreak had China as its epicenter, the impact of this disease on food security and the market for seafood products can be profound. In the seafood trade context, China is the largest producer and the leading importer to Mexico (≈186 million USD in 2020, mainly comprising Tilapia), and Mexico’s second-largest export market (valued in 2020 ≈100 million USD, primarily including lobster, shrimp, and bivalves) [20], [51].

Starting in March 2020, the United States (US) replaced the European Union (specifically Spain and Italy) as ground zero of the COVID-19 pandemic, surpassing 1,000,000 infected and 100,000 dead from the virus as of May 27, 2020. This led to the closure of various important activities in the USA, such as the service sector, responsible for most of the consumption of fish and shellfish exported by most OECD countries, including Mexico [40], [56]). Since the US is one of the main export markets for Mexican fisheries’ products, the impact on the industry is expected to be significant.

Even though some effects of the global pandemic on the Mexican fisheries sector are obvious, the full impact has not yet been evaluated due to the delay that exists in the statistics. Despite this, there are several cases that raise concerns of the shock caused by the COVID-19 situation, both nationally, with the closure of the main fish markets, and internationally, due to the restriction on imports and exports.

From the perspective of the institutional structure of the federal government in matters of fisheries and aquaculture, and therefore of the management and administration of fisheries affairs there has been significant changes in the last three decades. The federal administrations related to fisheries and aquaculture have converted from representation at the Ministry of State level as the Fisheries Secretariat, to a Branch Undersecretary (Sustainability and Production in the Ministry of the Environment) and finally to its current form as a National Commission (CONAPESCA production in the Secretariat of Agriculture and Rural Development). This situation altered the hierarchical positioning of fisheries matters within the organizational chart of the Federal Public Administration towards a lower level [62], [64].

The government agencies with direct power and obligations in relation to the use, management, and conservation of fishery resources is the National Commission of Aquaculture and Fisheries (CONAPESCA). The administrative structure of CONAPESCA includes one commissioner, different offices such as planning and evaluation, promotion, fisheries management, physical infrastructure, surveillance, and a legal department. The commissioner is named and removed by the president by conduit of the Ministry of Agriculture and Rural Development [63].

The obligations of CONAPESCA include: a) propose and coordinate national policies in matters related to the rational and sustainable use of fishing and aquaculture resources, as well as the development and promotion of fisheries and aquaculture; b) administer, regulate, and develop the use and conservation of fishery resources and aquaculture development; c) propose general criteria for the establishment of economic instruments to promote the integral development of fisheries and aquaculture; d) propose and execute the general surveillance and monitoring policy in aquaculture, commercial, and sport fishing matters, with the participation of other federal government agencies; e) issue fishing licenses among others (DOF, 2001).

In general, CONAPESCA has two ways of intervening in fishing through: a) fishing management instruments such as the issuance of fishing and aquaculture permits or concessions with their respective rules of closures, quotas, etc.; which consider small-scale and industrial fisheries as well as diverse fish with aquaculture potential or value in marine or freshwater; and b) economic instruments to promote fishing and aquaculture (mainly energy and fuel subsidies). Although subsidies are not directed to particular species, industrial fishing (tuna, sardines and shrimp) has benefitted more in recent years, with amounts of around $USD 90 million annually. However, in the current federal administration (2018–2024) these subsidies have been cut and are now eliminated.

Support for fishing activities considered in the Federation’s expenditure budget (PEF in Spanish) for 2017 amounted to $MXN 3,004,793,338.60 and were mostly oriented towards the promotion of aquaculture and the increase of the value of seafood through processing and commercialization rather than the increase of fishing fleets. In this manner, the federal government has enacted several support programs, such as: technical training and advice; development and strengthening of value networks; National Program of Support to Rural Aquaculture; National Program of Aquaculture Sanity and the Network of Diagnosis Laboratories; Alliance for food producers (Aquaculture and Fishing) [43], [63].

In addition, the Mexican government introduced subsidy programs for energy sources, oil, and diesel used in small and large vessels, as well as for electricity used in aquaculture farms. Economic resources dedicated to subsidies in the fisheries and aquaculture sector in 2017 amounted to 2.15 billion MXN (≈150 million USD), that is around 72% of the total budged for subsidies for that year. Shrimp-fleet buy-back programs have been implemented in recent times, aimed at increasing the efficiency of this important fishery, both in economic and ecological terms. The fleet buy-back program consisted of buying each vessel at USD 88,495 [63]. Independent of COVID-19 pandemic, it appears that inshore fisheries are in a worse financial situation and beneficiaries are more scattered relative to the large tuna companies receiving government support for fleet operations [63].

Accounting for the current Mexican fisheries’ policy framework described and in the presence of a significant shock such as the COVID-19 pandemic, this paper aims to answer the following research questions: What is the sensitivity of different variables that compose the fishing industry to a shock? In addition, how might public policy mitigate the negative impacts of a significant shock?

To answer these research questions, we present a historical analysis of the Mexican fishing sector designed to detect the most vulnerable and volatile resources of Mexican fisheries regarding their resilience to shocks. For this, we propose a proxy indicator of the β coefficient used in the finance context to calculate the risk premium of an asset, where the volatility (i.e., risk) of the asset is compared when concerning the market's volatility. In this case, we measure the variation of each resource when compared to the variation of the whole fishing sector [32], [8].

This analysis will provide information that allows focused efforts both for the COVID-19 contingency and to promote a more resilient Mexican fishery. In addition, we review how different shocks (in terms of production volume, value, price, consumption and, international trade)have historically affected the sector with emphasis on the H1N1 pandemic, which, although not comparable in scale and global impact, is the most recent pandemic which has had a few similar responses, such as the closure of national markets. We intend to detect the way in which the sector responded to that situation and how it was reactivated.

This work seeks to analyze the historical patterns of the response of fishery resources to various shocks. Information that contains useful lessons to provide guiding principles for how targeted public policies could be made more suitable to reduce the vulnerability of crucial resources and take advantage of those that are naturally resilient. The latter with the objective of better positioning fisheries to mitigate the impacts of the COVID-19 contingency and future industry shocks while facilitating the design of public policies that do not undermine fisheries' environmental or social integrity (including wild fisheries and aquaculture).