Source: "Whaling in the North Atlantic - Economic and Political Perspectives," Ed. Gudrun Petursdottir, University of Iceland, 1997, ISBN 9979-54-213-6. Proceedings of a conference held in Reykjavik on March 1st, 1997, organized by the Fisheries Research Institute and the High North Alliance.
Author: Thordur Fridjonsson, Managing Director, National Economic Institute, Iceland

Whaling and the Icelandic economy

Introduction

It gives me great pleasure to have this opportunity to address this distinguished gathering today on the future of whaling in the North Atlantic. This is an issue of considerable importance to Iceland, both political and economic.

I will mostly confine my remarks to the economic aspects of this issue but because of the great uncertainties involved it is next to impossible to avoid making political judgements. The central economic question we face in this context is the following: Is it worthwhile for us Icelanders to begin again to harvest whale on a commercial basis in light of the potential costs we could suffer? My primary task is thus to identify and compare the potential benefits and costs of resumed Icelandic whaling.

On the benefit side, I will first review the potential benefits from the resumption of whaling in terms of both export earnings and jobs. Next I will attempt to assess the impact a continued moratorium on whaling could have on the yield from fish stocks in Icelandic waters, especially the cod stock. On the cost side, I will first look at the potential impact of the resumption of whaling on Icelandic tourism. Then I will review the possible impact on our exports of fisheries products. Finally, I will offer some preliminary conclusions.

Direct Economic Benefits from Whaling

In considering the potential economic benefits from the resumption of commercial whaling, we must first establish whether there are likely to be adequate markets for whale products. Here there is little to go on. Despite the fondness of Icelanders for certain whale products, the domestic market is for all intents and purposes insignificant. The question is, therefore, whether Japan would, as it did in the past, provide a market for exported whale products. I do not know the answer to this question but parties with an interest in the resumption of commercial whaling around Iceland maintain that the market is still there. In any case, I will, for illustrative purposes, assume that it would prove possible to sell whale products at similar prices as in the past, if we were to resume whaling operations.

We can get an idea about how extensive whaling operations could become by looking at records for the years prior to the imposition of the ban on commercial whaling in 1985. We have the most detailed information for 1980-85. In this period, whale products on average accounted for less than 2 per cent of marine exports, which in turn accounted for more than 70 per cent of merchandise exports on average. The share of whale exports in marine exports peaked at 2.5 per cent in 1983. At current prices, the annual value of whale exports in the early 1980s fluctuated between 1.3-2 billion kronur. Also, in 1980-85, the number of jobs associated with whaling, both in harvesting and processing, averaged close to 100.

Were a decision to be taken to resume commercial whaling on a sustainable basis, it seems reasonable to assume, in the absence of any clear evidence to the contrary, that the whale harvest could reach the levels of the early 1980s and that export earnings could also reach similar levels, on the important assumption that market demand for whale products still exists. This means that, as a first estimate, we could expect additional export earnings of 1.5 billion kronur annually in the long run and the same number of jobs associated with whaling as before, around 100, as the hunting and processing technologies would be the same.

Jumping ahead of myself a bit, let me say that these are indeed not large numbers. For example, in 1997, we expect marine exports to amount to close to 100 billion kronur and the labour force to number more than 130 thousand persons.

Indirect Economic Benefits from Whaling

In addition to the direct benefits from additional export earnings and jobs, indirect benefits could arise from the interaction of commercial whaling and the size of whale stocks and the associated impact on the size of fish stocks. Around a dozen species of whales are regarded as common around Iceland, meaning that they number at least in the several thousands. The food consumption of this large number of big mammals is bound to be very substantial and could grow larger still if the growth of whale stocks is left unchecked by commercial whaling.

Some whales feed off krill while others eat capelin and/or cod. The interactions between the various species of whales and commercially important fish stocks are exceedingly complex, and I profess no expertise in this area. However, scientists at the Marine Research Institute have reported that, based on simulations using multi-species models, unrestrained whale stocks around Iceland could lead to up to 10 per cent decline in the sustainable yield from the cod stock.

This result is of course highly uncertain. It can, nevertheless, be taken as an indication of the magnitude of the indirect benefits that could over time accrue from the resumption of commercial whaling. The annual sustainable yield of the cod stock has been estimated as 350 thousand tons. The unchecked growth of whale stocks could, therefore, cost us a cod catch of 35 thousand tons per year, which in terms of export earnings is equivalent to some 4 billion kronur.

One needs to interpret this figure carefully. In the case of resumed commercial whaling, these indirect benefits would not accrue immediately but only once a sustainable equilibrium had been established between the cod catch and the whale harvest. In the meantime, we can infer that the potential indirect benefits from a resumption of whaling are likely to outweigh the direct benefits. On the other hand, the total benefits are unlikely to exceed more than 5 billion kronur per year, which is less than 3 per cent of the annual earnings from exports of goods and services and around 1 per cent of GDP.

These speculations do not include any potential loss due to “giving in” to pressure groups that oppose any utilisation of whale resources. It is argued that such a retreat puts responsible fishing in general at risk. In other words, a kind of a defence line for the right to harvest the resources of the sea on a sustainable basis would be damaged. This is a highly strategic issue which I believe is very sensitive to how the policy of whaling will be implemented. I am, however, not convinced that an immediate resumption of whaling is essential in this respect.

Tourism and Whaling

Let me now turn to the potential costs associated with the resumption of commercial whaling. Essentially these costs arise in the form of lost markets, either for tourism or fish products. I’ll discuss tourism first.

Legitimate concerns have been raised about the impact the resumption of commercial whaling would have on Iceland’s image abroad. However, quantifying this impact is exceedingly difficult, but one can perhaps get a feel for the order of magnitude by looking at the economic significance of the tourism sector for the national economy.

The tourism sector catering to foreign visitors has indeed become a very important part of the Icelandic economy. Around 200 thousand foreigners visit Iceland annually and tourism generates close to 20 billion kronur in foreign exchange earnings each year - equivalent to around a fifth of the export earnings of the fisheries. Furthermore, thousands of persons are engaged in transporting and otherwise serving the foreign visitors.

What impact would the resumption of whaling have on the number of foreign tourists coming to Iceland? There is no hard and fast answer to this question. It is notable, however, that almost two-thirds of the visitors come from non-Nordic European countries and North America. Three countries, Germany and the United Kingdom in Europe, and the United States account for almost one half of all the foreign visitors, and it so happens that opposition to whaling is particularly virulent in these countries. I certainly don’t want to imply that the resumption of whaling would cause a significant drop in the number of foreign visitors to Iceland. Evidence from Norway, for example, does not substantiate such claims. However, given that there is no change that our whaling operations would go unnoticed across the world and given that visitors to Iceland tend to be socially conscious and nature friendly, it could have important consequences for our tourism trade, at least in the short run.

Let me just to give a numerical example: a 5 per cent decline in tourism earnings would cost the economy around one billion kronur. This figure is, of course, highly uncertain and, thus, only serves the purpose of putting this issue in context of potential direct gains from whaling. Somewhat larger decline, or 7-8 per cent, would be of the same order of magnitude as the direct gains.

I have so far not mentioned the fledgling branch of tourism labelled whale-watching. It is only because in the broad setting of the overall economy it is not particularly important although it may be of some local significance. There is also no hard evidence indicating that whaling and watching are mutually exclusive.

Marine Exports and Whaling

There is no doubt that when it comes to the potential costs associated with the resumption of whaling our marine exports are at greatest risk. The fisheries remain the backbone of our exports and any setback to them has and will continue to have repercussions throughout the economy. Marine exports account for close to 75 per cent of all merchandise exports and more than one half of all export earnings.

Again it is important to note that some of our most important markets for fish products are in countries where opposition to whaling is the strongest such as the United Kingdom, the United States and Germany. Of our largest markets, only the Japanese would seem to be immune to the whaling issue. Take the United States for example. Survey responses indicate that the resumption of whaling would negatively influence the purchases of Icelandic fish products by a sizeable fraction of consumer. Although such surveys are admittingly difficult to interpret, they should be taken seriously in light of the interests at stake.

American environmental groups, perhaps especially those that have adopted the whale as their rallying call, are adept at organising boycotts, and not only by households but also by larger restaurant firms and by school districts and hospitals. Such threats are neither to be ignored nor should it cause one to retreat immediately. Boycotts are difficult to organise and, generally, such actions don’t have lasting effects. The Norwegian experience is, for example, not very decisive in this respect. However, one must keep in mind that Iceland is both more vulnerable than Norway and more is at stake here. The Icelandic sales organisations maintain that they suffered the loss of contracts as a result of boycotts organised to protest our scientific whaling in the late 1980s. In addition to organised boycotts, our fish exports could be subject to official trade sanctions from, for example, the United States government, were we to resume commercial whaling. Serious sanctions of this form are, however, rather unlikely.

The danger to our best markets for fish exports from the resumption of whaling is twofold. First, the markets might shrink as consumers boycotted products clearly associated with Iceland. Second, our access to these markets could be limited by trade sanctions. I have no doubt that we would over time be able to offset any loss of markets and sell our entire output of fish products elsewhere, but I am less convinced that we would continue to obtain the same prices. The cost would, of course, be the same whether it came through reduced output or lower prices.

Again putting a number on the potential cost is subject to great uncertainties. An average decline in the prices for fish products of 5 per cent would, for example, cost the economy 5 billion kronur annually; larger price drops would lead to correspondingly larger costs.

Conclusion

Let me summarise briefly and then offer some preliminary conclusions based on my assessment of the economic issues involved.

In a perfect world, the potential benefits of resuming commercial whaling would be considerable, perhaps of the order of 5 billion kronur annually in terms of increased export earnings. However, the lion’s share of these benefits is indirect in the sense that it would flow from a potentially larger sustainable cod catch rather than the commercial importance of a resurrected whaling industry.

On the other hand, opposition, sometimes virulent, to whaling among most of our trading partners, other than Japan, implies that the resumption of commercial whaling entails considerable risk to economically important sectors, such as tourism and the fisheries. It is not hard to imagine scenarios under which the losses to these sectors, and hence the cost to the economy as a whole, would far exceed the potential benefits that could accrue from resumed whaling.

In light of these circumstances, it is imperative that we move cautiously and properly weigh the potential benefits and costs. In order to lessen the costs, we need to co-operate with similarly inclined countries in continued efforts to convince the public on both sides of the Atlantic that, like other resources of the sea, whales should be harvested in a sustained manner that takes proper account of environmental considerations.

It is true that opposition to whaling in both the United States and Europe has probably not softened significantly over the last decade. That does not, however, mean that this will always be so. The more thoroughly the abundance of whales in the oceans is demonstrated the better chance we have of gaining supporters for our cause. Continued research on the condition of the whale stocks in the North Atlantic is essential. Such efforts in recent years has changed the nature of the discussion, although opposition to whaling is still very strong. Now, for example, arguments based on the risk of extinction and the intelligence of whales do not appeal to people as before. Hence, balanced arguments based on science are gaining ground among informed people. This indicates that time is on our side. A well prepared policy of whaling with strategic implementation, where timing is essential, might thus soon be possible without great risk.

We stand no chance of convincing the more fanatical elements of the whale rights movement that harvesting whales can be justified under any circumstances. However, the largest number of people that currently oppose whaling are not fanatics but perhaps not too well informed about the true condition of whale stocks. Among this group are potential allies whom we need to convert to our cause by emphasising the scientific basis of our sustainable approach to utilising and conserving marine resources.