FSM SHIPPING COMPANY SEEKS NEW GOVERNMENT SUBSIDY

By Jaime Espina

KOLONIA, Pohnpei (Marianas Variety, Nov. 6)— Noting that for every dollar spent, local producers earned $4 in foreign exchange earnings, National Fisheries Corp. is recommending that the government of the Federated States of Micronesia continue subsidizing its operations.

In a report covering its operations since July 1998 to May this year, which was obtained by Variety, NFC suggested that the subsidies could be provided "perhaps at a lower level."

NFC operates a "dedicated airfreight services operation for the primary purpose of stimulating the export of FSM produce and products."

According to the report, the FSM government spent a total of $1.18 million to subsidize NFC’s operations over the last five years "to cover the difference in the cost of chartering an aircraft and revenue generated on that chartered flight."

Over the same period, it added, "over 900 metric tons of produce from the FSM" were exported to Guam, "generating foreign exchange earnings to FSM farmers and fishermen of about $4.4 million," or an average of around $885,000 annually.

"The amount of subsidy provided and the amount of export earnings generated translates to a ratio of 1 to 4," the report noted.

"The ratio doesn’t include the tax revenue and sales taxes from the inbound goods (2,168 metric tons over the period) which governments also recoup," it said.

"Further, because of this service, an unknown figure from services and provisions purchased by fishing vessels utilizing flights for export of their catch and receiving spare parts from FSM is beyond the scope of this report. Additional benefits also accrue to ancillary business operators involved in tuna transshipment, cargo palletizing and ground handling and other related services operators."

The report showed that while the costs for each flight increased every year, these were "outpaced by increasing revenue, resulting in decreasing amount of subsidy expended for each scheduled flight from year to year."

From a subsidy of $6,375 per flight in 1999, current levels have dropped to an average of $2,696 a flight.

Nevertheless, the report also said, "in order to offset the increased costs, adjustments in airfreight rates were made in order to increase revenue. Fishing vessel operation modes were also adjusted for tuna offloading to coincide with each scheduled flight to supplement local cargo for maximum loading of aircraft. Additionally, efforts were made to increase the amount of inbound cargo from Guam."

Chuuk accounted for 58 percent of all inbound and outbound cargo, followed by Pohnpei at 29 percent, Yap with 12 percent and Kosrae with only 1 percent.

However, the report said Pohnpei accounted for 41 percent of outbound cargo, outpacing Chuuk, with 39 percent. Yap accounted for 20 percent of outbound freight while Kosrae accounted for only "2.5 metric tons," giving it 0 percent.

In pushing for continued subsidy of its operations, the NFC report said that aside from added earnings for FSM farmers and fishermen, the nation would also benefit from "increased cash inflow into the FSM economy, reduction in FSM trade deficits and improved viability of local tuna fishing vessel operations and all ancillary businesses."

The report acknowledged there were two alternatives that could be explored in lieu of the subsidies, albeit these would substantially reduce the benefits derived from the current setup.

The first alternative would be "to increase freight rates for all types of cargo. This is doable but it is doubtful that the local farmers and fishermen could sustain such increases as needed to cover all costs of chartering an aircraft. In addition, the number of flights could be reduced if we had to base chartering of aircraft on sufficient cargo bookings to ensure against loss."

The other alternative would be "eliminating the scheduled airfreight operation entirely," which would, however, "not be popular with local producers and entrepreneurs that have come to depend on the scheduled airfreight operation as they would stand to lose what little income earned through the operation. Furthermore, this would result in decreased viability of all local tuna long-line fishing operations and ancillary businesses."

November 6, 2003

Marianas Variety: www.mvariety.com

 

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