Cost minimization and input substitution in the production of gilthead seabream

Abstract

This paper studies cost minimization decisions by utilizing a simple bioeconomic model for gilthead seabream (Sparus aurata). This model is based on a biological growth model which accounts for the effects of temperature and ration size. Although the implicit production function derived from the growth model is shown to be quasiconcave, it is not homothetic nor quasilinear. Further, technology shows increasing returns with respect to ration size and harvesting time. Optimization decisions are analyzed in two different contexts, a restricted biological setting and an expanded economic problem. It is shown that the optimal ration size increases for the latter context, reaching values commonly accepted in current industrial practice. Even though the elasticity of substitution to the shadow input prices is positive at the optimal ration size, the latter is rather robust to changes in input prices. However, optimal costs show larger sensitivity to the labor price than to the feeding and managerial costs.     

Impact of Caligus treatments on unit costs of heterogeneous salmon farms in Chile

We measure the impact that sanitary treatments that control ectoparasite Caligus rogercresseyi abundance have on unit production costs of Salmo salar farms in Chile. We follow complete production cycles for a sample of farms between 2009 and 2015. We estimate a simultaneous salmon biomass growth and Caligus abundance model. The statistical analysis determines the effect of antiparasitic treatments, location of farms, environmental conditions and Caligus abundance on the salmon growth profile. Using outside cost information, we simulate how unit production costs vary by treatment and farm characteristics. Our results suggest that unit production costs increase on average by $1.4?US/kg with Caligus and treatments. Treatment costs are compensated by higher harvesting levels, and unit production costs are invariant to the situation without treatment. All estimated effects differ depending on farm’s environmental and spatial conditions, suggesting that the design of cost-effective intervention calls for discriminatory regulation under heterogeneous conditions.     

Management strategies to reduce operating costs in a commercial shrimp hatchery in NW Mexico

Strategies to reduce operating costs at an expanding shrimp hatchery in NW Mexico are presented for a period covering 3 years (2004–2006). The hatchery increased its greenhouse-type larval rearing halls from three (50 tanks, total water volume 996 m³) in 2004, to five (70 tanks, water volume 1,396 m³) in 2005, and to seven (94 tanks, total water volume 1,876 m³) in 2006. Production increased from 400 million postlarvae in 2004 to 579 million in 2005 to 760 million in 2006, but operating costs increased only 6% during this period and the unit cost for postlarvae was 44% lower. Administration expenses were the highest variable cost, but restructuring the company reduced them from 35% in 2004, to 29 in 2005 and to 21% in 2006. Feed was the second largest variable cost, reduced from 44 to 36 to 31 through improved feeding practices, changes in feed composition, and bulk purchases of commercial feeds. Costs for propane and the workforce increased, in part from higher consumption and additional staff and higher salaries to retain the trained workforce. Competition will continue to lower the market price for shrimp postlarvae, forcing hatcheries into a permanent improvement process. Increasing costs for energy will require investments in energy-saving technologies. Improved sanitation and strict bio-security procedures will increase the survival rate, thereby reducing unit costs still further.     

Salmon prices in France and the UK: Does origin or market place matter?

Abstract

There have been several attempts to distinguish farmed Atlantic salmon by origin using trademarks. Whether there exist different regional markets for salmon, and in particular whether the UK market is separate from the market in continental Europe, is also an issue that has received attention. To address these questions, we investigate the relationship between Norwegian and Scottish salmon both in France and the UK, and between Scottish salmon in France and the UK. The analysis is carried out by investigating how the development of prices is related using co‐integration tests.     

The evolution of farm management,production efficiencies,and current challenges to catfish production in the United States

Abstract

The catfish industry is the most successful aquaculture business in the US. The development and growth of the catfish industry has resulted in complex fish farm businesses that require intensive management. Technological innovations have resulted in increased yields (land use efficiency). However, in more recent years, productivity gains have not kept pace with the rate of increase in input costs. Increasing intensification of catfish production over time has been accompanied by increased use of debt capital that results in higher levels of financial risk. While still a profitable activity, real profit margins have declined as financial risk has increased. New technologies will likely continue to increase productivity over time. Market‐oriented agribusiness approaches to catfish marketing are likely to become the norm. The challenge for the catfish industry is to coordinate adoption of new higher‐cost technologies with demand increasing market development to sustain farm price levels.     

Operating costs and health management strategies in shrimp hatcheries

Abstract

This paper presents a study of operating costs in shrimp hatcheries. Size effects are presented for fixed, variable, unitary, and marginal costs. Cost structures by functional production department and by cost‐category are discussed for a hypothetical 100‐million postlarvae/month hatchery in an industrialized country, and compared to those of a hatchery in a developing country. Health management issues, mainly measures commonly used to manage bacterial diseases, and their economic impact are discussed, focusing on the trade off between survival rates and sanitation down‐time.

Salaries and benefits represent the largest cost‐component (37%) for hatcheries in industrialized countries, while feeds and operating supplies constitute the most important costs in developing countries (60%). The need to import hatchery feeds and other operating supplies into developing countries works against savings from lower labor costs typical of developing countries.

Total fixed costs depend on the size of a hatchery and are constant for all possible levels of output. Average fixed cost per unit (thousand postlarvae) can be reduced by producing high postlarval outputs. Hatcheries in areas with seasonal shrimp crops face the challenge of covering fixed costs with revenue from a short production season. Hatcheries with large fixed costs can operate in a cost‐efficient manner only by producing high levels of output. Average total cost and average variable cost curves follow a U‐shaped curve, in which costs first decline as output increases, then reach a minimum, and finally increase as output increases above a point of diminishing returns.

In hatcheries total costs are independent of larval survival, but lower output resulting from low survival increases unit costs. This effect is more pronounced at lower levels of output. Bacterial diseases decrease survival rates and increase unit costs.     

Financial ratios and prediction on corporate bankruptcy in the Atlantic salmon industry

ABSTRACT

This article addresses the issue of credit risk in the salmon industry. During the period 2000–2002 the Norwegian salmon industry witnessed a period of low prices leading to a wave of defaults and bankruptcies. The consequences were large monetary losses for both investors and banks, highlighting the importance of early detection of failing firms. Using financial ratios measuring the firms’ financial status prior to this event, two credit risk models are developed; one using logit regression and the other Classification and Regression trees. The performance of the two models developed is compared to a cross-industry benchmark model developed by the Norwegian Central Bank. The model estimated on industry data is better at separating between companies with high and low credit risk in the salmon industry compared to the benchmark model.     

Price interactions between salmon and wild caught fish species on the Spanish market

Abstract

The introduction and rapid expansion of farmed salmon production in the mid 1980s has transformed the international market for salmon. Spain is one of the most important markets for fish within Europe and the world, and has seen a substantial increase in its demand for salmon. As in other European countries, this has raised concerns that the increased supply of salmon to Spain may have detrimental effects on the market prices of traditional (wild‐caught) species.

In this paper, the extent to which salmon competes with the main traditional fish species in the Spanish market is examined using market delineation methodologies. In particular, the potential interactions between species is examined in a multivariate cointegration framework. The results suggest that salmon is at best only a weak substitute for tuna, hake and whiting, but no significant interaction could be found.     

Forecasting weekly salmon prices: Risk management in fish farming

Abstract

Production of farmed salmon has increased substantially during the last decade. Most of the salmon production is sold spot, resulting in large price fluctuations both for the producer and for the exporter. No derivative markets exist; consequently, no one can hedge prices. If prices could be forecasted within reasonable confidence bounds, risk would be reduced. This study used six easily applicable procedures to forecast weekly producer prices for salmon. The procedures tested were Classical Additive Decomposition (CAD), Holt Winters Exponential Smoothing (HW), Auto Regressive Moving Average (ARMA), Vector Auto Regression (VAR) and two different naïve models: post‐sample predictive accuracy was evaluated. Results indicated that the CAD model forecasted the direction of price movements best, whereas the VAR model performed best according to accuracy measures.     

The effects of price changes on oyster farmers in Changhua County,Taiwan, who cultivate oysters at low and high densities

This study analyzed the effects of price changes on the annual costs and returns of 162 oyster farmers in Changhua County, Taiwan, who cultivate oysters at two levels of density: low and high. Specifically, it used the translog profit function to evaluate the effects of changes in oyster prices on output supply and the demand of various inputs at the two densities of oyster cultivation. The study found that high-density farmers generate more profit than low-density farmers because they experience lower average costs. The results of the output supply elasticity with respect to input prices indicate that wages and other miscellaneous prices are the two main factors that negatively and more significantly affect the production of low- and high-stocking-density farmers. Own price elasticity of other miscellaneous input (?1.814), labor input (?1.805), seed input (?1.682), and input of capital (?1.58) was more responsive to price changes for high-density farmers than for low-density farmers. This indicates that increases in input prices have a significant effect on reducing input demand for high-density farmers. The cross-price elasticities of the variable inputs labor–seed and labor–other miscellaneous are ?0.648 and ?0.649, respectively. These negative elasticities indicate that labor–seed and labor–other miscellaneous are complementary inputs, which suggests their combined application increases farm production synergistically for low-density farmers.     

Measuring technical,allocative and cost efficiencies of seabass and seabream farms in Greece

Abstract

A stochastic Cobb‐Douglas production frontier is used to provide estimates of output‐oriented technical efficiency, input‐oriented technical efficiency, input allocative efficiency and cost efficiency for a sample of seabass and seabream farms in Greece. Mean output‐oriented technical efficiency is estimated at 78.5%, input‐oriented technical efficiency at 73.6%, input allocative efficiency at 79.2%, and cost efficiency at 58.2%. Considering the sources of efficiency differentials among fish farms, it is evidence from the empirical results that large farms tend to achieve higher (technical and allocative) efficiency scores; specialization in either seabass or seabream affects positively technical and cost, but not allocative, efficiency; and utilization of skilled labor seems to have a positive impact only on technical efficiency.     

The rise of fish oil: From feed to human nutritional supplement

ABSTRACT

This article tells the story of how fish oil has gone from an inferior to a premium oil product. With the growth of aquaculture, fish oil became a valuable feed component. Its value increased further as the belief in the health benefit of Omega-3 opened the market for direct human consumption through nutritional supplements. Strong demand, limited supply growth and weaker substitution between Omega-3 and Omega-6 has led to diverging trends between fish oil and vegetable oil prices, with fish oil now a premium oil product. We also investigated how the salmon aquaculture industry has responded to the challenge of rising fish oil prices. Concerted effort in nutrition and feed research is shown to have allowed a reduction in the share of fish oil in feed from around 25% in the early 2000s to around 12% today. This substitution effort has allowed salmon production to grow without using substantially more fish oil.     

Landscape‐level constraints on recruitment of chinook salmon (Oncorhynchus tshawytscha) in the Columbia River basin,USA

• 1. The decline of salmonid populations in the Pacific Northwest has been well‐documented. It is unclear, however, which threats to salmonid persistence are the most serious, and how best to prioritize recovery efforts intended to ameliorate these threats.
• 2. It has been argued previously that one possible cause of salmon endangerment is degradation of spawning grounds. In order to explore this hypothesis, this study examines the relationships between chinook salmon (Oncorhynchus tshawytscha) productivity and landscape‐level characteristics of spawning grounds in the interior Columbia River Basin.
• 3. Population productivity is expressed as the mean and maximum recruitment rates for different stocks, measured from 1980 to 1990; habitat conditions are calculated using sub‐watershed scale data on land cover, land use, water quality and watershed hydrology.
• 4. Significant linear regression results were obtained for three environmental variables: percentage of land classified as urban, proportion of stream length failing to meet water quality standards, and an index of the ability of streams to recover from sediment flow events. A multiple regression with all three variables accounts for over 60% of the variation in mean salmon recruitment.
• 5. It further appears that these landscape attributes may limit the maximum recruitment rates of salmon, with a magnitude of difference in productivity large enough to be relevant to recovery planners. Additional study will be necessary to identify cause‐and‐effect linkages between habitat quality and salmon recruitment success, and to determine the ultimate impact of changes in recruitment rates on short‐ and long‐term salmon population trajectories.

Copyright © 2002 John Wiley & Sons, Ltd.     

The competitiveness of the Chilean salmon aquaculture industry

Abstract

Commercial salmon and trout farming has emerged as a major industry in Chile during the 1990s. Salmon is not a native species to Chile, still excellent climatic conditions are provided for farming. Since 1992 Chile has been the second largest producer of farmed salmon and trout in the world after Norway. This report reviews the development of the Chilean salmonid industry from its early stages until today with respect to production patterns, legislation and main markets. A cost comparison between Chilean and Norwegian farmed salmon is also provided. Finally, the international competitiveness and future challenges of the Chilean salmonid farming industry are analysed.     

Comparative economic performance and carbon footprint of two farming models for producing Atlantic salmon (Salmo salar): Land-based closed containment system in freshwater and open net pen in seawater

Ocean net pen production of Atlantic salmon is approaching 2 million metric tons (MT) annually and has proven to be cost- and energy-efficient. Recently, with technology improvements, freshwater aquaculture of Atlantic salmon from eggs to harvestable size of 4–5 kg in land-based closed containment (LBCC) water recirculating aquaculture systems (RAS) has been demonstrated as a viable production technology. Land-based, closed containment water recirculating aquaculture systems technology offers the ability to fully control the rearing environment and provides flexibility in locating a production facility close to the market and on sites where cost of land and power are competitive. This flexibility offers distinct advantages over Atlantic salmon produced in open net pen systems, which is dependent on access to suitable coastal waters and a relatively long transport distance to supply the US market. Consequently, in this paper we present an analysis of the investment needed, the production cost, the profitability and the carbon footprint of producing 3300 MT of head-on gutted (HOG) Atlantic salmon from eggs to US market (wholesale) using two different production systems—LBCC-RAS technology and open net pen (ONP) technology using enterprise budget analysis and carbon footprint with the LCA method. In our analysis we compare the traditional open net pen production system in Norway and a model freshwater LBCC-RAS facility in the US. The model ONP is small compared to the most ONP systems in Norway, but the LBCC-RAS is large compared to any existing LBCC-RAS for Atlantic salmon. The results need to be interpreted with this in mind. Results of the financial analysis indicate that the total production costs for two systems are relatively similar, with LBCC-RAS only 10% higher than the ONP system on a head-on gutted basis (5.60 US$/kg versus 5.08 US$/kg, respectively). Without interest and depreciation, the two production systems have an almost equal operating cost (4.30 US$/kg for ONP versus 4.37 US$/kg for LBCC-RAS). Capital costs of the two systems are not similar for the same 3300 MT of head-on gutted salmon. The capital cost of the LBCC-RAS model system is approximately 54,000,000 US$ and the capital cost of the ONP system is approximately 30,000,000 US$, a difference of 80%. However, the LBCC-RAS model system selling salmon at a 30% price premium is comparatively as profitable as the ONP model system (profit margin of 18% versus 24%, respectively), even though its 15-year net present value is negative and its return on investment is lower than ONP system (9% versus 18%, respectively). The results of the carbon footprint analysis confirmed that production of feed is the dominating climate aspect for both production methods, but also showed that energy source and transport methods are important. It was shown that fresh salmon produced in LBCC-RAS systems close to a US market that use an average US electricity mix have a much lower carbon footprint than fresh salmon produced in Norway in ONP systems shipped to the same market by airfreight, 7.41 versus 15.22 kg CO₂eq/kg salmon HOG, respectively. When comparing the carbon footprint of production-only, the LBCC-RAS-produced salmon has a carbon footprint that is double that of the ONP-produced salmon, 7.01 versus 3.39 kg CO₂eq/kg salmon live-weight, respectively.     

Price formation of the salmon aquaculture futures market

ABSTRACT

This study examines price formation of the internationally traded salmon futures exchange. Analyzing data from 2006 to 2015, the study identifies the co-integration relationship between the spot market price and 1–6-, 9- and 12-month futures contract prices. With exception of the 12-month maturity futures price, the unbiasedness hypothesis is shown to hold, thus evidence of risk neutrality and efficiency among the co-integrated pairs. Further, it is evident that the spot price provides leadership role in the price discovery function for the 1-, 2- and 6-months futures contract. On the contrary, the 3-, 4-, 5-, 9- and 12-months futures contracts provide the expected leadership role in the price discovery function, a case that supports a matured market that can be considered a necessary price risk management tool. The mixed finding is an indication of a maturing or near matured futures market. Analysis of the term structure of futures volatilities reveal that the shorter the length of the futures contract, the more volatility there is. This is because salmon prices exhibit short-term cyclical and seasonal patterns like other agricultural commodities. As such, salmon producers will be better off hedging in far month futures contracts, ceteris paribus.     

Spatial integration of freshwater fish markets in the Northern Baltic Sea area

Freshwater fish species and Baltic salmon (Salmo salar) are important to small-scale fisheries in Finland and Sweden. The formerly local markets for these species have expanded as trade has been opened up to international competition. In this study we use cointegration analysis to test the spatial integration of freshwater fish markets in Finland and between Finland and Sweden. The analysed fish species are salmon, perch (Perca fluviatilis), pikeperch (Sander lucioperca), European whitefish (Goregonus lavaretus) and pike (Exos lucius), and the data covers ex-vessel prices from 1993 or 1995 to 2004. We found that the regional prices in Finland were cointegrated. This indicates that the prices are determined on a single market in Finland. Moreover, the study suggests that Finnish and Swedish markets in Baltic salmon, whitefish, pikeperch and perch were partially integrated, while integration of pike markets could not be found. The political implication is that an essential part of the local small-scale fisheries’ operational environment is determined outside the national borders.     

Environmental problems,productivity and innovations in Norwegian salmon aquaculture

Abstract

Environmental issues have been of central importance throughout the history of salmon aquacuiture in Norway. In this paper we will examine some of the issues, and show that while there are still problems, many have also been resolved. A major reason for this is the fact that salmon farmers have internalized many of the environmental effects into their decision‐making due to the relationship between environmental impact and productivity. Another reason, particularly when it comes to treatment of diseases, is that lack of private innovative activity due to different market failures has been compensated for by government‐sponsored research and development.     

Farmed fish to supermarket: Testing for price leadership and price transmission in the salmon supply chain

In this article, we measure the extent of price transmission and test price leadership in the salmon supply chain. The data represent monthly observations (2005–2014) on export price of fresh salmon from Norway and on retail prices for a variety of salmon products in France and United Kingdom. The contribution is to use a Johansen bivariate time-series approach to quantify the degree of price transmission on a broader set of consumer salmon products than has been previously studied. Of the original 17 retail products examined only 8 cointegrate with export prices. Of these, all but one reject a null of full price transmission and all show price causality from export to retail level. Price transmission to retail prices decreases, as more processing is involved and increases for packaged salmon products compared to salmon sold in the fresh fish counter.     

Optimal harvesting strategies: Practice versus theory

Abstract

Over the last decade or so, a number of bioeconomic models have been developed with the expressed objective of identifying the optimal time to harvest farmed fish. The models explicitly incorporate growth rates, prices and costs, but have generally excluded risk except implicitly through the discount rate. Implicit in this is the assumption that risk is continuous, such that the probability of significant changes in key parameters (e.g. prices, mortality rates etc) is independent of time. In reality, these factors can vary over time. In this paper, the optimal harvesting strategies for two farmed species were analysed using a bioeconomic model. The model was based on previous models applied in the literature, with a new feed‐use component applied. The theoretical ‘optimal’ harvest strategy was compared with actual behaviour, and the factors that may affect divergences in the results examined.