Aquaculmral Engineering5 (1986) 103-108

Research on Aquaculture Economics: a Review Yung C. Shang

Department of Agricultural and Resource Economics, Universityof Hawaii, Honolulu, Hawaii 96822, USA

ABSTRACT Economic research on aquaculture can be broadly classified into four categories: (1) production economics, consisting of budget analysis, production fitnction, linear programming, bio-econornic modeling: (2) market studies, containing demand fitnction analysis, market survey, market stnwture, conduct and performance study; (3) project evaluation, comprised of social benefit-cost analysis and internal rate of return analysis; and (4) development policy, such as economic impact analysis. The major constraints for an economic study in aquaculture are: insufficient economic data, lack of cooperation among aquaculture experts, diversity of aquaculture research, and the use of inappropriate data and~ormethods for analysis.

I M P O R T A N C E OF E C O N O M I C STUDY The production from aquaculture is estimated to have been about 10 million tonnes in 1983, an increase of about 8"6% since 1979. Aquaculture is one of the fastest growing industries in food production. In the long run, the contribution of aquaculture to nutrition, income, employment, foreign exchange and social stability can be expected to increase substantially in many countries. For aquaculture :to realize its potential, however, it should be bio-technically, economically and socially feasible. The potential for aquaculture development in an economy is determined by factors that are both internal and external to the sector and to the economy. There are five major areas which influence aqua103 Aquacultural Engineering 0144-8609/86/S03.50- Elsevier Applied Science Publishers Ltd, England, 1986. Printed in Great Britain

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culture development in a specific location: (1) the bio-economic feasibility of rearing and marketing aquaculture species; (2) the comparative economics of rearing and marketing aquaculture species which compete with those raised in other regions in either domestic or foreign markets; (3) the availability of suitable resources for aquaculture development; (4) the relative economics of aquaculture versus other economic activities that either require the same inputs or compete in the same product markets; and (5) the existing regulations and institutional supports (credit, marketing, extension, research, etc.) related to aquaculture development. Research on the economics of aquaculture, therefore, plays an important role in the development of aquaculture. It provides a basis, not only for decision making for individual farmers, but also for formulating institutional aquaculture policies.

NATURES AND METHODS OF ECONOMIC STUDY OF AQUACULTURE

The economic studies of aquaculture can be broadly classified into four categories: production economics, marketing economics, planning and project evaluation, and development policy. The research needs and methods of analysis under each category will be briefly discussed. The methods to analyze and evaluate many of the economic problems of aquaculture are well developed in the field of agricultural economics and await only imaginative adaptation.
Aquaculture production economics

Commercial aquaculture production either for domestic consumption or for export is generally motivated by profit making. Profitability of a farm is a function of costs and returns. Cost of production depends mainly on culture technologies used and prices of the production inputs, while the returns depend on production levels and market values of the species. In aquaculture, site selection, facility design and construction, culture technology and management system are crucial factors affecting the operating efficiency of a farm, thereby influencing initial capital costs and operating expenses, as well as levels of production. Production economic analysis is essential to evaluate the viability

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of investment in aquaculture, to determine the efficiency of resource allocation, to improve the existing management practices, and to evaluate the new culture technologies. The methods used in production economic studies in aquaculture can be grouped into four categories.

( 1 ) Budget Analysis
(a) Cost-return analysis. This is the basic method usually used to evaluate the economic feasibility of a commercial operation. It answers questions such as: How much does it cost to start the business? How much does it cost to operate the business annually? What are the major cost items? Is it profitable to invest in this venture? What is the average rate of return to capital, land and labor? What is the break-even production and price level? How many years does it take to recover the initial investment? etc. This method has also been used to compare the economic feasibility of different systems and practices (such as extensive versus intensive, monoculture versus polyculture, etc.) and to evaluate the economics of different sizes of operation or different types of facility design. (b) Partial budgeting. When there is a minor change in a production technique resulting in a partial change in cost-return structure, partial budgeting is usually used to re-evaluate its economic viability. For instance, the economic feasibility of adding nursery ponds to production ponds, adding aerators or pumps in production ponds, using automatic feeders, making minor changes in pond design, etc., can be evaluated by partial budget analysis. (c) Cash-flow analysis. This analysis provides cash inflow and outflow on a monthly or annual basis. As a forward planning tool, its primary use is to estimate future borrowing needs and the loan repayment capacity for the business. (2) Production finction. This is to estimate the physical input-output relationship first, and then marginal analysis is employed to evaluate the producer's behavior. The results of this analysis can be used to answer such questions as: Which inputs are significant in explaining variation in output? Are there economies of scale in production? Are producers making

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optimal use of inputs? Are they technically and economically efficient? What constraints inhibit increased productivity and profitability of existing production systems? etc. (3) Linear programming. This method has been used to: (i) determine the profit-maximizing combination of scarce resources (such as labor, land, fry, feed, etc.) for producing a particular species; (ii) determine the best use of scarce resources for production of numerous species; (iii) specify the least-cost geographic sources from which fry and raw materials should be purchased; and (iv) determine the least-cost ingredients of a diet or ration which meet specified nutritional requirements. (4) Bio-economic modeling. This analysis, taking into account biotechnical, environmental and economic elements and their interrelationships throughout the entire production process, is one of the promising approaches to be used in improving farm management efficiency of an aquaculture enterprise.
Market studies

A species has potential for commercial development only if there is a market demand for it at prices that provide a reasonable profit for the producers, and if the market channels and infrastructures are adequate to handle the increased production efficiently. Therefore, market study is part of the economic feasibility analysis. Three major approaches are known. (1 Demand function analysis. This is to derive the demand function by using time-series or cross-series data. Price, income and cross elasticities can be calculated and future demand can be projected under certain assumptions. Demand function can be derived for a species in both local and foreign markets. (2) Market survey. For a relatively new species, market potential study is usually based on buyers' reactions to the species collected through a survey. (3) Market structure, conduct and performance study. This is to study the market channels, mark-up, infrastructures (selling, storage, processing, transportation facilities), market intelligence and marketing efficiency in order to identify the bottlenecks for market development.

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Planning and project evaluation

This is to identify aquaculture project(s) that conform with the objectives of national development, and to evaluate the economic feasibility of the project(s). Local government and international financial institutions usually conduct such studies. Social benefit-cost analysis and Internal Rate-of-Return calculation are usually used for project evaluation.

Development policy
Any development policy should be economically sound and should be subjected to economic analysis. Actually, the economic analyses mentioned above have direct impacts on policy decision. In addition, the following economic studies are sometimes needed for decision making. (1) Economic impact analysis (sector study). This is to evaluate economic impacts of aquaculture on various sectors and communities and on the economy. The input-output model is usually used to estimate the impact on income, employment, tax revenue, etc. (2) Government support for credit, infrastructures, training and extension, and research. (3) Government policy on land, water and other resources allocation. (4) Relative economics of different development strategies.

CONSTRAINTS FOR ECONOMIC STUDY IN

AQUACULTURE The major constraints for economic study in aquaculture include the following. (t) There can be a lack of reliable economic data. In many cases, the information available is from laboratory, not field, origin. This usually implies an 'experimental gap' between what is achievable under controlled versus field conditions. Laboratory results require supplemental information from existing commercial farms. Unfortunately, the data base for commercial aquaculture is poor and difficult to obtain due to the proprietary nature of an operation and because it

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is a nascent industr3" in many areas. (2) There is often a lack of cooperative research among aquaculture experts. In many cases, aquaculture experts, including economists, conduct their studies with little interactions with each other. Therefore, the necessary data for economic analysis are not available. (3) The diverse forms, species, and systems of fish culture make the economic comparisons difficult. (4) There is a lack of interest from economists in aquaculture research. (5) One often sees the use of inappropriate data and/or methods for analysis. COLLABORATIVE R E S E A R C H NEEDS IN AQUACULTURE Aquaculture has a rich history in Asia but is a relatively new industry in many other countries. Present day technology has been developed largely by 'trial and error' rather than scientific research. Presumably, productivity of resources used in traditional practices can be increased through systematic research with a consequent increase in profitability. Since aquaculture is a multidisciplinary science that includes biology, en~neering, nutrition and feed technology, genetics and economics, a wide spectrum of collaborative research is needed to develop new and more efficient operating systems, as well as to improve existing management practices. As mentioned earlier, the lack of sufficient data for economic analysis in aquaculture is a major problem, but this problem may be overcome by cooperative efforts, locally or internationally, among relevant aquaculture specialists. BIBLIOGRAPHY Allen, P. G., Schuur, A. M. & Johnston, W. E. (1983). Bioeconomics of Aquaculture, Elsevier Science Publishers, Amsterdam, The Netherlands. Food and Agriculture Organization of the United Nations (1981). Problems
offish Culture Economics with Special Reference to Carp Culture in Eastern Europe, FAO, Rome, Italy. International Development Research Center (IDRC)(1982). Aquaculture Economics Research in Asia, IDRC, Ottawa, Canada. Shang, Y. C. (1981a). Aquaculture Economics: Basic Concepts and Medtods of Analysis, Westview Press, Boulder, Colorado. Shang, Y. C. (1981 b ). Freshwater Prawn Production in Hawaii: Practices and Economics, Aquaculture Development Program, State of Hawaii.

Southeast Asian Regional Center for Graduate Study and Research in Agriculture (1982). Aquaculture Economics Abstracts, Laguna, Philippines.