AQUACULTURE ECONOMICS

1. AQUACULTURE ECONOMICS Review and Analysis Method at Farm Level Pongpat Boonchuwong Fisheries Economic Division Department of Fisheries

2. Contents • Introduction • Economics of Aquaculture: Classification and Factors Affecting • Tools of Research: Record, analysis, and Survey

3. INTRODUCTION • Half of the world’s population depends on fish as a principle source of animal protein. • In many country, people derive more than 50 percent of their daily animal protein requirements from fish.

4. Fish is also second only to rice in the diets of low-income people of many developing country. • Fish is an importance component of total human food consumption and, to a lesser degree, of animal feed. • It is nutritionally equivalent to meat in protein, high in essential minerals, and low in saturated fats.

5. ADVANTAGE AND IMPORTANCE OF AQUACULTURE • First : • Fish culture is stock raising, as opposed to hunting. Stock raising is more efficient than hunting in harvesting a resource because extensive search efforts are not required; thus, harvest is proportional to effort and be predicted. • Second : • Environmental conditions can be largely controlled and genetics can be manipulated to improve yield.

6. World Aquaculture

7. World Aquaculture (1,000 Tons)

8. ECONOMICS OF AQUACULTURE:Classification and Factors Affecting • Classification of Aquaculture System • Factors Affecting the Economics of Aquaculture Contents

9. Classification of Aquaculture System

11. Factors Affecting the Economics of Aquaculture The producers’ profit or net income per unit (Y) of land or water area is mainly affected by production (Q), the cost of production and marketing (C), and the price received (P), as shown in the basic equation below: Y = Q.P - C

12. Y = Q . P - C (Increase in Production) (Reduction in Cost) Stocking Rate Survival Rate Growth Rate (Increase in farm Prices) • Quality of fish • Seasonality and social customs • Cooperative marketing • Different markets and products • Cost of construction • Cost of fertilizer and feed • Cost of seed • Cost of labor • Cost of water • Interest • Marketing cost • Land lease Fertilization & Feeding Polyculture Aeration Stock Manipulation - Multiple size - Same size in a system - Double cropping Good pond Management Correct stocking rate Right kind and amount feed/fertilizer Proper water quality Prevent diseases & parasites Elimination of predators

13. INCREASE IN PRODUCTION 1. Increasing Stocking Rate • Fertilization and supplementary feeding • Polyculture • Stock manipulation • Multiple-size stocking • Same-size stocking in a system of ponds • Double cropping • Aeration: • Running water and aeration can also increase the dissolved oxygen of the pond water, and hence the stocking rate

14. 2. Increasing Survival and Growth Rates • Correct stocking rate • The general formula for determining • the appropriate stocking rates and stocking ratios is as follows: • S = [A.Q/(W2 –W1)]/H S = stocking rate (number) A = size of fish pond (ha) Q = expected yield per ha based on experiences of previous years (kg) W1= average weight of individual fry or fingerling when stocking ( kg) W2= expected average weight of individual fish when harvesting ( kg) H = harvesting rate (percent)

15. Proper water quality Water temperature and dissolved oxygen are two major factors that affect the water quality, and hence the survival and growth rates of fish. The amount of dissolved oxygen needed by fish usually varies according to the species. The oxygen content of a pond depends on the quantity of organic matter, the submerged aquatic vegetation, and the water temperature. Diseases, parasites, predators, and competitors are factors that inhibit successful pond production. Certain diseases cause considerable losses of the crop, especially under intensive farming. High-stocking density, water pollution, and inefficient farming conditions promote fish diseases.

16. REDUCTION COSTS OF PRODUCING AND MARKETING 1. Cost of Construction • The primary considerations in site selection are topography, water supply, and soil quality. The ideal location for a fish pond is on flat land. • The size, shape, and depth of the pond and the clearing work required also affect the cost of construction. • As costs of construction increase in proportion • to depth, excavation should be minimized.

17. 2. Cost of Feed and/or Fertilizer • Feed and/or fertilizer are probably the most important cost items for intensive aquaculture. In many cases they compose more than 50 percent of the total cost of production. • Cost of feed per unit of fish production (Cf) depends primarily on two elements: the conversion ratio of fish to flesh (R) and the unit price of feed (Pf) as shown in the following simple formula: • Cf = RPf • The cost of feed can be reduced by an improvement in the conversion ratio or by lowering the unit price of feed, or by a combination of these two factors.

18. The economic principle of feeding is that the amount of feed should be at a level where the additional cost of feed equals its additional revenue. • The relationships between the effectiveness of different kinds of feed or combination of feed and their costs should be studied in order to determine the optimum level of feeding or the least-cost combination of feeds. • It would not be economically feasible to produce larger sizes if the increased cost of feed could not be offset by the increased unit price of larger fish.

19. Cost of Feed and Fertilizer as Percentage of Total Production Cost for Selected Species Species Country % Reference Sepat Siam Thailand 11 OAE, 1995 Rohu Thailand 28 OAE, 1995 Silver Barb Thailand 35 OAE, 1995 Catfish (Pangasius) Thailand 38 OAE, 2000 Nile Tilapia Thailand 39 OAE, 2000 Catfish (Clarias) Thailand 73 OAE, 2000 Striped Snake-head Thailand 74 OAE, 2000

20. 3. Cost of Seed • A reliable supply of good quality fish seed (fry, fingerlings, etc.), obtained at a reasonable cost, is one of the most important requirements for aquaculture. • The price of fingerlings is higher than that of fry, but the survival rate of fingerlings is also relatively greater. Under certain conditions, the cost of seed per unit of marketable fish would be lower and growth period shortened if one starts with larger fingerlings rather than small fry. • Large fish farms may benefit from their own hatcheries and small fish farms would benefit from central hatcheries operated either by government or by cooperatives.

21. 4. Cost of Labor • Labor cost is one of the major expenses of aquaculture because, in most cases, mechanization has not yet been inefficiently developed to replace the intensive use of labor. Harvesting, feeding, and maintenance are the major time consuming tasks. Therefore, efficient management and use of labor are essential in reducing the cost of production. • When capital is limited and family labor is relatively abundant—which is true in many developing countries. • Both labor and capital can vary, which is usually true in the long run, substituting one for the other might be desirable. Of course, the rate of substitution is related to their relative productivities and prices.

22. 5. Cost of Water • In many places good quality water, especially freshwater, is one of the major limiting factors for aquaculture because it is in great demand for other uses. • In selecting sites for freshwater fish culture, effort should be made to locate the ponds in areas accessible to the water supply, e.g., near streams, rivers, groundwater, etc. • In many cases, water recycling or water treatment for reuse is necessary and would increase the quantity of a given water supply many times.

23. 6. Interest • The rate of interest varies with the supply of and demand for capital and with the risks involved in an operation. • The risks involved in aquaculture are relatively high because of several factors: 1) the limited knowledge about controlling diseases and parasites; 2) the difficulty of reproducing species in captivity and controlling predators; 3) the lack of experience in managing dense populations of aquatic animals; 4) water population and storm and flood damage are also risks involved in fish culture. • Investors in aquaculture encounter high interest rates because of the shortage of capital and the high risks involved.

24. 7. Land Lease • The value or the rental price of land varies mainly with its quality and its alternative uses. In selecting a construction site for a pond, effort should be made to avoid choosing valuable lands that could have competing or conflicting uses. • Government intervention either by laws and regulations or by leasing public lands suitable for aquaculture may improve the situation.

25. 8. Marketing Costs • Marketing costs include preservation, processing, storage, transportation, commission, and waste. • Fish is a highly perishable commodity. Poor transportation and marketing facilities also decrease farm price because they result in poor quality and oversupply. • Government support for improved transportation, storage, and ice plants, marketing cost can be substantially reduced; consequently, production, either through direct or indirect effect of higher profits for producers, can be increased. • The development of cooperatives or associations might increase marketing efficiency and lower marketing costs.

26. Market Structure : 3 Levels • Primary market farm gate assembly market , wholesale market • Intermediate market retail market , export • Terminal market

27. CHART: MARKETING CHANNEL OF CULTURED FRESHWATER FISH IN THAILAND (From survey, 1999)

28. Marketing Margin Differences b/t prices paid by consumer (retail P.) and prices received by the producers (farm gate P.)

30. INCREASE IN FARM PRICES 1. Improvement in the Quality of Fish • Most of the production from fish ponds in Asia countries is sold while the fish are still fresh. • Low quality, spoilage, and waste reduce the average price that the farmers receive. • The quality of fish can be improved through proper preservation during transport and storage. Fish farmers will benefit from preserving their products as long as the cost of preservation is less than the benefit they gain. Well-graded fish usually command a higher price in the market than assorted sizes of fish.

31. 2. Seasonality • The price of fish usually fluctuates seasonally as a result of variations in the supply and demand. • Stability—and perhaps even an increase in the average price farmers receive for their stock—are possible with a phased stocking operation, which promotes harvesting at desirable times with respect to the demand for and price of fish. • The demand for and price of fish are usually high during the off-fishing season and the holidays associated with the local social customs. This practice is feasible only if the seasonal high can be predicted and the costs associated with a change in production pattern are less than the gains in price received.

32. 3. Cooperative Marketing and Different Markets and Products • The small-scale fish operators are usually in a weak bargaining position and often receive very low prices for their product. The situation may be improved through collective bargaining by fish pond operators’ associations or cooperatives. • A regulated and sorted supply of fish means greater stability in price and, on the average, higher prices. • Wasted time and unnecessary transportation costs can also be eliminated. • Allocating fish to different markets and selling them in different forms (fresh, frozen, salted, smoked, etc.) may also increase the average price and maximize revenue.

33. TOOLS OF RESEARCH Record, Analysis, and Survey Contents: Record Keeping and Analysis for Fish Farms • Input records • Output records • Annual (or seasonal) records • Analysis of the farm operation The Socioeconomic Survey • Determining objectives of the survey • Developing sampling methods • Analyzing data

34. RECORD KEEPING AND ANALYSIS FOR FISH FARMS • To determine the relative profitability of various production techniques or systems • To compare the productivity of major inputs, such as land, labor, and capital, with that of alternative production activities • To improve the efficiency of the farm operation The collection and analysis of data on costs and earnings based on farm records provide the information necessary

35. INPUT RECORDS • Variable inputs : Variable inputs or variable costs are those varying with the level of production, such as fry, feeds, fertilizers, labor, pesticides, fuel, electricity, and water • Fixed inputs : Fixed inputs or fixed costs are those that do not change with the level of farming activity, such as land rent, tax, interests, insurance premiums, depreciation on fixed assets, salaries of manager, and technicians

36. VARIABLE COSTS • For instance, if polyculture is practiced, then the stocking materials should be classified by stocked species and by size of the stocking materials, such as fry or fingerlings. • Feed used should be specified by particular kind, such as pellet, rice cake, soybean cake, and trash fish. When fertilization is involved, the kind of fertilizer used should be specified, such as poultry or pig manure, tobacco waste or inorganic fertilizer. Each item, its amount, its unit cost, and its total cost should be recorded. • Fish farming activities require labor, and it is better to keep a separate record for labor. Wage should include both in-cash and in-kind payments. The farmer must also record his family members’ labor as input.

37. FIXED COSTS • Fixed costs are usually payable on an annual, quarterly, or monthly basis and should be record separately • A list of fixed assets with their initial or current costs and their estimated years of economic life is required to calculate depreciation. Depreciation = (Initial cost – Salvage)/ economic life • The current replacement cost, instead of the original cost of fixed assets or items that were constructed or purchased long ago, should be used for computing depreciation. • It is important to note that land is not depreciable.

38. If the fixed assets are shared between aquaculture and other farm activities, an appropriate proportion should be determined before computing depreciation. • If the farmer takes a loan to build fish ponds and/or buy equipment, it is important to keep a separate record for each loan, i.e., a record stating the purpose of the loan, the outstanding amount, and the interest payment. • Cost of permanent personnel should include the salary and cost of fringe benefits, excluding the portion worked at other activities not related to fish farming.

39. Table 2.1 Sample Daily Records of Variable Inputs a a Each fish pond, or group of ponds in similar condition, should have a record of inputs. b Item of variable input, such as seed, feed, fertilizer, electricity, water, fuel, and oil, etc. c Kind of each input item. For instance, kind of send may be tilapia fry, or Chinese carp fingerlings, etc., or a combination of them; kind of feed may be rice cake, or soybean cake, or trash fish, etc., or a combination of them. Each kind of input item should be listed. d Quantity of each kind of input and its unit used such as kg , ton, etc. e Such as cost per kg, per ton, per 1000 fry, etc. f Quantity multiplied by unit cost equals total cost of each input at a time.

40. Table 2.2 Sample Daily Records of Labor Inputs a a Each fish pond, or group of ponds in a similar condition, should have a record of labor input. b Economic activities of fish farming can be classified as: pond preparation, fertilization, stocking materials acquistion, stocking, feeding, maintenance, harvesting, and marketing. c Such as adult, child, male, female, etc. d Number of man/day or man/hour should be specified. e Wage rate per man/day or per man/hour. Wages in kind should be imputed into value by using the market price of the product.

41. Table 2.3 Sample Records of Fixed Inputs a Item of fixed input such as rent, tax, salaries of manager and technicians, insurance premiums, etc. b Monthly salaries of the manager and technicians should include the cost of fringe benefits and exclude the portion worked on other activities not related to fish farming.

42. Table 2.4 Sample Records of Loans a a It is better to keep a separate record of each loan. b Such as pond construction, purchase of particular equipment, operating expenses, etc.

43. Table 2.5 Inventory of Assets and Calculation of Depreciation

44. a Acquisition cost may be used to calculate depreciation for short-lived assets and for assets constructed or purchased recently. a Prevailing market value should be used to calculate depreciation for those assets that were constructed or purchased long ago. c The estimated salvage value of the assets at the end of their economic life. d The differences between columns (1) and (3) or (2) and (3) e The number of useful years of the asset. f The proportion of the asset used for fish farming or for a given pond operation. g Depreciation is calculated by diving column 4 by column 5 and then multiplying by column 6.

45. OUTPUT RECORDS • All the details of the following items should be included in the record: date of harvesting, species harvested , and the disposition of the product. • Gross revenue of the production should include the cash and credit sales of the products and the imputed values of the quantities consumed on the farm.

46. When continuous stocking and harvesting is practiced, the change (increase or decrease) in the value of inventory should be included in the calculation of the gross revenue. a Such as fry, fingerlings, growers market size, etc. b Number or kg of each type stock in the pond. c Difference between the values of beginning and ending inventories.

47. ANNUAL (SEASONAL) RRCORDS • At the end of the year or each production cycle, the quantity and value of production by species and the operating costs by item of each fish pond or group of ponds in similar conditions should be summarized. • All factors should be recorded directly from the daily farm records onto a single-page table so that the performance over the whole period can be seen at a glance and evaluated

49. ANALYSIS OF THE FARM OPERATION Based on annual records, several indicators that evaluate the performance of an operation can be calculated. - Profit • - Average rate of return on investment • - Average rate of return on operating cost • - Yields (or value of output) per unit of major input • - Cost of input per unit of output • - Amount of major input per unit of land or water surface • - Amount of major input unit of protein output

50. Profit Profit = TR – TC Where; TR = Gross revenue TC = Total cost of production