The Aquaculture Revolution and Implications of Aquaculture ... · –Market implications of...

The Aquaculture Revolution and

Implications of Aquaculture for Wild Fisheries

Gunnar KnappProfessor Emeritus of Economics

Institute of Social and Economic ResearchUniversity of Alaska AnchorageGunnar.Knapp@uaa.alaska.edu

MREP Aquaculture Science and Policy workshop

New Orleans, Louisiana

June 13, 2018

• PhD in Economics from Yale University, 1981

• Professor for 35 years at University of Alaska Anchorage Institute of

Social and Economic Research (ISER)

• Spent most of my career studying:

– Seafood markets

– Fisheries management

– Aquaculture

– Seafood industry

Briefly about myself

My goal for this talk

• Not to advocate about specific Gulf aquaculture issues

– I have not studied them

• To offer economic insights which may be relevant for thinking them

• Two topics

– The aquaculture revolution

– Market implications of aquaculture for wild fisheries

The Aquaculture Revolution

(Reviewing some of the points

made by Frank Asche in Portland)

An aquaculture revolution is happening in the world seafood industry.

World fish production

Aquaculture is growing rapidly

because it can meet growing and changing

global market demands for seafood.

Fresh tilapia for sale at

Swanson’s Store,

Bethel, Alaska,

April 2002

Factors driving the aquaculture revolution . . .

• Growing global demand for food due to:

– Global population growth

– Economic growth

• Stagnating global wild fish catches

• Globalization:

– Lower costs of shipping

– Lower barriers to trade

To exploit these conditions, one must be competitive

Factors driving the aquaculture revolution . . .

• Growth of large retail chains which want seafood products with the

attributes aquaculture can supply:

– Year-round reliable supply of large volumes

– Growing supply

– Consistent quality

– Efficient logistics

– New product forms

– Food safety

– Traceability

– Sustainability

these conditions, one must be competitive

Systematic research & development leading to innovation

throughout the aquaculture supply chain

Offshore fish farming technologies

Land-based fish farming

Factors driving the aquaculture revolution . . .

Fish feeding and fish health technologies . . .

Use of antibiotics in the Norwegian salmon farming industry

Reduced environmental impacts . . .

Transportation & distribution technologies . . .

Air freight

Trucking

Distribution terminals

Robot loading fish at a

Norwegian processing plant

New product forms

Branded salmon

Pre-prepared meals

Better cuts

Highly processed

Wild fisheries have some competitive advantages

over aquaculture . . .

• Nature produces wild fish “for free”

– Often in large volumes

• The fish are “natural” products

But across the entire value chain,

wild fisheries have many inherent competitive disadvantages

relative to aquaculture.

• Higher costs of harvesting

• Seasonality of production

• Variation and unpredictability of production

• Variation in fish size and quality

• Remote locations

• Production constraints

– Inability to increase production

– Inability to improve or modify fish through selective breeding

It is these constraints that have led to the replacement of most

wild plant and animal gathering and hunting by agriculture.

Actual Alaska sockeye

salmon harvests typically

differ from pre-season

projections by 30%.

Alaska Sockeye Salmon Harvests: Projected and Actual

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

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Pre-season projections Actual harvests

This computer at a Norwegian salmon

farm can tell the producer exactly how

many fish of what size are in each pen

(and in the pens of all the farms owned

by this company on three continents)

Inconsistent and unpredictable production makes it much more

difficult for wild salmon producers than for farmed salmon

producers to meet buyers’ supply needs and to plan for marketing.

Because it processes farmed salmon

year round, this relatively small British

Columbia facility processes as much

salmon as the largest Alaska facilities.

The fact that many Alaska fishing

boats and processing plants are

idle for much of the year is a

huge cost disadvantage.

Norwegian salmon

processed in winter

The seasonality of wild salmon fisheries increases

production costs relative to farmed salmon, and makes it

relatively more difficult to market wild salmon.

A new fish processing plant for Alaska’s Bristol Bay salmon fishery.

It operates less than six weeks per year.

Very large harvests in

short time periods

makes lower-valued

canning the only

practical option in some

wild salmon fisheries.

Because it can choose when

to process fish, this BC

farmed salmon processor

doesn’t process salmon until

it already has a buyer. The

fish are processed to that

buyer’s specifications.

Grades at a southeast Alaska processing plant

Wide variation in sizes and quality increases costs of processing

and marketing wild salmon.

Some salmon farming critics argue that farmed salmon is inferior

because it is artificially colored.

Salmon farming critics miss the real lesson of the SalmoFan:

The real lesson is that control over production allows aquaculture to respond

to market demand in ways that wild fisheries can’t even imagine.

• Fish veterinarians

• Fish nutritionists

• Fish breeding

• Fish analysts

• Pen and pond cleaners

• Pharmaceuticals

• Aquaculture finance

• Aquaculture law

Aquaculture is driving the development of supporting industries which

enhance innovation and the competitiveness of aquaculture

Global aquaculture production will continue to increase.

• There is tremendous scope for further

production growth and market development

• Growth will create challenges

– Environmental

– Feed

• These challenges can probably be solved

– Experience

– Innovation

• Innovation responds to market demand

– When needs arise

• Not very fast yet in what we produce

• But very fast in what we eat!

The global aquaculture revolution is happening in the United States

More than 2/3 of US fresh & frozen salmon supply is farmed.

Source: Gunnar

Knapp estimates

based on US trade

data and Alaska

production data

• Primarily farmed

• Primarily imported

U.S. seafood consumption is rising fastest for species which are . . .

Per capita U.S. seafood consumption (top species)

The global aquaculture revolution will continue

to bring rapid change to the US seafood industry

regardless of whether we enable and support fish faming.

• Through global market impacts of aquaculture

– On domestic markets for US fish

– On foreign markets for US fish

Market Implications of Aquaculture

for Wild Fisheries

How might Gulf of Mexico aquaculture

affect wild fisheries markets?

The answers are neither obvious nor simple.

Gulf of Mexico aquaculture might affect

wild fishery markets in multiple ways.

Negative

• Compete with wild fisheries in

existing markets

Positive

• Grow existing markets

• Develop new markets for both

farmed and wild fish

• Improve the supply chain for

wild fish

– Ports

– Processing

– Transportation

Little or no effect

• Sell in different markets than

wild fish (domestic and export)

• Compete with foreign farmed

fish in existing markets

(domestic and export)

How Does Aquaculture Affect Wild Fisheries?

The Case of Alaska Wild Salmon

The Alaska wild salmon industry is very large and diverse!

• Five salmon species

– Significant differences in size, characteristics, prices

• Multiple product forms

– Canned, frozen, fresh, roe

• Multiple gear types

– Seine, drift gillnet, set gillnet, troll

• Large geographical differences

– Species, gear, harvest volumes, infrastructure, costs

It’s difficult to generalize about the Alaska wild salmon industry!

Alaska is the world’s largest producer of wild salmon.

World Salmon Supply: Wild and Farmed

0

500

1,000

1,500

2,000

2,500

3,000

3,5001980

1982

1984

1986

1988

1990

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Farmedtrout

Farmedsalmon

Otherwildsalmon

Alaskasalmon

Sources: Alaska data from Alaska

Commercial Fisheries Entry Commission and

Alaska Department of Fish and Game; other

data from National Marine Fisheries Service

and FAO FishStatJ database. Farmed trout

includes rainbow trout farmed in saltwater.

Salmon is one of the species for which the growth in aquaculture production

has been most dramatic. Between 1980 and 2007, farmed salmon’s share of

world salmon supply grew from 2% to 64% of world salmon supply.

World Salmon Supply, 1980-2008

0

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1,000

1,500

2,000

2,500

3,000

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thousand m

etr

ic tons

Farmedsalmon

Wildsalmon

Sources: Alaska Commercial Fisheries Entry

Commission; Alaska Department of Fish and

Game; National Marine Fisheries Service.

Farmed salmon includes trout farmed in salt

water.

Because of concerns about the potential

environmental and market impacts of salmon farming,

Alaska banned all finfish farming in 1990.

“A person may not grow or cultivate finfish in captivity

or under positive control for commercial purposes.”

[Alaska Statutes - Section 16.40.210] *

Logo of Alaska Seafood

Marketing Institute

“This section does not restrict the fishery rehabilitation, enhancement, or development

activities of the department [or] the ability of a nonprofit corporation that holds a salmon

hatchery permit . . . to sell salmon returning from the natural water of the state.”

[Alaska Statutes - Section 16.40.210]*

How 40% of Alaska’s

“wild” salmon start out

Alaska’s salmon farming ban did not ban salmon hatcheries.

About 40% of Alaska salmon harvests are fish released by hatcheries.

Alaska has no salmon farming!

All of the impacts of salmon farming

on the Alaska salmon industry

resulted from foreign salmon farming.

Not allowing aquaculture

doesn’t protect you from

the impacts of aquaculture.

Alaska salmon harvests vary widely from year to year.

Total harvests have been high since the 1980s.

What happened to Alaska salmon markets as

global farmed salmon production grew rapidly?

World Salmon Supply, 1980-2008

0

500

1,000

1,500

2,000

2,500

3,000

19

80

19

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19

84

19

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19

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19

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thousand m

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Farmedsalmon

Wildsalmon

Sources: Alaska Commercial Fisheries Entry

Commission; Alaska Department of Fish and

Game; National Marine Fisheries Service.

Farmed salmon includes trout farmed in salt

water.

Before 2002 After 2002

What happened to Alaska salmon prices as

global farmed salmon production grew rapidly . . .

$4.74

in 1988

What happened to Alaska salmon ex-vessel value as global farmed

salmon production grew rapidly . . .

Potential impacts of aquaculture on wild fishery markets . . .

Primary impacts of salmon farming on Alaska salmon before 2002

Negative

• Compete with wild fisheries in

existing markets

Positive

• Grow existing markets

• Develop new markets for both

farmed and wild fish

• Improve the supply chain for

wild fish

– Ports

– Processing

– Transportation

Little or no effect

• Sell in different markets than

wild fish (domestic and export)

• Compete with foreign farmed

fish in existing markets

(domestic and export)

Competition from farmed salmon was the biggest factor

driving down Alaska salmon prices before 2002,

but many other factors also contributed . . .

• Large Alaska wild salmon harvests

• Increased exports of Russian wild salmon

• Stagnation of Japanese seafood demand

• Increasing consolidation and market power in the retail and food

service industries

As economic conditions worsened, people wondered

whether Alaska’s salmon fishery would survive.

The Alaska salmon fishery DID survive.

Prices began to recover after 2002—

though they have continued to fluctuate.

The Alaska salmon fishery DID survive.

Ex-vessel valued recovered significantly after 2002—

though not to levels of the 1980s.

Potential impacts of aquaculture on wild fishery markets . . .

Increasingly important impacts of salmon farming

on Alaska salmon after 2002

Negative

• Compete with wild fisheries in

existing markets

Positive

• Grow existing markets

• Develop new markets for both

farmed and wild fish

• Improve the supply chain for

wild fish

– Ports

– Processing

– Transportation

Little or no effect

• Sell in different markets than

wild fish (domestic and export)

• Compete with foreign farmed

fish in existing markets

(domestic and export)

Alaska’s wild salmon fisheries have survived and are generally doing well

despite dramatic growth in global farmed salmon production.

To understand why, you need to think about how:

- Competition from salmon farming changed the wild salmon industry

- Salmon farming changed world salmon markets

Before it faced completion from salmon farming,

Alaska’s wild salmon industry . . .

• Was almost a monopoly supplier of salmon to world markets

• Was highly overcapitalized and inefficient

• Gave little thought to and invested little in:

– Product quality

– Marketing

– Market diversification

– New product development

Inefficiency and high costs due to:

Too many boats

Race for fish

Photographs by Bart Eaton

Bruising as fish are caught in and

removed from gillnets

Fishermen focused on catching fish

fast rather than handling them well

Lack of attention to quality . . .

Lack of attention to quality:

Lower value than could be achieved from the fish

with better handling

Bruises in a Yukon River chum salmon fillet

As profitability declined, eventually fishery participation

fell dramatically in many fisheries.

Share of Permits Fished, Selected Alaska Salmon Fisheries

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

CFEC Basic Information Tables

2010 $

BristolBay DriftGillnet

SoutheastPurseSeine

With lower participation, average catches increased for the remaining

fishermen, increasing profitability.

Average Catch as Share of Total Catch: Southeast Purse Seine

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

CFEC Basic Information Tables

2010 $

Major efforts were made to improve the quality of Alaska salmon.

Source: Northern Economics, 2017 BBRSDA Processor Survey, prepared for Bristol Bay Regional

Seafood Development Association, April 2018. https://www.bbrsda.com/reports/.

The Alaska salmon industry followed the lead of salmon farmers in

developing new salmon products.

Farmed

Atlantic

fillets

Wild

sockeye

fillet

Alaska frozen sockeye producers greatly diversified away from their previously

near-total dependence on the Japanese market

Estimated End-Markets for Alaska Frozen Sockeye Salmon (%)

0%

20%

40%

60%

80%

100%

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

USA

Other export

China

EuropeanUnion

Japan

Note: USA

estimated as

Alaska

production

minus exports.

The industry engaged in extensive marketing to differentiate wild

Alaska salmon from farmed salmon.

Some Alaska salmon fisheries developed niche markets which

commanded premium prices.

Changes over the time in the wholesale price premium of selected wild

salmon products over farmed Atlantic salmon products in the US market

Salmon farming created new markets for Alaska wild salmon

Wegmans, Germantown, Maryland, April 2018

Global farmed salmon production and real price

In the 1980s and 1990s, global

farmed salmon production grew

faster than global demand, lowering

prices for both farmed and wild

salmon.

Since the early 2000s, long-term

growth in global farmed salmon

demand has kept pace with growth in

supply. Prices of both farmed and

wild salmon have fluctuated but

trended upwards.

Alaska wild salmon prices are influenced by the prices

of competing farmed salmon—but also by other factors such as wild catches.

Products for wild salmon prices which compete most directly with farmed salmon

now follow trends of farmed salmon prices, both up and down.

Sources: NMFS Foreign Trade in Fisheries Products data; Alaska Department of Revenue salmon wholesale price data.

• Initial effects

– Farmed salmon competed directly with wild salmon in major

traditional markets

– Total supply expanded faster than demand

– Prices fell:

• Reducing profits for both harvesters and processors

• Creating severe economic and social pressures

• Economic pressures led to changes in the wild industry

– Consolidation in harvesting and processing

– Product diversification

– Market diversification

– Expanded marketing

Implications of salmon farming for the Alaska wild salmon Industry . . .

Implications of salmon farming for the Alaska wild salmon Industry . . .

• Over the longer term, salmon farmers developed new markets,

greatly expanding world demand

– New product forms

– New kinds of retail outlets

– New countries

• Expanding world demand increased prices for both farmed and wild

salmon

• Differentiated demand expanded for selected wild salmon products,

increasing their price premium (or reducing their price discount)

relative to farmed salmon products

• Long run effects of salmon farming:

– More efficient wild fishery producing better products

– Prices approaching pre-farming levels

• Change has been rapid, continuous, far-reaching

– Were not well predicted in advance

• Changes can not be understood solely by looking at harvesting

– Occurred throughout the entire distribution/value chain

– Many different types of changes and adjustment:

• Markets

• Products

• Marketing

• Fisheries management

• Industry structure

Implications of salmon farming for the Alaska wild salmon Industry . . .

• The effects of salmon farming on Alaska’s wild salmon industry were

not caused by Alaska or US salmon farming.

• Banning Alaska salmon farming did not stop them!

Remember:

How has salmon farming affected the Alaska wild salmon industry?

POPULAR / GREEN / ALASKAN PERSPECTIVE:

Inferior farmed salmon flooded world markets, depressing wild

salmon prices and harming Alaska fishermen and fishing

communities. Prices have recovered as consumers recognize the

superiority of wild salmon.

How has salmon farming affected the Alaska wild salmon industry?

AN ECONOMIC PERSPECTIVE:

Salmon farming exposed a “natural” monopoly to competition, benefiting

consumers by expanding availability, lowering prices, spurring innovation and

product and market development. Over time, competition had led to a more

efficient wild salmon industry more focused on meeting market demands, providing

better products to broader markets, and benefitting from rising demand and prices.