Allison - Economics of adaptation to CC: Vietnam's aquaculture sector

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•  Vietnam case study (World Bank Global EACC) –  2008, aquaculture production accounted for 6.6% of the

national GDP

–  Multiple productions systems (capture/culture, species, intensive/extensive)

–  CC impacts: Temperature, rainfall changes, Sea level rise, (storm frequency and severity) (MONRE, 2009)

Cost of CC adaptation case study 2009-2010

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Impact assessment:

–  What is the vulnerability of the aquaculture sector to CC impacts?

–  What are the physical as well as economic losses which may be expected over the period 2010 to 2050 as a result of CC?

Adapta.on op.ons:

–  What are the plausible adapta?on op?ons? •  planned

•  autonomous

–  What are the costs and benefits of these adapta?on op?ons?


DEPENDENCY (D) Direct livelihood: % hh engaged in aquaculture Indirect employment: employees in fishery enterprises as % of total enterprise employees Macro-economics: Fish output as % of country GDP; seafood export processing facilities Food security: Per capita annual fish & shrimp consumption

EXPOSURE (E) Sea level rise: % of province area flooded Temperature rise: Avg temperature increase relative to 1980-99 Rainfall change: Annual rainfall change relative to 1980-99 Coastal extreme events: Aquaculture area damaged, due to storms & typhoons 1989-2008 Floods: Aquaculture area damaged by floods, 1989-2008

ADAPTIVE CAPACITY (AC) Poverty: % of population below poverty line; % of hh monthly food expenditure spent on fish & shrimp Infrastructure: Telephone lines per 100 people; # of hospital beds per 1000 people Education: Graduates of 2o education as % of total candidates Disaster response to CC: # of disaster management programs; DRM investments in construction projects; DRM investments in non-construction projects Social capital: share of fishery cooperatives as % of national total Education: % of fishery employees with education

Black: Generic; Red: CC related; Blue: aquaculture sector

VULNERABILITY - the nature & extent of losses incurred by the

aquaculture sector due to CC V = f(PI, AC)

POTENTIAL IMPACTS (PI) -  impacts that will occur without adaptation

PI = f(E,D)

Vulnerability analysis: country scale/province


Vulnerability indices by Province, Vietnam

Provinces most vulnerable to climate-induced changes in the aquaculture sector are in the Mekong Delta, Red River Delta and Central Province

Preliminary results World Bank study please do not cite


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The Mekong River delta

•  Accounts for 80% of Vietnam’s total shrimp produc?on; 75% of total fish produc?on

Freshwater ca6ish (Pangasianodon hypophthalmus)

•  Inland provinces •  “Coastal” provinces

Black 9ger shrimp (Penaeus monodon)

•  (Improved) extensive scale

•  Semi-‐intensive/intensive scale


CC Potential Impacts in the MRD

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Areas subjected to increments of maximum flooding depths during the rainy season (for 50-cm SLR by 2050 scenario), superimposed with catfish pond areas in An Giang, Dong Thap & Can Tho provinces

Increment of max flood depth (m)

Affected ca6ish pond area, ha (%)

An Giang Dong Thap Can Tho <0.5

0.5-‐1

1-‐1.5 178 13% 273 26%

1.5-‐2 163 8% 89 6% 509 48%

2-‐2.5 1,236 62% 211 15% 286 27%

2.5-‐3 394 20% 497 36%

> 3 210 10% 402 29%

Total 2,003 100% 1,376 100% 1,068 100%

Preliminary results World Bank study please do not cite


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Traditional approach economics of adaptation 1.  Baseline – no climate change 2.  Impact with no adaptation => Future Society & Future

Climate 3.  With adaptation => Adapted Future Society & Future

Climate => Cost of adaptation is the difference between 3) & 2)

Limita9on of tradi9onal approach

•  Difficult to dis?nguish between impacts and responses •  Assumes autonomous adapta?on does not occur => “dumb

farmer hypothesis”


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Fussel and Klein (2002)

Expected impacts: Costs of autonomous adaptation included


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Base production costs for catfish

11 Margins: 5%, 3%

VND million ha-‐1 crop-‐1 Inland Coastal Gross Income 4868.9 3738.1 Total Costs 4617.0 3644.7 Total Fixed Costs 20.9 28.3 -‐ Deprecia?on of ponds 11.6 17.15 -‐ Deprecia?on of machinery 7.17 8.15 -‐ Land taxes 2.13 3 Total Variable Costs 4596.1 3616.4 -‐ Pond prepara?on 23.6 27.2 -‐ Seed 329.1 263.7 -‐ Feed 3772.5 3051.2 -‐ Chemicals and drugs 205.4 152.4 -‐ Dyke upgrade 11 4.6 -‐ Fuel and electricity 48.7 7.7 -‐ Harvest and transporta?on 28.8 25.4 -‐ Labour 39.2 44.7 -‐ Interest on loans 127.4 33.9 -‐ Miscellaneous 10.4 5.6 Net Income 252.1 93.4

94%, 96% of variable costs

STEP 1

Sinh (2008)

~ 20,000 VD + 1 USD


Base production costs for shrimp

12 Margins: 123%, 129%

Input (VND million ha-‐1crop-‐1) SII Extensive

Gross Income 431.1 65.9 Total Costs 193.3 28.8 Total Fixed Costs 13.53 2.94 -‐ Deprecia?on of ponds 7.58 1.79 -‐ Deprecia?on of machinery 4.6 0.85 -‐ Land taxes 1.35 0.3 Total Variable Costs 179.68 25.86 -‐ Pond prepara?on 8.09 2.2 -‐ Seed 9.35 3.13 -‐ Feed 119 13.7 -‐ Chemical and drugs 21 1.88 -‐ Dyke upgrade 3.05 0.31 -‐ Fuel and electricity 8.63 1.37 -‐ Harvest and transporta?on 1.61 0.1 -‐ Labour 6.11 1.45 -‐ Interest on loans 1.41 1.14 -‐ Miscellaneous 1.43 0.58 Net Income 237.8 37.1

88%, 81% of variable costs

STEP 1

6.5 X higher for SII shrimp Sinh (2008)


Summary of the CC impact pathways on aquaculture

Aquaculture system Costs affected by climate change Climate change effect on production

Coastal catfish feed, pond preparation, dyke upgrade, infrastructure damage medicine/chemical, fuel/electricity, pond construction, pumping equipment

Decrease in survival rate and longer growing period will likely decrease total production per year

Inland catfish feed, seed, dyke upgrade, labour, fuel/electricity, pond construction, pumping equipment, infrastructure damage

Decrease in survival rate and longer growing period will likely decrease total production per year

Semi-intensive/intensive shrimp

feed, dyke upgrade, medicine/chemical, fuel/electricity, pond construction, pumping equipment, infrastructure damage

Decrease in survival rate, but will be offset by improved grow-out techniques. Yield is expected to decrease

Extensive shrimp dyke upgrade, seed cost, pond preparation, fuel/electricity, pond construction, pumping equipment, infrastructure damage

Increase in survival rate & possible increase in aquaculture area. Yield is expected to increase.

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STEP 2


Stakeholders’ assessment of cost changes

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Cost variable for coastal ca6ish 2010 Value

Expected % change from 2010-‐2020

Feed cost -‐  Feed price (VND kg-‐1) 7,850 +75 -‐  Food conversion ra9o 1.6 -‐5 Seed cost -‐  Stocking density (fish m-‐2) 33 0 -‐  Seed price (VND piece-‐1) 663 +50 Chemicals/drugs (VND kg-‐1 of fish) 750 +125 Pond prepara9on (VND million ha-‐1) 45 +25

… and similarly for the other three production systems

STEP 2


Stakeholders’ opinion on % of input costs attributed to CC impacts, 2000-2010

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Input cost Percentage (%) of cost due to climate change

Extensive shrimp

SII shrimp Coastal ca6ish

Inland ca6ish

Fixed cost 25 20 30 20

Feed 20 10 10 20

Seed 20 n/s 20 5

Chemicals/drugs n/s 10 20 10

Pond prepara9on 20 n/s 30 n/s

Fuel/electricity 20 20 20 30

Labour n/s n/s 10 n/s n/s: not stated

STEP 2

- Basis for Cost-benefit Analysis for “CC” and “NCC” scenarios


Experts’ opinion on changes in yield and price of outputs

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Yield Price

t ha-‐1 year-‐1 % change VND kg-‐1 % change year-‐1

2010 2010-‐20 2010 2010-‐20 2020-‐50 Ca6ish – Coastal 399

1.0% 17,000 3.0% 2.3% Ca6ish – Inland 651

Shrimp – Extensive

0.60 2.3%

100,300 1.4% 1.4% Shrimp -‐ Semi-‐int/Intensive 8.63 1.8%

STEP 2

Assumption: yields are maintained under CC scenario but at higher costs


Economic impacts of CC on inland catfish production system (farm-level analysis)

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STEP 3

Net Farm Income

CC hastens trend towards unprofitability

2010-2020 Beyond 2020


Economic impacts of CC on catfish production systems (farm-level analysis)

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STEP 3

Net Present Value (NPV)

Discount rate = 6% p.a.


Economic impacts of CC on extensive shrimp production system (farm-level analysis)

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STEP 3

Net Farm Income


Economic impacts of CC on shrimp production systems (farm-level analysis)

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STEP 3




- estimate area of current production impacted by cc

- determine future area planned for aquaculture production

- conduct Cost-benefit analysis of maintaining this area in production, distinguishing between farm-level adaptation (autonomous) and state-planned adaptation.

STEP 4


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Increment of max flood depth (m)

Affected ca6ish pond area, ha (%)

An Giang Dong Thap Can Tho <0.5 0.5-‐1 1-‐1.5 178 13% 273 26% 1.5-‐2 163 8% 89 6% 509 48% 2-‐2.5 1,236 62% 211 15% 286 27% 2.5-‐3 394 20% 497 36% > 3 210 10% 402 29% Total 2,003 100% 1,376 100% 1,068 100%

Areas subjected to increments of maximum flooding depths (for 50-cm SLR scenario), superimposed with catfish pond areas in An Giang, Dong Thap & Can Tho provinces

STEP 4

Source: SIWRP


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Increment of water salinity, ppt Province <0 0-‐1 1-‐2 2-‐3 3-‐4 4-‐8 Total

Bac Lieu 20,720 48,041 14,451 16,563 6,189 2,014 107,978 Ben Tre 11,806 30,027 41,833 Ca Mau 109,420 34,739 1,607 1,972 2,588 15,821 166,147 Kien Giang 27,059 747 1,776 29,583 Soc Trang 2,652 14,613 4,300 31,565 Tien Giang 2,559 1,201 3,760 Tra Vinh 12,848 17,837 30,685 Vinh Long 25 124 148 All provinces 187,089 146,581 30,358 18,536 9,524 19,612 411,699

Land use, 2007

Increment of salinity intrusion (ppt) for 50-cm SLR scenario

STEP 4

Source: SIWRP

Source: Sub-NIAPP


Projected production area (ha) based on development plans

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STEP 4

2010 2015 2020

Extensive shrimp1

Semi-‐intensive/Intensive shrimp1

Coastal ca6ish2

Inland ca6ish2

480,964

127,339

1,400

7,200

478,398

130,044

1,750

9,250

474,120

134,427

2,600

10,400

1.  Projected shrimp areas were based on Op.on IIIb of Lai (2009) for the whole country, with the assump.on that semi-‐intensive/intensive scale of shrimp culture is prac.ced outside of the Mekong River delta.

2.  Projected caLish areas are based on MARD (2009).


Economic impacts of CC (production industry level analysis)

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STEP 4




Benefits of planned adaptation

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STEP 5

Benefits: avoided damage costs or the accrued benefits following the adop?on and implementa?on of adapta?on measures

Our study:

•  public investment needed now to reduce or offset the cost of expected impacts farmers will have to face in the future => min. amount needed to maintain the same net income as achieved with autonomous adapta?on.

•  focus on dyke upgrading & water pumping costs

Produc9on system Dyke

upgrading Electricity and fuel

Total

Extensive shrimp 9.1 8.2 17.3 Semi-‐intensive/Intensive shrimp 117.8 26.3 144.1 Inland cajish 432.9 14.8 447.7 Coastal cajish 59.1 3.3 62.3

Total 618.9 52.6 671.5


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STEP 5

Autonomous adaptation cost of upgrading dykes at the production industry level

Catfish

At the farm level: starting 2015 the cost of autonomously adapting to CC will be too high!


On catfish:

•  Economic viability is precarious- average net income is 3-5% of total farm costs

•  CC impacts and costs of autonomous adaptation may contribute to making the industry uncompetitive within the next decade

•  Increase profit margins key to survival and adaptation to CC (“no-regret strategy”): 1) reduce cost of inputs, 2) transfer cost of adaption across the value chain and across sectors (dykes)


On shrimp: •  Positive net benefits for a longer period than catfish operators

due to lower total costs relative to gross income (Avg. net income 123-129% of total farm costs)

•  Extensive systems: profitable, high level of dependency in terms of livelihoods, low capitalization => good candidate for planned adaption

•  Threats: intensification and expansion risks of collapse (disease problems) + thermal stress, & costs of flooding & storm damage could increase costs and increase uncertainty of production

•  CC impacts (SLR, increased salinity) offer new opportunities for increased production => trade-offs between maintaining delta land for rice, or allowing saline water intrusion for shrimp farming


Key problems and limitations in analysis (1) •  CC impact costs based on perceived climate-related costs in

last 10 years, projected forward (linear projection); not explicitly linked to results of vulnerability analysis

•  Lack of clarity whether projected costs are in nominal or real terms

•  The cost-benefit study projects forward only 10 years at present – may be extrapolated another 10 (to 2030), but beyond this, extrapolation becomes increasingly unreliable without better knowledge of likely feedback responses

•  Economic analyses are done on average values; economic performance (of which feed is a major cost) varies significantly across the industry and only better performers are likely to survive

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Key problems and limitations in analysis (2)

•  Economic analysis focuses on the production stage, not on the value chain

•  Stretching the NPV concept from an individual enterprise to an entire industry (i.e. exit-entry of actors)

•  Costs of planned adaptation cannot be attributed only to aquaculture and must be spread among other sectors (agriculture, defense of coastal infrastructure, protection of homes, businesses and livelihoods etc) – needs integration of the sectoral studies

•  Impacts on capture fisheries and mariculture (e.g. cage aquaculture) and other forms of aquaculture not analyzed in this study – so these make up only part of the likely total costs of CC to the fishery/aquaculture sector in Vietnam.

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Key economic planning questions: •  Do current CC adaptation plans in the Mekong adequately

consider the potential impact on aquaculture development trajectories?

•  If not, is the aquaculture industry of sufficient economic importance to consider modifying existing coastal and land use planning for CC adaptation in the Mekong delta?

•  What would these modifications cost, and what would their impacts on other sectors be?

•  What other investments are required in aquaculture to ensure that the sector is able to respond to both a changing climate and a changing domestic economy and global market?

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Further work

•  Address data limitations: future drivers of change and scenario work with farmers (linear projection issue)

•  Economic impacts of climate change on capture fisheries and other aquaculture systems

•  Link with vulnerability and value chain analysis

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  Improved linkages with other economic sectors, and with macro-level planning, for adaptation policy analysis


Acknowledgements •  World Bank EACC for economic analysis

•  QUEST_fish project (NERC/UK) for vulnerability analysis

Full Report:

Kam S.P, Badjeck M-C, Teh L., Teh L., Bé Năm V.T, Hiền T.T, Huệ N.T, Phillips M., Pomeroy R., Sinh L.X (2010). Economics of adaptation to climate change in Vietnam’s aquaculture sector: A case study. Report to the World Bank (currently embargoed)

Documents

Allison - Economics of adaptation to CC: Vietnam's aquaculture sector