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The Aquaculture Revolution and
Implications of Aquaculture for Wild Fisheries
Gunnar KnappProfessor Emeritus of Economics
Institute of Social and Economic ResearchUniversity of Alaska [email protected]
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
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
tho
usa
nd
s o
f fi
sh
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
1992
1994
1996
1998
2000
2002
2004
2006
2008
tho
usa
nd
me
tric
to
ns
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
500
1,000
1,500
2,000
2,500
3,000
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
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
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
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.
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.