Topic Area: Aquaculture
Geographic Area: Oregon
Focal Question: Salmon farms raise fish and then release them into the ocean, harvesting them when they return to breed due to natural homing instincts. How does this affect the sustainability salmon industry, which is characterized as a common property resource in terms of price and harvest amounts?
(1) Anderson, James L. "Private Aquaculture and Commercial Fisheries: Bioeconomics of Salmon Ranching" Journal of Environmental Economics and Management Volume 12, Number 4, December 1985 pp 353-370.
(2) Cacho, Oscar J. "Development and Implementation of a Fish-Farm Bioeconomic Model: A Three Stage Approach" found in Hatch, Upton and Kinnucan, Henry Aquaculture: Models and Economics Westview Press, Boulder, 1993, pp 55-74.
Reviewer: Conrad Saam, Colby College '96

As natural fish stocks have become increasingly scarce due to overexploitation of the ocean, fish prices have risen, creating a great demand for the remaining fish. In the face of price increases, aquaculture has become a substitute supply of fish, growing 20% annually in the 90s.

Salmon ranching on the Oregon coast poses an interesting question. The juvenile fish are released into the wild and harvested when the return to the ranch to spawn. This creates a dynamic interaction between the natural and 'farmed' fish in which fishermen can take aquacultured and natural fish, but the rancher can only harvest what he has raised. The size of the rancher's harvest is partially determined by the effort expelled by salmon fishermen who have made no investment; similarly, the size of the fisherman's potential catch is partially determined by the salmon rancher. Both the rancher and the fisherman are also tied to the market demand.

Salmon ranching is distinguished from most forms of aquaculture, in that most of the fish's life is spent out of control of the rancher. Costs are therefore focused on nurturing and harvesting costs and do not include feeding, aeration, temperature control, and water quality costs which are traditionally associated with aquaculture. Economic returns are literally based on the physical return of the salmon; number of smolts released minus the natural mortality and capture by fishermen. It is especially important to note that fish that are used in spawning have little or no market value, consequently, there is a tradeoff between harvesting and reproduction. Therefore, the rancher's most important consideration is the long term regulation of his stock given the short-term price conditions.

These considerations yield a backward bending supply curve when including the interaction with the common property resource. At very low prices, aquaculture is not economically feasible. If demand continues to increase, thereby raising prices, fishermen may exploit the natural common property resource to an extent where they are beyond the maximum sustainable yield, the fish stocks start to diminish. This causes further increases in price. When the price rises sufficiently for aquaculture to become a financially viable alternative, the fish stocks within the common property resource become augmented with aquacultured fish. A further increase in prices can cause fishermen to continue to increase effort until the natural stock of fish to becomes completely extinct. The industry; however, will continue to exist, being supplied entirely by aquacultured fish. It is important to note that as the industry becomes more and more dependent on salmon ranchers to augment the population, the ranchers must increase the amount of salmon used for reproduction. This causes a reduction in the harvest rate, but is necessary to ensure long run efficiency. This effect is somewhat offset by the fact that salmon raised through aquaculture can withstand greater exploitation due to the fact that salmon fry have a greater survival rate in a controlled pond.

As the industry depends more and more on the rancher to supply salmon, he must leave more and more fish to reproduce, reducing his harvest. It is this market structure that ensures long-run equilibrium at any constant price level. If fishermen decide to capture the rancher's profits by increasing effort and therefore reducing the rancher's harvest, the rancher can retain his profits by increasing his harvest rate. This in turn reduces the amount of salmon used in spawning and reduces the population for the fishermen in the next time period. This is naturally more effective and efficient when prices are high and fishermen are more dependent on the aquaculturalists for supply.

In summary, price increases will cause the effort expended by fishermen to gradually increase which reduces the salmon stock. Aquaculturalists will supplement the supply of salmon, in extreme cases supplying the entire population when overfishing has reduced the natural population to zero. As prices rise, aquaculturalists will reduce their harvest rate to ensure future fish stocks in the future. A long-run equilibrium is established between the salmon fishermen and aquaculturalists that changes only due to fluctuations in price.

It is suggested that in order to enhance efficiency, aquaculture could be artificially encouraged by advancing the aquaculturists' property rights to include surrounding ocean water. This would reduce the catch by fishermen and increase the salmon return rate, therefore enhancing the financial feasibility of aquaculture. It would increase the salmon market supply, thereby reducing prices and reducing fishing effort. This is a current proposal in Oregon to preserve the natural fish stock. Other proposals seek to constrain fishing effort in order to save the natural stock; however, this has meet serious resistance among Oregonian fishermen because it would artificially increase salmon ranch profits.

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