The economic effects of escapees, mortality and regulations on the Norwegian salmon production

Salmon escapees are together with sea lice the most important environmental issue challenging the sustainability of Norwegian salmon farming, and high mortality rates maintain a potential animal welfare issue. In this project the main focus was not only to investigate the economic incentives related to escapees, but also related to the general losses (e.g. mortality) in the production process. Escapees and other forms of mortality is costly to a farmer, and the farmer would prefer to avoid them. However, the cost of prevention tend to increase as the problem is reduced, and the farmer may find that it is too costly to reduce the problems to zero or negligible levels, thereby creating a negative externality. This suggests that regulations are the main tools for further improvement if society wants to reduce the externality below the levels that the farmers would do voluntarily. Applying the theory of bad outputs with some adjustments, this project used a cost-based model of Norwegian salmon aquaculture production to identify potential incentives farmers have to reduce escapees. Further, by covering a period of time when new requirement for installations were put in place to prevent escapes in 2006, the impact of this regulatory change was tested. The results indicate that escapees have not affected the salmon production cost directly, even after regulations were enforced in 2006. In addition, there have been no incentives related to indirect cost effects, due the non-joint production process. With a non-joint production technology and input-output separability, it is possible to design regulations that does not cause distortions and reduce economic efficiency to reduce the number of escapees. In addition, this project investigated factors influencing production loss, which includes mortality. The factors were grouped into fish-specific factors (e.g. species, genetics, and generation), input factors (e.g. vaccines and smolt quality), environmental factors (e.g. geographical location), and managerial factors (e.g. ownership). The results indicate that production losses to a large extent are explainable by these factors, meaning that it is possible to reduce production losses significantly. However, while some factors are related to the company decisions, others are beyond their control. In fact, some of these external factors can be related to the regulatory system.

The results from the analysis performed with respect to the project's goal provide information that will contribute to more informed decisions from the regulators and the industry. More specifically, by investigating the incentives farmers have to address escapees, it is possible to design better regulations that limit the industry's environmental impact, but not growth. In addition, knowledge developed in the project on mortality causes provide valuable information for the aquaculture industry, and other stakeholders to avoid that and increase not only the fish welfare, but also the industry's productivity and revenues. Furthermore, the results of this project were also taken as base for new research questions and project applications. For instance, it is planned to investigate the economic incentives farmers have to address also the sea lice problem. We intend to expand the approach used for escapees, and also account for production and environmental inefficiency measures.

Salmon escapees are together with sea lice the most important environmental issue challenging the sustainability of Norwegian salmon farming, and high mortality rates maintain a potential animal welfare issue. In this project the main focus will be on economic incentives related to escapees, but general mortality and its causes will also be investigated. Generally, escapees and other forms of mortality is costly to a farmer, and the farmer would prefer to avoid them. However, the cost of prevention tend to increase as the problem is reduced, and the farmer may find that it is too costly to reduce the problems too zero or negligible levels, thereby creating a negative externality. This suggests that regulations are the main avenue to force them to improve further if society want to reduce the externality below the levels that the farmers would do voluntarily. Applying the theory of bad outputs with some adjustments to model the economics of escapees, this proposal aims understand the economic effects of escapees and mortality in the Norwegian salmon production, recognizing the multi-output structure of the production process, as well as simulate the effect of potential regulatory measures. Based a survey of all salmon companies in Norway containing detailed cost data, and the monthly plant level dataset with more detail on biomass will be used to estimate a cost function with the variables associated with the bad outputs, and to test the research questions and simulate the effect of various regulations. Additionally, potential factors affecting the loss in production in salmon farming will be investigated. In order to do that, regression analysis will be performed on a dataset comprising total salmon loss as well as its causes, and several factors, including inherent factors (e.g. species, time since release and generation), environmental factors (e.g. location, temperatures, latitude), and managerial factors (e.g. smolt provider, ownership, firm type).