INTERACTIONS BETWEEN BIOPHYSICAL FACTORS, TECHNOLOGY, PRODUCTION STRATEGIES AND ECONOMIC OUTCOMES IN OFFSHORE SALMON AQUACULTURE

Introduction

Offshore oceans provide biophysical environments and risks that are new to the salmon farming industry. New innovations are required in several stages of the value chain. This paper analyses biophysical challenges and risks, and implications for technological innovation, investments, production strategies and financial returns. We examine different smolt size and offshore production cycle choices, accounting for a range of biophysical and technological constraints and opportunities. Our analysis show that production strategies have significant effects on production costs and returns on investments, and implications for the competitiveness of offshore aquaculture and opportunities for sustainable growth. The design of government regulations that affect production strategy and capacity utilization will ultimately play a critical role for the economic sustainability of offshore aquaculture. Here, we examine the impacts of tax regimes.

Empirical analysis

Offshore aquaculture requires investments in an entire value chain, starting with onshore production of salmon fingerling, smolt. This value chain will have a different configuration than the present inshore value chain, with new production and logistics stages. Figure X depicts the conventional inshore value chain, which today represents almost all salmon production, together with alternative offshore value chains. In two of the value chain alternatives an additional production and sea transportation stage is added, postsmolt production in sea. Furthermore, the offshore value chains at several stages require new knowledge and innovation, and involve new risks. These risks are related to biosecurity, fish health and welfare, technological performance and economic performance.

It should be recognized that total investments and production costs in an efficient inshore value chain will be lower than in an offshore value chain. An offshore farm producing 20000 tonnes of salmon may require value chain investments of approximately 5 billion NOK (500 USD, exchange rate 10 NOK/USD), while an inshore value chain producing the same quantity may require investments of only 1.5 billion NOK. The difference in investments is driven mainly by the offshore installation, but also higher share of post-smolt production and specialized vessels increase investment costs.

The economic analysis:

1. Assess suitable production cycles based on temperature, current and waves.

2. Use the TGC growth model for the different production cycles taking temperature for the different production cycles into account and find new salmon weights as a function of time.

3. Creates a model involving both the number of smolts and the weight of the growing fish as a function of time.

4. When the potential biomass minus the maximum allowable biomass (MAB) from government is positive, the surplus of the MAB is harvested. All the biomass needs to be harvested prior of the planned fallowing.

5. The production cost for each identified production cycle is found.

6. Net Present Value analyses are undertaken with and without resource tax and with sensitivity analyses.

Figure 1 shows one example of an NPV profile with different tax regimes, building on proposals from the Norwegian government.

Conclusions

Our analysis shows that the production strategies of offshore salmon aquaculture value chains have significant consequences for cost productivity and financial returns. Capacity utilization in terms of biomass is a critical factor. The size of the smolt or post-smolt released into the farms have significant effects on economic performance. Finally, the design of the tax regime is critical for the investment decision, involving investments typically in the order of 500 MEUR for a value chain serving one offshore farm.