Green growth in east and west Nordic aquaculture regulation versus technological development

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1 Green growth in east and west Nordic aquaculture regulation versus technological development Trondheim, 27. June 2012 Ragnar Tveterås

2 Nordic aquaculture a heterogenous sector Ocean based farm in Norway Land based farm in Denmark

3 Different challenges across Nordic countries Ambitions and objectives Natural (biophysical) conditions Scale of sectors Scale of individual farms Competition with other sectors and user interests Attention and competence among regulators

4 Aquaculture growth = green growth? Nordic aquaculture sectors can only grow in the long run if growth is green In aquaculture some sectors have experienced growth over some years which was not sustainable And some aquaculture sectors have been severely punished OECDs working definition: Green growth is about maximising economic growth and development while avoiding unsustainable pressure on the quality and quantity of natural assets.

5 Shrimp production, The Philippines ,000 tonnes Source: FAO

6 Shrimp production, Taiwan 1,000 tonnes Source: FAO

7 Salmon production, Chile 1,000 tonnes Source: FAO, Kontali

8 Production and productivity growth In most cases sustained production growth has to be accompanied by productivity growth In aquaculture significant productivity growth will usually be due to innovations Innovations in aquaculture tend to allow for greener growth In some periods production can also increase without productivity growth because increased market demand lead to higher prices There is a risk that such growth may be less sustainable (e.g. Chile)

9 Production and productivity growth in salmon aquaculture

10 Cases where productivity growth over time has driven production growth Metric tonnes Tilapia global USD/kg Metric tonnes Pangasius Vietnam USD/kg 4 3,5 3 2,5 2 1,5 1 0, Production (metric tonnes) Sea Bream Europe F 2010F Real Price (Euro per kilo) Productivity growth leads to lower costs which again lead to lower prices in competitive markets Source: FAO, GOAL, Kontali

11 Innovation is the key Innovations have generally increased sustainability in aquaculture and led to green growth Feed and feeding equipment innovations: Lower local organic emissions, lower inclusion of fish oil and fishmeal Vaccine innovations: Reduced use of antibiotics Genetic innovations (breeding): More efficient conversion of feed and increased disease resistance Fish cage innovations: Reduced risk of escape

12 Green growth has to be based on innovations For example, 2-3 times increase in open cage salmon aquaculture production from current level is not sustainable with current technologies Innovations required in many areas Feed, fish disease, salmon lice, salmon escape, etc. Imply that R&D policy and other policies that facilitate or impede innovations will play a crucial role OECD: Technological innovation is a key source of growth in transition to green growth

13 Local and global green growth challenges Will distinguish between local and global green growth challenges Global: Marine feed ingredient scarcity Local (national): Diseases, organic emissions, fish escape, salmon lice, etc.

14 The global marine feed ingredient challenge If the salmonid industry is not able to substitute away from fish oil and fishmeal at a sufficient rate prices of these ingredients will kill future growth Several resourceful private companies involved in R&D that can reduce dependency (E.g. Skretting, EWOS, BASF, Monsanto) To make a long story short my guesstimate : Innovations will allow the salmonid industry to produce at least 2-3 times today s volume at competitive prices

15 Externalities from salmonid aquaculture Organic emission Aquaculture Escaped fish Diseases Salmon lice Other sectors & users = farm

16 Externalities in salmonid aquaculture Externalities to other aquaculture producers (intra-aquaculture externalities) Example: Diseases Externalities to other sectors and users (e.g. wild salmonids, fisheries, agriculture) Example: Organic emissions, escaped fish, salmon lice Externalities are not pure in the sense that the farm itself is economically unaffected Example: Diseases, escaped fish, salmon lice, organic emissions

17 Example of intra-industry externality: Fish losses in % of stock of live salmon in Norway Percent

18 Relationship between intra-aquaculture externalities and steady-state production Industry production New technology Old technology Externality from industry

19 Externalities - costs to other agents dominate cost to individual producer Cost to farmer and other agents Cost to other agents Cost to farm Externality from average farm

20 Menu of regulations: examples Quotas Feed quotas Maximum allowable biomass Fish density Fees and tariffs Fines (fish escape) Tradeable production and emission licenses R&D fee Regulations can both improve current production practices and increase innovation

21 Externalities to other sectors and users: Norway Salmon industry in Norway has been increasingly perceived as a source of negative externalities, particularly to wild salmon So far the industry is not able to persuade other stakeholders and government through convincing scientific documentation that societal costs associated with these externalities are small Perception that green growth is not possible with today s production technology? Needs to be solved with innovations driven by significant R&D investments

22 Externalities to other sectors and users: Denmark Danish land based aquaculture production constrained by feed quota due to nitrogen externality from agriculture Water purification innovations can allow for significant green growth But aquaculture farmers need economic incentives to invest in new technologies Shift from feed quotas to individual tradeable quotas on nitrogen may increase production by 16-55% (Nielsen, 2012)

23 Concluding remarks I Different routes to green growth, including regulatory measures, across Nordic countries Focus must be on giving incentives to innovation and technology adoption The Nordic aquaculture industry has economic incentives to solve many challenges that will enable green growth But the industry may not invest sufficiently in R&D that lead to the necessary innovations in all areas

24 Concluding remarks II Hence, governments must employ policies that leads to sufficient investments, e.g. R&D fee R&D tax deduction for private firms Organization of R&D activity, e.g. division of labor between private and public sector Green doubling of salmon production: Externalities to wild salmon and fish health & diseases bigger challenges than marine feed ingredient scarcity?

25 Thank you!

26 R&D by performing sector and funding source in million Norwegian kroner Mill. NOK Private funding Public funding Universities Research institutes Private sector Totalt

27 Successful regulation central elements Elements Competence Collaboration Adaptability Flexibility Cost efficiency Main areas of concern All areas: Competitiveness, sustainability, growth. Sustainability and risk management Accommodate evolution in industry size, structure and technology over time Accommodate immediate or short-term challenges or crises (diseases, trade barriers, food safety) International competitiveness, also with respect to land-based animals

28 Externalities - costs to other agents dominate cost to individual producer NOK/kg Marginal benefit Marginal private cost+damage Marginal private cost Marginal damage Production