256
D. Whitmarsh and M.G. Palmieri
The financial burden of these external events arises in different ways. To start
with, and perhaps most obviously, there may be biological injury (e.g., in the form
of increased mortality or reduced growth) which in the extreme may cause a fish
farm to cease production completely. A more common situation, however, is where
a regulatory body responds to a pollution incident by closing a fishery and banning
the sale of the product. In such cases there may be no biological injury per se, but
the cost to the aquaculture producer in the form of lost revenue is nonetheless real.
The financial impact of pollution incidents may also be felt where concern over the
quality of the product translates into a fall in consumer demand, a situation which
may itself be pre-empted by restrictions on production and sales in order to maintain public confidence. Such an event followed the Braer oil tanker disaster in 1993,
which led to a ban on sales of farmed salmon from the affected area of the Shetlands
as a move intended partly to protect the reputation of the industry. The impact of
this action was also felt by smolt producers, who lost revenue as orders were cancelled by the salmon ongrowers. Water quality differences can impose indirect
costs on producers, the best example being the need for shellfish growers in areas
not meeting the Class A standard (<300 faecal coliforms or 230 E. coli per 100 g)
to undertake compensatory investment in order to make their product saleable. In
the UK this includes a requirement that shellfish undergo purification or relaying,
which for Class C areas (<60,000 faecal coliforms or 46,000 E. coli per 100 g) must
be a period of at least 2 months (Younger and Kershaw 2004). The final way in
which external events may impact financially on aquaculture is through risk management costs, most obviously via insurance or else through physical precautions
to reduce the probability of harmful incidents occurring (e.g., siting farms in low risk
areas, vaccination of stock, etc.). Indeed, given that aquaculture is perceived by
underwriters as a very high risk activity (Secretan and Nash 1989; van Anrooy et al. 2006),
such precautions are generally a condition for obtaining insurance cover. In salmon
farming during the mid-1990s, insurance represented some 3% of total costs for
UK and 2% for Norwegian growers, though more recent data for Norway suggests
that this proportion has now fallen to below 2% (PACEC and Stirling Aquaculture
1999; Bjorndal 2002; Anon 2004). However, these figures probably understate the
true risk of salmon farming, if only because some producers may underinsure their
operations whilst others may not buy cover at all.
8.3.2 External Effects of Aquaculture
Aquaculture may itself create externalities via its impact on the marine environment
(Fig. 8.1), and though it is not always possible to quantify the importance of these
effects in monetary terms there is little doubt that they can often be significant for
human welfare. One of the most clearly demonstrated negative effects of aquaculture (i.e., external costs) is the degradation or loss of critical marine habitat, which
may in turn lead to a reduction in biodiversity and in some cases the removal of an
important natural resource providing a range of products and services.
D. Whitmarsh and M.G. Palmieri
The financial burden of these external events arises in different ways. To start
with, and perhaps most obviously, there may be biological injury (e.g., in the form
of increased mortality or reduced growth) which in the extreme may cause a fish
farm to cease production completely. A more common situation, however, is where
a regulatory body responds to a pollution incident by closing a fishery and banning
the sale of the product. In such cases there may be no biological injury per se, but
the cost to the aquaculture producer in the form of lost revenue is nonetheless real.
The financial impact of pollution incidents may also be felt where concern over the
quality of the product translates into a fall in consumer demand, a situation which
may itself be pre-empted by restrictions on production and sales in order to maintain public confidence. Such an event followed the Braer oil tanker disaster in 1993,
which led to a ban on sales of farmed salmon from the affected area of the Shetlands
as a move intended partly to protect the reputation of the industry. The impact of
this action was also felt by smolt producers, who lost revenue as orders were cancelled by the salmon ongrowers. Water quality differences can impose indirect
costs on producers, the best example being the need for shellfish growers in areas
not meeting the Class A standard (<300 faecal coliforms or 230 E. coli per 100 g)
to undertake compensatory investment in order to make their product saleable. In
the UK this includes a requirement that shellfish undergo purification or relaying,
which for Class C areas (<60,000 faecal coliforms or 46,000 E. coli per 100 g) must
be a period of at least 2 months (Younger and Kershaw 2004). The final way in
which external events may impact financially on aquaculture is through risk management costs, most obviously via insurance or else through physical precautions
to reduce the probability of harmful incidents occurring (e.g., siting farms in low risk
areas, vaccination of stock, etc.). Indeed, given that aquaculture is perceived by
underwriters as a very high risk activity (Secretan and Nash 1989; van Anrooy et al. 2006),
such precautions are generally a condition for obtaining insurance cover. In salmon
farming during the mid-1990s, insurance represented some 3% of total costs for
UK and 2% for Norwegian growers, though more recent data for Norway suggests
that this proportion has now fallen to below 2% (PACEC and Stirling Aquaculture
1999; Bjorndal 2002; Anon 2004). However, these figures probably understate the
true risk of salmon farming, if only because some producers may underinsure their
operations whilst others may not buy cover at all.
8.3.2 External Effects of Aquaculture
Aquaculture may itself create externalities via its impact on the marine environment
(Fig. 8.1), and though it is not always possible to quantify the importance of these
effects in monetary terms there is little doubt that they can often be significant for
human welfare. One of the most clearly demonstrated negative effects of aquaculture (i.e., external costs) is the degradation or loss of critical marine habitat, which
may in turn lead to a reduction in biodiversity and in some cases the removal of an
important natural resource providing a range of products and services.