9 Future Trends in Aquaculture Production
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observed price decline would be even stronger, if adjusted for inflation. Hence, the
same economic forces that influence the global market for salmon and shrimp, also
work in the domestic market for tilapia in Egypt.
9.3.2 Productivity Growth
So what causes this observed relationship between production levels and price? We
will try to clarify this issue by looking more closely at salmon. For any product, its
profitability determines the development of its production volume, with production
tending to increase if it is very profitable. On the other hand, production will
decrease if other uses of capital and labour are more profitable and if producers are
losing money. The decline in the price of salmon has been necessary to induce
greater consumption of the product. For this to be profitable, production costs must
also have been substantially reduced. The main factors behind reduced production
costs are productivity growth and technological change. In this section we will discuss the reduction in production costs for salmon aquaculture, focusing on Norway
since this is the country for which data are most widely available. As the largest
producer of farmed salmon, Norway can be considered fairly representative of
other producers. However, at the end of the section we will also relate these results
to other salmon-producing countries.
9.3.2.1 Determinants of the Production-Price Relationship
Figure 9.5 shows real production cost and export price for salmon in Norway. Both
variables have a clear downward trend and the gap between them is consistently
small. The average price in 2003 was about a quarter of the price in 1985 and
the reduction in production cost is of the same magnitude. The important message
here is that there is a close relationship between the development of productivity
and the falling export prices. Productivity gains are therefore able to explain a great
deal of the decline in farmed salmon prices, as the price has been moving down
with the production cost, keeping the profit margin relatively constant. This is also
as expected in a competitive industry, since high profitability is the market’s signal
to increase production. As the cost reduction has been translated into lower prices,
it is also clear that the productivity gains have been passed on to consumers. The
main effect for the producers is that they become larger and hence earns a higher
profit because of larger quantities produced.
The reduction in production costs has been due to two main factors. First, fish
farmers have become more efficient so that they produce more salmon with the
same inputs. This is what is normally referred to as the fish farmers’ productivity
growth. Second, improved input factors (such as better feed and feeding technology
and improved genetic attributes due to salmon breeding) make the production process
less costly. This is due to technological change for the fish farmers, and productivity
279
observed price decline would be even stronger, if adjusted for inflation. Hence, the
same economic forces that influence the global market for salmon and shrimp, also
work in the domestic market for tilapia in Egypt.
9.3.2 Productivity Growth
So what causes this observed relationship between production levels and price? We
will try to clarify this issue by looking more closely at salmon. For any product, its
profitability determines the development of its production volume, with production
tending to increase if it is very profitable. On the other hand, production will
decrease if other uses of capital and labour are more profitable and if producers are
losing money. The decline in the price of salmon has been necessary to induce
greater consumption of the product. For this to be profitable, production costs must
also have been substantially reduced. The main factors behind reduced production
costs are productivity growth and technological change. In this section we will discuss the reduction in production costs for salmon aquaculture, focusing on Norway
since this is the country for which data are most widely available. As the largest
producer of farmed salmon, Norway can be considered fairly representative of
other producers. However, at the end of the section we will also relate these results
to other salmon-producing countries.
9.3.2.1 Determinants of the Production-Price Relationship
Figure 9.5 shows real production cost and export price for salmon in Norway. Both
variables have a clear downward trend and the gap between them is consistently
small. The average price in 2003 was about a quarter of the price in 1985 and
the reduction in production cost is of the same magnitude. The important message
here is that there is a close relationship between the development of productivity
and the falling export prices. Productivity gains are therefore able to explain a great
deal of the decline in farmed salmon prices, as the price has been moving down
with the production cost, keeping the profit margin relatively constant. This is also
as expected in a competitive industry, since high profitability is the market’s signal
to increase production. As the cost reduction has been translated into lower prices,
it is also clear that the productivity gains have been passed on to consumers. The
main effect for the producers is that they become larger and hence earns a higher
profit because of larger quantities produced.
The reduction in production costs has been due to two main factors. First, fish
farmers have become more efficient so that they produce more salmon with the
same inputs. This is what is normally referred to as the fish farmers’ productivity
growth. Second, improved input factors (such as better feed and feeding technology
and improved genetic attributes due to salmon breeding) make the production process
less costly. This is due to technological change for the fish farmers, and productivity