PART I. THE CONTEXT OF COMMERCIAL AQUACULTURE

CHAPTER 1. INTRODUCTION

Justification and Objective of the Study

FAO's latest studies on future demand for, and supply of, fish and fishery products predict a sizeable increase in demand for fish. The majority of this increase will result from expected economic development, population growth and changes in food habits (Ye, 1999). Supply from capture fisheries is expected to remain constant, or even to decline (FAO, 2000). Indeed, fish supply from the capture fisheries in most countries is believed to have reached or be close to the maximum sustainable yield. This suggests that an increase in aquaculture fish supply could help reduce the expected shortage of fish and the consequent relative price increases, thereby making fish available to a wider range of consumers. Aquaculture can also provide jobs, which generate income for the purchase of food and other commodities, thereby increasing food security and contributing to alleviation of hunger.

Experts agree that, with existing resources and technological advances, fish output from aquaculture can be sustainably expanded. Africa is well situated to be a part of this expansion. In terms of resources, Africa possesses vast inland waterways, with the larger bodies covering 520 000 km². About 43% of continental Africa is assessed as having the potential for farming tilapia, African catfish and carp. Almost 15% of that area is the "most suitable", with possible yields of up to 2.0 crops/year for Nile tilapia and 1.7 crops/year for African catfish. Nearly 23% of the land area in southern Africa is suitable for commercial tilapia and African catfish farming, with less than 5% being used (Kaptesky, 1994; Nath and Aguilar-Manjarrez, 1998). In addition, most countries in Africa have relatively cheap labour.

Yet, in 1998, Africa, which is home to about 12% of the world population produced an estimated 185 817 tons of fish, crustaceans and molluscs, contributing only about 0.6% of world output (FAO, 1998). Experience in Asia where about 89% of aquaculture output was produced, and elsewhere demonstrates that aquaculture developed because it was mostly commercially oriented and benefited from enabling environment. Enabling environment consisted of sound government policies. The overall goal of this study is to survey policies which were used to promote commercial aquaculture in different countries. The specific objective is to examine policies that could be used to promote commercial aquaculture in countries where it has not started, and to consolidate this activity where it exists but has not yet been firmly established. Special emphasis is placed on sub-Saharan Africa.

Methodological Framework

Information reported in this document came from two sources. Studies were commissioned in sub-Saharan Africa and Latin America. Countries in which the studies took place include Côte d' Ivoire, Madagascar, Malawi, Mozambique, Nigeria, and Zambia in Africa, and Costa Rica and Honduras in Latin America. In 1998, farmed fish from these six sub-Saharan African countries accounted for more than three-quarters of output from the Region^[1] (FAO, 1998). The studies in Africa were aimed at gaining a thorough understanding of the socioeconomic, marketing, policy, legal, regulatory and institutional aspects of commercial aquaculture. In Latin America, the goal was to learn from non-African experiences and to examine which of these experiences could be applied in Africa. Economic, political and policy factors that were conducive to the development of the aquaculture industry in these Latin American countries were analysed.

To provide a bottom-up participatory process to policy formulation, a consultant was recruited for each study to interview farmers and other stakeholders. Most of the consultants were nationals of the country studied. Survey instruments were elaborated to collect information. Because, in some countries, there is no database to confirm the total number of farms, sampling techniques had to be rudimentary. Moreover, budgetary restraints precluded exhaustive surveys. However, the surveys generally covered more than one region in each country, and a random sample of sustainable commercial farms within each region selected.

Farmer interviews identified constraints, markets and potential policies in addition to collecting technical and financial data. Farmers were asked what would prevent them from expanding their operations and what constraints faced new entrants into the industry. Attempts were made to clarify market demand and other factors necessary for successful commercial aquaculture. Farmers were asked to suggest policies that would promote the industry. Only farms with a commercial or business orientation and which appeared "sustainable" were included in the survey.

Sustainability required that a number of criteria be met. To be sustainable, a farm must be financially independent, be socially acceptable and be environmentally neutral. Thus, sustainability according to the criteria above, depends in part on the time frame. Short-run appearances of sustainability may be deceptive if negative economic, environmental or social impacts take time to materialise. In order to take into account the time dimension, it was assumed that only farms which have operated for at least three years without direct government or other financial grant have indicated sustainability. Such a period is clearly arbitrary, but only farms which met that condition were included in the national surveys.

To get an objective perspective of the industry and its constraints, other sources of information were considered desirable. Bankers, fish retailers and government officials were also interviewed. All were encouraged to give their suggestions about policies that might promote the industry.

Three species were the focus of the study, although the analysis and results can be extended to other species. The three species were tilapia^[2], catfish and shrimp. In 1998, they accounted for more than half of the aquaculture fish supply produced in sub-Saharan Africa.

About the Report

The findings of the study are contained in four reports: (1) A policy framework for the promotion of commercial aquaculture in sub-Saharan Africa, (2) An analysis of economic feasibility of commercial aquaculture in countries surveyed including policy implications for the promotion of the sector, (3) A report describing markets and trade mechanisms of farmed fish, and (4) A study of the legal framework within which commercial aquaculture could develop in sub-Saharan Africa. This Fisheries Technical Paper is the first of the two volumes of the report on policy framework for the promotion of commercial aquaculture in sub-Saharan Africa. This first volume is a general survey of promotional policies that have been implemented in several countries. The second volume will focus exclusively on sub-Saharan countries.

The report proceeds as follows. The first part discusses the concept of sustainable commercial aquaculture, the advantages and disadvantages of commercial aquaculture, and prerequisites for the development of commercial aquaculture. The second part presents policies to promote sustainable commercial aquaculture. These policies are discussed in terms of non-sector specific, sector-specific at the macro level, and sector-specific policies at the farm level. They are summarised as an overall guide to decision-makers. A short conclusion is presented at the end of the report.

CHAPTER 2. CONCEPT OF SUSTAINABLE COMMERCIAL AQUACULTURE

This text uses the FAO definition of aquaculture as the "farming of aquatic organisms, including fish, molluscs and crustaceans and aquatic plants. Farming implies some form of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc. Farming also implies individual or corporate ownership of the stock being cultivated. This study focuses on commercial aquaculture, especially commercial fish and crustacean (shrimp) farming.

Although many definitions are possible, this study defines commercial aquaculture as those fish farming operations whose goal is to maximise profits, where profits are revenues minus costs (perhaps discounted). Such operations may in fact not be profitable in the short run, but their behaviour is determined by the profit-maximising goal, and if unprofitable they will minimise losses. Commercial aquaculture is not an alternative to rural aquaculture^[3] but rather a complement. If we view aquaculture systems as a continuum of economic activities from those exclusively oriented towards self-consumption to those that are exclusively oriented towards sale, one could argue that commercial aquaculture would be those operations whose output is exclusively for sale while the other extreme would be rural aquaculture, in which case rural aquaculture would mean subsistence aquaculture. Those farms which fall within the two extremes would be either rural or commercial depending on, inter-alia, the proportion of output sold or consumed. Yet, in rural aquaculture systems, producers may sell^[4] all their fish and make some profits. They often perceive fish as a cash crop with which to purchase more desirable products, but the goal of rural aquaculture is less to maximise profits than utility and to disperse risks through crop diversification. Thus, though the producer's marketing and consumption behaviour is an important factor, the distinction between commercial and noncommercial aquaculture as used in this document does not hinge on whether fish is sold. It relies primarily on the existence or absence of a business orientation, and on how factors of production such as labour will be paid (Harrison, 1997)^[5].

While non-commercial farms will be primarily family farms relying on the household for labour, commercial farms will tend to hire labour^[6]. The source of hired labour may vary. Larger aquaculture operations tend to attract labour from distant areas, whereas medium-sized farms depend more on local labour (Mulluk and Bailey, 1996).

Perhaps because they have collateral, commercial farms can access institutional credit for capital purchase. Owners may also possess capital of their own to provide as equity, obviating the need for bank credit. On the other hand, non-commercial farms often have to rely on equity from family and friends (with its attendant high opportunity cost), or credit from informal moneylenders. Thus, commercial farms tend to have a lower cost of capital than non-commercial farms. Therefore, commercial farms will tend to have a higher wage to capital cost ratio than non-commercial farms. Hence, where there is substitutability of inputs, production techniques on commercial farms will be more capital and less labour-intensive than on non-commercial farms. In addition, because of greater capital intensity, commercial farms (particularly intensive industrial operations) will have higher output-land ratios or output-water ratios, or yields than non-commercial farms (SEMARNAP, 1999).

Different technologies and goals will determine a farm's location. Not relying much on purchased inputs, non-commercial farms can locate in rural areas; the output that is not consumed by the family will be sold to neighbours, often on the farm site. Commercial farms, on the other hand, must both acquire production inputs, generally important quantities, and sell their produce off the farm. These procurement and distribution requirements will require a site where roads are adequate and provide easy access to a good number of buyers if the produce is for domestic consumption. In many cases, this implies an urban or peri-urban location. For large-scale industrial operations that are fully integrated, both back-wards to feed and seed production and forward to processing and marketing, and produce for export, a rural and even isolated location is possible. It may even be preferable, because of lower production costs or better water quality. Shrimp that is produced in Madagascar is rated the best in the world in part because most farms are located in isolated areas where the farming environment is still unpolluted. The isolated location is also one of the means to minimise risks of diseases and theft. In addition, it may provide more liberty in the layout of infrastructure.

The above differentiation of the two aquaculture operations is compatible with classifications from a bio-technical perspective. On the one hand, non-commercial farms will tend to use extensive or semi-intensive aquaculture technologies (Ling et al., 1999). On the other hand, commercial farms may range from enterprises applying semi-intensive techniques (in the case of tilapia, cultivation using both fertilisers and pelleted feed) to operations using intensive techniques (no fertiliser and only feed) (Pillay, 1997). Large industrial farms have better understanding and control of production technologies (Little, 1998). Table 1 summarises the principal distinctive features of commercial and non-commercial (rural) aquaculture.

Indicators of sustainable aquaculture are at the forefront of the literature. They include economic, social as well as environmental factors (Barg and Phillips, 1997; Tisdell, 1995).

That is, to be sustainable, commercial aquaculture must offer the prospect of adequate returns. This means that, not only should returns be positive, but also, they should be higher or at least comparable to those from similar activities. If no profits are generated, the farm will either close or have to rely on subsidies, which are a drain on government budgets. If profits are generated but are not at least equivalent to those from similar activities, farmers will have an incentive to leave the industry for better opportunities. The requirement that farms be profitable excludes farms which, because donor-funded, aim to maximise sales or output regardless of costs. Such farms often have not been sustainable once funds are withdrawn (Soma et al., 1999). Hence, aquaculture must be self-sufficient financially. Second, the level of returns must be stable. That is, mortality rates and prices of inputs and outputs must not be too volatile. This is due to risk aversion behaviour of fish farmers and of potential creditors. Third, the farmed species and the methods of cultivation must be acceptable and meet general cultural, gender and social norms. This would suggest that the sector's benefits should accrue to a wide socio-economic spectrum and not be retained exclusively by a small elite. In extreme cases, profitable aquaculture has caused jealousy and led to social upheaval (Pillay, 1996). Similarly, the development of the sector has to co-exist with other activities, such as commercial fisheries. Religious concerns may also impede aquaculture. During the 1960s and 1970s, certain Indian states did not allow the stocking of fish in communal ponds because the Arya Samaj movement considered the harvesting of fish a sin. Attempts to do so actually led to violence (Bhatta, 1999). Fourth, aquaculture operations must be environmentally friendly over a long-time horizon. Sustainable development requires intergenerational equity. That is, the potential wellbeing of future generations is at least as high as the present. Intergenerational equity necessitates that both natural and man-made assets are at least maintained over time.

Table 1. Some of the principal characteristics of non-commercial and commercial farms

* The size classification of farm will vary according to countries. In Zimbabwe, 3- 5 hectare farms represent medium-sized operations (Machena, 1999). In Jamaica, 1-4 ha tilapia farms are small; 5-20 ha operations are medium and 21 ha and above farms are large (Hanley, in press). This classification is adapted from Little (1998). In Madagascar, shrimp farms below 50 ha are classified as small (Hishamunda, 2000).

CHAPTER 3. ADVANTAGES AND DISADVANTAGES OF COMMERCIAL AQUACULTURE

Discussion of costs and benefits of commercial aquaculture provides insight as to why governments might recommend policies for the promotion of commercial aquaculture. Experience in Asia and elsewhere has demonstrated the benefits of commercial aquaculture but also the pitfalls. By providing protein in the form of fish, commercial aquaculture can directly contribute to hunger alleviation and urban food security. Fish is an important item in the African diet: Africa is second only to Asia in terms of fish contribution to total animal protein consumption. While Africa has the lowest per capita food fish supply (7 kg in 1997) and the lowest contribution of aquaculture to per capita supply, food fish in 1997 provided 17.2 % of total animal protein, compared to 24.6% for Asia, 7.3% for South America and a world average of 16.5% (FAO, 1999d). Countries in sub-Sahara Africa where fish provided more than 60% of total animal protein in 1997 were; Equatorial Guinea (62%), Gambia (62%), Ghana (63%), and Sierra Leone (63%). Thus, in large parts of Africa, commercial aquaculture has a market composed of consumers already accustomed to eating fish. The explanation for the dependence on fish as a source of protein is affordability. In much of Africa, fish tend to be less expensive than other sources of animal protein. A survey in Zimbabwe indicated that while consumers prefer chicken and beef to fish, the latter's lower price ensures that it is the main source of animal protein, with meat too expensive for most consumers (Sen, 1995). This finding suggests that, for the majority of the population, fish has a lower income elasticity of demand than meat, with vegetables and beans (rather than meat) as substitutes for fish (Delgado and McKenna, 1997). There is however a wealthier segment of the population, for whom taste is as important as price, and which is willing to pay for higher value fish such as bream or trout (Sen, 1995).

Commercial aquaculture also contributes to urban food security by providing employment, and therefore, income with which food can be purchased. In Chile, commercial salmon farming employs 30 000 people most of whom are in the isolated southern urban regions of the country (Infante, 1999). World-wide, commercial shrimp farming employs about one person per ton of produce, or approximately one million (Globefish, 1999). Employment is even larger if multiplier effects are added. Indirectly, commercial aquaculture generates jobs in secondary industries. A crude estimate of the employment multiplier for salmon farming is that one indirect job is created for every two employed directly in the sector. Of the 30,000 jobs attributed to salmon farming in Chile, one-third are in ancillary activities (Infante, 1999). In shrimp culture in Sri Lanka, an estimate is one indirect job for each direct job (Siriwardena, 1999). An estimate of the employment multiplier in aquaculture in the United States is that direct jobs in production and processing account for only 10% of the total (Dicks et al.,1996). The distribution, retail and service sector account for two-thirds of all jobs, with an additional 22% in forward linked activities. The overall industry economic multiplier effect of aquaculture on the total economy was estimated at 3.3 (Dicks et al.,1996). Hishamunda (2000c) estimated the job multiplier effect of shrimp farming in Madagascar at 1.4.

Jobs in commercial aquaculture are relatively well paid. Due to their profit-maximising behaviour, commercial farms will have the incentive to employ and conserve labour only if it is justified by the extra output. They pay hired labour the value of its marginal physical product. Because hired workers compete among each other to maintain their jobs and/or secure higher salaries, the output-labour ratio, or labour productivity, will tend to be higher on commercial farms. Therefore, wages on commercial farms will exceed the imputed wage or value of average physical product of non-commercial farms. It is the output-labour ratio that drives living standards and ultimately poverty alleviation. In salmon farming this output-labour ratio has been rising over time, which reduces the employment impact of additional output, but increases wages of those employed. A survey in Asia found that wages on shrimp farms were two or three times higher than the rural minimum wage (Patmasiriwat, 1997). In the Ivory Coast, both output-labour and output-land ratios in aquaculture appear to be higher than in rice farming, indicating that aquaculture offers the potential for higher wages and incomes, and a reduction of poverty (Oswald et al.,1996). Similarly, in Thailand, the fact that most intensive shrimp farmers had been rice farmers or fishermen, suggests that returns are higher in shrimp culture than in some alternative occupations (Phillips, 1997). A survey in southern Thailand placed shrimp farming as second only to trading as a source of income (Boonchuwong, 1994).

In addition to beneficial impacts on labour absorption and labour productivity, commercial aquaculture contributes to national fiscal balance. On the income side, if successful, commercial aquaculture will pay taxes, thereby contributing to government revenues. In turn, tax revenues can fund social infrastructure such as health care and education, hence alleviating poverty. Evidence suggests that economic growth and poverty alleviation are circular and mutually reinforcing (Sachs, 1998). On the expenditure side, commercial aquaculture has the advantage of relying on private assets rather than public aid^[7]. In a context of fiscal restraint, this independence from public funds gives the sector autonomy and increases chances of sustainable development of the sector. Moreover, the private sector incurs the risks and will bear the financial cost if there is default.

Commercial aquaculture can also be a source of hard currency. The value of 1995 Asian farmed shrimp exports exceeded $5.2 billion. French Polynesia earns more foreign exchange from its cultured black pearl than from tourism (Tanaka, 1997). Chile earned more than $700 million in foreign exchange from exports of farmed salmon in 1998. In Honduras, shrimp exports are the third largest export, earning more than US$150 million a year. In Madagascar where the shrimp farming industry just took off and only a fraction (about 2%) of the potential is developed, export of farmed shrimp brought about $49.2 million into the economy in 1999 (Hishamunda, 2000c). However, these may not be net exports, the appropriate indicator of a sector's contribution to foreign exchange. In those countries where machinery (i.e. aerators) and inputs (i.e. feed) are imported, foreign exchange costs of these imports should be deducted from gross export earnings. Feed alone accounts for 50-60% of the total cost of production of shrimp; so, when not only feed but also aerators, pumps and generators are imported as in Sri Lanka and most sub-Saharan African countries, these costs should be deducted. Net foreign exchange earnings from shrimp culture in Sri Lanka between 1992-1996 were three-quarters of the total foreign exchange earned (Siriwarena, 1999). A survey of fourteen Asian countries revealed that earning foreign exchange was second only to employment generation as a rationale for aquaculture (FAO-NACA, 1997). Even if consumed domestically, the output from commercial aquaculture may replace imported fish and thus save foreign exchange.

Commercial aquaculture may also generate other positive externalities. When located in isolated rural areas, it may bring about improved infrastructure, promote the development of small communities and discourage youth from migrating to cities. Madagascar's shrimp farming companies built roads, schools, clinics and freshwater wells. These amenities and employment opportunities attracted a number of people from all over the country, especially from rural communities close to the farms. When one company (AQUALMA) started, there was a small community of 30 people at the site; the population grew to a village of 3 000 people in six years.

Finally, commercial aquaculture can stimulate research and technological development; some of it funded by the industry itself. Norway, Chile and Thailand are examples.

There may also be costs associated with commercial aquaculture, particularly shrimp (Greenpeace International, 1999). Commercial aquaculture can lead to inequitable income distribution, and social conflicts. Social conflicts arise because traditional farmers experience detrimental environmental side effects of commercial farming such as salination of soil and groundwater through seepage, flooding through pond embankments, and pollution of waterways through pond effluents. They also feel threatened or jealous of the success of commercial aquaculture (Pillay, 1996). Social animosity may be most intense if a small elite, domestic or foreign, dominates the industry. In Bangladesh, shrimp farming has led to disputes over hiring practices and over land leases (Rahman, 1999). Most shrimp farms in Bangladesh prefer to hire non-local labour believing them to be more loyal; this has created friction with the local population. Land leases have become a source of conflicts because shrimp farmers have often not paid lease fees, and have used shrimp farming as a pretext to occupy land belonging to others. These social conflicts are not dissimilar to those that occurred in agriculture with the Green Revolution, and to those experienced by Britain in the seventeenth century with the enclosures of the Commons (Neiland et al.,1999).

Commercial aquaculture can lead to environmental damage, which can be a major cost to society. With shrimp farming, a disregard for the environment has led to shrimp disease outbreaks in several places among which are Taiwan, Province of China, in 1987, the Philippines in 1989, Indonesia in 1991 and China in 1993. Disregard for the environment may be due to time-horizons. A long-run perspective would encourage environmental protection as a means of maximising income. However, farmers with short time horizons can afford to ignore environmental damage, especially if they can move to new areas once farms become unsustainable (Wiley, 1993). Externalities, although costless to producers, are a cost to society. If they occur, they must be evaluated at their social opportunity cost and over a longtime horizon. Ways and means should also be found for producers to internalise them. The longer-time horizon is enforced by a discount rate lower than used in private profitability calculations.

On the other hand, commercial aquaculture can actually improve the environment. This appears to have been the case in Okinawa. Rising incomes from aquaculture in reefs prompted the community to discourage over-fishing of the capture fisheries (Tanaka, 1997). In order to maintain reef resources, community restrictions, stricter than government restrictions, were imposed. Aquaculture appears to have contributed to coastal resources management.

The relationship between commercial and rural aquaculture farms, has been an issue among donors wanting to alleviate poverty directly. Donors are concerned that commercial and rural aquaculture systems might become competitive rather than complementary. It has been argued that policies focusing on commercial farmers with sufficient funds may raise incomes of certain fish farmers without alleviating poverty (ALCOM, 1994). There is also concern that most commercial farmers will be male, better educated and richer, which would exacerbate income inequality and social differentiation. However, though limited, evidence suggests that adoption of commercial aquaculture in Africa has not had a negative social effect (Harrison et al., 1994). Moreover, commercial aquaculture appears to have aided rural aquaculture by diffusing knowledge to small-scale rural fish farmers. A survey of rural fish farmers in three regions in Zimbabwe found that most learnt about aquaculture while working on commercial farms (Mandima, 1995). They acquired basic expertise, and hence were trained to establish their own farms. In effect, commercial farms were acting as models for rural fish farmers to emulate.

This symbiotic relationship between commercial and rural aquaculture has existed elsewhere. In Sri Lanka, community concerns over commercial shrimp farms have prompted the government to examine sharecropping as a possible policy tool to ease conflicts (Siriwardena, 1999). Sharecropping can be mutually beneficial by guaranteeing an income to rural aquaculture farmers, and fingerlings and fish to the "mother" farm. Whether rural aquaculture farms participate in sharecropping in part depends on the price of fish they receive and on offsetting benefits. In Costa Rica, the dominant farm, Aquacorporacion Internacional, has been unable to introduce sharecropping because the price it offers is too low (Porras, 2000). However, by its size, farm stimulated a feed industry that has benefited rural aquaculture farms. In Jamaica, the price offered to sharecroppers by the largest farm, Aquaculture Jamaica Ltd., is below the market price (Carberry, 2000). However, it has induced participation by guaranteeing inputs and an assured market. Sharecroppers also benefit from technical advice.

The impact of commercial aquaculture on women is uncertain but appears to be neutral, and perhaps positive. A factor that handicaps women's involvement in aquaculture in most countries is land tenure. Where women can obtain entitlement to resources, they have shown a willingness to invest in commercial aquaculture. In Tanzania, commercial farming of seaweed began in 1989 on Zanzibar, and in 1995 on the Mainland. Initially, both men and women participated but where there are alternatives, the men have left seaweed cultivation to the women. In Zanzibar on Unguja Island, seaweed is cultivated primarily by women; on Pemba Island, it is cultivated by men (Msuya, 2000). The difference is due to topography. On Unguja, shallow water provides ready access to the seaweed whereas on Pemba access is only possible by boat because of deeper waters. On Mainland Tanzania, both men and women participate equally. The impact on incomes has been positive. Seaweed farmers earn more than in alternative occupations such as agriculture and handcrafts, and twice as much as in the capture fisheries. However, there have been social repercussions. The women's cash income has upset traditional gender relationships, thereby causing family conflicts.

A similar uncertain picture of the impact of commercial aquaculture on women emerges from shrimp culture in India. The direct beneficiaries of shrimp farming have been men. With remuneration for labourers in shrimp farming approximately 60% higher than in agriculture, men have been attracted into shrimp farming. Women have fewer opportunities in shrimp farming than in paddy cultivation. However, because of their lower salaries, women are in high demand in paddy cultivation (Paulraj, 1998). Employment of men in shrimp cultivation has created some opportunities for women in the rice paddy fields. Thus, while not directly benefiting women, shrimp farming may generate more job opportunities for women indirectly.

Honduras is another example. Women's participation in shrimp cultivation is low. They are employed only when male labour is unavailable and account for 38% of the 23 000 estimated direct jobs (Morales, 2000). Thus, over time, shrimp cultivation could force up wages in all sectors, including the ones that employ more women than men. In tilapia cultivation, women make up more than half the labour force, especially in processing for industrial operations (Ferraro, 2000; Morales, 2000).

CHAPTER 4. PREREQUISITES FOR SUCCESSFUL COMMERCIAL AQUACULTURE

Commercial aquaculture resembles any other business-oriented activity. The fundamental goal is to make as much profit as possible. For profit maximisation, business acumen must be combined with technical ability to produce efficiently.

At the technical level, the ability to produce at a low enough cost is determined primarily by species, location and feed. The species selected should meet certain biological pre-requisites. The ability to cultivate a species from fry to harvest is critical. Ideally, the species would be easily reproducible, with low mortality and low feed conversion ratios. In a survey of tilapia farmers in Bangladesh, bio/technological factors, particularly the reproducibility of tilapia, was ranked second (to economics), among the factors attracting them to the industry (ICLARM, 1992).

Among the most critical factors influencing profitability is site selection. The choice of location affects fixed costs such as construction; it also affects operating and distribution costs. Topography where water is available regularly at suitable temperatures lowers operating costs (International Center for Aquaculture and Aquatic Environments, 1996). Farms in Costa Rica and Honduras that were improperly located had to be abandoned. Alone among the South American countries, Chile is able to cultivate salmon because of its environment and geography. For the same reason, it cannot replicate Ecuador and grow shrimp (Wiefels, 1999).

Availability of quality feed and seed are also critical. Feed accounts for more than half the operating costs in most commercial operations. In most African countries, the limited demand for fish feed and the high cost of agricultural by-products have handicapped the development of a fish feed industry although there are exceptions. Feed can be imported but at the cost of foreign exchange, but imported feed is often beyond farmers' reach. Enough good quality seeds are also lacking in many countries. In sub-Saharan Africa, insufficient supplies, low quality and high cost of fingerlings, and inadequate means of seed distribution to farmers often led to disappointing harvests and abandonment of fish ponds (Moehl et al., 2000).

As important as biological and technical feasibility is economic viability. Early attempts to develop aquaculture in Jamaica failed because projects had the laudable goal of providing high value protein when most farmers wanted a product that could be sold for profit and not a subsistence-level activity (Wint, 1996). The sector developed once the profit incentive was acknowledged. Farming of Atlantic salmon in Norway developed because prices of salmon increased^[8], creating opportunity for profit making in aquaculture. The worldwide shrimp farming industry originated when, in the 1980s, increasing demand from the main shrimp consumers such as Japan pushed up shrimp prices, creating an incentive for shrimp farming. The impetus was profitability. In fact, shrimp farming has been called a "market phenomenon" because, at the microeconomic level the motive was profit-maximisation, and at the macroeconomic level the driving force was the earning of foreign exchange (Neiland et al., 1999). The implication of this finding is that for aquaculture to develop, demand for the product must exist, and with the promise that farm-gate price will exceed the per-unit production cost. Without profits the sector is unsustainable because it will either collapse, or become dependent on subsidies from the public purse (Pillay, 1996). Subsidies are often not available and when they are, they constitute serious drains from public funds.

In addition to existing demand, there should be the potential for increased demand. This is important during the maturity stage of the market lifecycle. Existing demand is essentially a function of price and income. Own price and income elasticities can be used to gauge the potential for increased demand. If the demand for the species is price elastic, supply expansion will cause the price to decline slightly; the small decline in prices will result in proportionately higher quantities of the produce demanded. As a result, farm revenues will increase. If the demand is price inelastic, an increase in supply could cause the prices to severely fall. Yet, this substantial fall in prices will have little or no effect on quantities of the produce demanded, thereby causing farm revenues to drop dramatically. Similarly, if the species has an income elasticity of demand that is positive and even above unity, rising per- capita incomes will be reflected in increased demand. The incentive for Atlantic salmon farming developed in part because Atlantic salmon was a luxury good with income elasticity well above unity and was elastic with respect to its own price.

The market must also be positively responsive to population growth and advertising, the major shifters of demand for aquaculture products. In Costa Rica, there was market resistance to O. mossambica because of its dark flesh and because it was fed pig manure (Porras, 2000). A new species (O. niloticus) was introduced and fed dry pellets. In order to convince consumers that O. niloticus was not tilapia, the name tilapia that had become associated with the less popular species, was dropped and replaced by a new name, St. Peter's Fish, in reference to St Peter's Farm which was a major producer of O. niloticus. O. niloticus became popular. In 1984, the red species (Oreochromis spp.) was introduced and was even more acceptable because it resembled the popular red coloured marine species, red snapper (Carberry, 2000). In Japan, the shrimp farming industry was transformed by a Filipino advertising campaign which persuaded consumers that the unpopular black tiger shrimp (Penaeus monodon) was as red as any other when cooked (Csavas, 1994). This species soon became dominant; by 1992 it accounted for approximately half of all shrimp cultured worldwide. Adroit marketing was the key behind successful catfish aquaculture in the United States. In spite of its appearance, it was extensively advertised as "catfish" and not as a generic white fillet, and this differentiation enabled it to outsell lower priced fish such as tilapia (Picchietti, 1996). In Spain, a niche market developed that prompted the intensive cultivation of trout because fish products were expensive. These same market conditions created a niche for farmed turbot (Sáinz oriented strategies in which cultivation initially occurred without a market. In the United States, channel catfish (Ictalurus punctatus) was cultivated in the 1960s without an assured market and some farmers were forced to open restaurants to move their product (Avault, 1996). Market acceptance occurred but it took time and resources with no guarantee of success.

The willingness to invest requires not only expected profits but also an analysis of expected risks. Investment will occur if potential profits exceed what is perceived to be acceptable risks. Risks occur because of shocks. Shocks can be biological, such as shrimp disease which affected Taiwan, Province of China (1987), the Philippines (1989), Indonesia (1992) and China (1993-94). Biological risks increase with the intensification of production techniques. Because of the greater risks attached to intensive technology, shrimp farmers in Indonesia were advised to adopt semi-intensive techniques (Nurdjana, 1999). In Madagascar, shrimp farmers are not permitted to produce more than 4 tons of shrimp per hectare per cycle.

Shocks can be meteorological. Hurricane Gilbert destroyed the Rio Cobra Dam that supplied irrigation water to tilapia farms in Jamaica. Seasonal flooding made access to a tilapia farm in Costa Rica impossible (Porras, 2000). These shocks can devastate the sector, and insurance may either not be available or else be too onerous.

Other shocks may be economic. Economic risks include macroeconomic instability as with the Asian economic crisis. In early 1998, prices of imported salmon in Japan dropped almost by 30%, compared to the same period a year earlier (Bjorndal and Aarland, 1999).

Risks can also be political. Political risks include government interference with business operations, uncertainty over property rights, corruption, and a weakening of institutional factors. If there is too much government interference with private business, policy and institutional instability, associated risks will deter investment, including in aquaculture.

Aquaculture also faces social uncertainties. Cage farming in North America has faced opposition from other users of waterways. In shrimp farming in Asia, hostility from neighbouring communities erupted because of environmental impacts or envy over its success (Primavera, 1997). Lack of social acceptance can lead to economic failure of the farm through increased theft, and even poisoning of ponds (Pollnac, 1991).

Self-induced shocks also occur. Because most farmers are price-takers, by independently expanding output when prices and profits are high, they unintentionally create excess supply and cause prices to plummet. The result is an unforeseen price shock. Driven by high profitability in the early 1980's, world output of farmed salmon more than tripled between 1987 and 1992 as new farms entered the industry and existing farms expanded. That increase in supply caused farm-gate prices to fall by 40 % in nominal terms (and even more in real terms) from the 1987 peak. A similar phenomenon occurred with farmed shrimp. Import prices into Japan almost halved during the 1980s.

Knowledge of risks will vary. A farmer who is starting out in aquaculture has a higher risk premium than a farmer scaling-up an existing operation. Commercial farmers must be aware of the risks. The farmer's ability to react to changing circumstances is also important.

In addition to risk-adjusted profitability, availability of infrastructure, the farmer's access to financial resources, entrepreneurial determination and managerial expertise are important determinants of successful commercial aquaculture (Avault, 1995). The supply of water and electricity can be critical and a limiting factor for business activity. In Nigeria and Malawi, both factors are cited as severe handicaps to business activity (World Economic Forum, 1998). The largest farm in Costa Rica (Aquacorporacion Internacional) is dependent on water outlet from a hydroelectric dam whose priority is production of electricity. The farm is a secondary consideration and only with government support has supply of water been assured in periods of drought (Porras, 2000).

Availability of road infrastructure is critical because of the need to transport inputs to the farm and output to market. This is particularly important if the output is fresh and consumers lack refrigeration. In some rural areas of Africa, dried fish such as kapenta in Zambia is the main practical source of food fish (Sen, 1995). In Zambia, preference between fresh and dried fish is determined by distance from urban centres and is reflected in relative prices (Soma et al., 1999). Where commercial operations are located in rural areas, as is often the case with large-scale industrial farms, the problem of transport can be alleviated by vertical integration. Nevertheless, even for large farms transport is critical. In Limon, Costa Rica, a farmer built 45 ha of ponds intending to cultivate tilapia for export. However, the distance from the airport made transport of inputs and fish difficult. Moreover, it was located by a river which, in the rainy season, made access to the farm impossible (Porras, 2000). The farm closed without ever producing fish.

Accessibility to financial resources is particularly important. A commercial farm relies on hired (as well as family) labour and machinery for pond construction. In addition to capital costs, commercial farms will have high operating costs that can cause imbalances in cash flow. For most forms of commercial aquaculture, variable costs are a major component of total costs; this is so even for capital intensive operations such as cage culture of salmon. Access to credit to assist the farms during cash flow shortages can therefore be critical, particularly if the species has many months of feeding before it can be harvested.

Entrepreneurial motivation and managerial expertise are also important. The entrepreneurial component is critical because aquaculture requires perseverance and an ability to accept risks. A study of aquaculture failures in North America indicates that entrepreneurship is critical. That vision, dedication and drive are an irreplaceable aspect of commercial aquaculture (Lockwood, 1998). When corporations have tried to replace entrepreneurs with financial managers, the operations often collapse. In some rural parts of Côte aquaculture failed because of the separation of ownership and management; absentee owners rely on salaried managers lacking entrepreneurial dedication (Bamba and Assouhan, 2000). In other parts of Africa, Satia (1991) reported similar cases of unsuccessful aquaculture as a result of the lack of entrepreneurial dedication by salaried managers.

The spirit of entrepreneurship and innovation has been cited as one of the determining factors in the success of shrimp farming in Thailand (Tookwinas et al., 1999). Not only are farmers enthusiastic to learn new techniques, but they are keen to undertake husbandry experiments themselves. A study on tilapia cage production in Niger, which failed, found that successful farmers were young and at a minimum literate, with education particularly important for intensive technologies (Mikolasek et al., 1997). The study also found that entrepreneurial motivation was undermined by over-dependence on government largesse. In parts of rural Africa, where entrepreneurial achievers are denigrated because they exacerbate socioeconomic differentiation and threaten the social structure, the need for a business ethos may indeed render commercial aquaculture impossible (Harrison, 1997).

Summary

This part of the report discussed the concept of commercial aquaculture as the rearing of aquatic organisms that aims at profit maximisation, and which can be sustainable without direct external financial assistance, whether donor or government. Such aquaculture is not an alternative to rural aquaculture; it is its complement.

Commercial aquaculture has offered economic benefits to producing countries. Through the production of aquaculture products for food, and/or the generation of income (through job creation) by which to purchase food, commercial aquaculture contributes to increasing food security. By paying taxes, can generate government revenues and indirectly support government funding for rural aquaculture. Through export and/or import substitution, commercial aquaculture can be a source of hard currency. However, there have also been costs. By generating its own funds, commercial aquaculture offers the prospect of financial self-sufficiency.

Pre-requisites for commercial aquaculture include bio-technical feasibility and economic viability. Failure of one could cause failure of the whole project. Appendix A provides a checklist of factors that can be used by prospective entrepreneurs and bankers (Corbin and Young, 1997). Aquaculture has not always been socially acceptable, and environmentally neutral. Without these attributes, commercial aquaculture will not be sustainable, however profitable. Regulations, economic incentives and self-policing, are instruments that can promote the sector; they can also reduce adverse effects of commercial aquaculture. The following chapters concentrate on policies that governments have used to promote the sector. Some of these policies can be applied in Africa.