1.1 The Importance of Profitability
1.2 The Reality of Risks
1.3 The Concept of Risk Management
The purpose of all aquaculture enterprises is to produce aquatic animals or plants at a profit. All operational processes and management decisions are therefore directed to that end. If there are disruptions in production, through accidents, poor management decisions, or for any reason, then profitability is in jeopardy. The welfare of the saleable aquatic animals or plants produced on the farm is therefore the most important activity of all individual aquaculture enterprises, and the focal point of all attention by the farmer and his employees.
However, as in other agricultural industries, profitability is not only influenced by activities on the farm. Food producers as a whole recognize two additional processes which influence profitability of their enterprise. These are (i) post-harvest handling and marketing activities, and (ii) the preparation of the product by the consumer. Thus, in addition to their own personal responsibility for growing a healthy animal or plant on the farm, producers have a continuing vested interest in the responsibility of others to market quality fresh products and prepare popular dishes for the final consumers. Unfortunately both of these activities are also potentially vulnerable to risks which prevent their final objectives being achieved, and thus reduce potential profitability for the middlemen and the producers.
In summary, the economic survival and strength of the aquaculture industry as a whole is entirely dependent and subordinate to the principal tasks of producing, marketing, and preparing quality aquatic products profitably and without risk. Fortunately, good farmers and industrial "middlemen" know the likelihood of these risks occurring. Through their experience they select the appropriate management technique to avoid or minimize these risks, and to keep all three activities on the most profitable course. This is the essence of risk management.
Any process, by definition, involves a change or a series of changes over time. A process can be natural or man-made. The degree of change from the beginning to the end of a process is dependent on many factors. In the case of man-made processes, such as those characteristic of manufacturing industries, the end is almost certainly predictable, but for the processes of nature there are many factors which make the end unpredictable.
Most natural physical and chemical processes take place slowly over extremely long periods and therefore have the appearance of stability and predictability; on the other hand, biological processes, which by definition deal with life, occur over short periods of time and are highly susceptible to change or misdirection.
It is not possible, with a high degree of statistical certainty, to expect that the simplest biological process will achieve its predicted end in its appropriate time. There are too many hazards or risks, even at the level of the lowest forms of life. Some of these risks are totally beyond the control of the process. Almost every life form is part of the dynamic food web of nature. It is estimated, for example, that in nature only one egg out of ten thousand from the female flatfish survives to become another breeding adult. The risks to any one biological process are therefore so numerous and varied that they are almost impossible to catalogue, or to describe their magnitude, or to predict their frequency of occurrence.
Aquaculture is an industry built on biological processes. As pointed out in Section 1.1, it is an industry entirely dependent on the welfare of aquatic animals and plants which have to be produced and sold to generate profit. Consequently, by deduction, it is an industry which must be classified among a group of high risk food producing industries, which include meat, poultry, and cereal production, and market gardening.
A high risk industry is not necessarily one which must be avoided by investors. Invariably high risk Industries provide significant opportunities for high and/or rapid returns on investment. But it is obvious that the investment has to be carefully researched first, and the risks of the venture carefully weighed. Thereafter, the venture must be watched with constant vigilance. A technique for constantly monitoring and evaluating an investment, and its risks, is called "risk management".
Because of not one but three biologically-dependent activities (as identified in 1.1), which may occur between a farmer and his profits, aquaculture is recognized as a high risk industry. It is therefore important that the farmer is highly circumspect in his identification and management of the most likely risks to each of the three processes, and the commercial consequences. A grasp of the economic dimensions of potential risks which threaten each process is critical. The skill of the farmer in placing a value on each risk influences its priority and therefore the attention paid to its control. This is invariably the determining factor in the success or failure of any farming venture.
The "common sense" school of management recognizes that for every process there is a group of potential risks which can be identified individually and given priority. In many cases they can be avoided by careful attention; for example, fire is well known to be a major cause of death and injury, and the chances of escaping and saving property are greatly enhanced if early warning of fire is given. It is therefore sensible to have smoke detectors in the farm buildings.
There is another group of risks which also can be identified but which can be excluded from consideration, either because their incidence is beyond any reasonable human effort (or expense) to control, or because the chances of their occurrence are too statistically insignificant to consider. For example, in the fish farming world it is not worth a farmer analysing every bag of fish feed before use on the theory that it may be contaminated. The chances of contamination are so small that they are outweighed by the cost of testing and the loss of feed tested. Therefore, to lessen the risk more cheaply the farmer makes certain that the feed is purchased from a reliable manufacturer. Equally, the statistical chance chat an aeroplane will fall on a farm is so insignificant that the risk can be discarded.
It is relatively easy, at both the personal and the commercial levels, to identify those risks which are either beyond human control (and expense), or statistically insignificant. However, there remains a large "grey" area of potential risks. Some of them can be identified with care, and an attempt made to value them. The aquaculture producer can then attempt to manage them for the benefit of himself and his business.
The process of managing risk is based on the individual analyses of three fundamental activities, which are taken in sequence, and subsequent synthesis of the results into a programme of management action. The three activities are:
- Identification of risk, or discovering the source(s) from which a potential risk may arise,- Measuring risk, or evaluating the impact on an individual or an organization in the event of a potential risk occurring, and
- Managing and controlling risk, or selecting the most effective method(s) to deal with a potential risk.
These three components have, in turn, many sub-components. These all must be reviewed and analysed when a risk management exercise is undertaken. Guiding the farmer in making a review and analysis, and formulating a risk management strategy, are the subjects of the following sections.
