Shellfish Economics: Course outline for NACA Training Group

by¹

E. W. McCoy

Introduction

Shellfish, both from culture and capture, are an important portion of the fishery of Thailand. A study by the Brackishwater Fisheries Division indicated more than 30 economically important species are present in Thailand. Economically important refers to the use of the shellfish as food. If species captured for ornamental purposes are included, the number would exceed 50.

The primary species cultured are green mussel (Perna viridis) cockle (Anadara sp.), and oyster (Crassostrea and Saccostrea sp.). A limited amount of horse mussel (Arcuatula arcuala) (Hanley) is also cultured primarily for use as duck feed. The production and value of the major cultured species of shellfish is shown in Table 1.

Table 1: PRODUCTION AND VALUE OF MAJOR CULTURED SHELLFISH IN THAILAND 1979 – 1983.

* Includes hoy krang (Hairy cockly Scapharca inequivalvis) (Baht varied from 20 to 22.5 to 1 U.S.$)

OYSTER CULTURE

In general there are four economically important species of oyster found in the coastal waters of Thailand. The species cultured are Saccostrea cucullata, Crassostrea belcheri and Crassostrea lugubris. The former distributed along river mouths and coastal areas of Trat, Chanthaburi, Rayong, ChonBuri, and Prachuap Khiri Khan Provinces while the latter are found in Krabi, Phangnga, Surat Thani, Pattani, and Chumphon. At present, the oyster culture area is approximately 7,046 rai while the potential area for development is nearly 40,000 rai, Table 2.

Oyster culture has existed in Thailand for more than 40 years. Traditional methods have been practiced depending on the nature of the substratum. Stones, stakes, or concrete blocks have been used as substrate for attachment of the oysters. Brohmanonda (1974) conducted an experiment with C. lugubris using concrete culvert material. The oyster could be harvested after a period of 7 – 12 months. Yield was 40,000 – 50,000 oysters per rai. For the small oyster, S. cucullata cultured in Chanthaburi Province, yield of 3 tons per rai is obtained.

MUSSEL CULTURE

Culture of green mussel has been carried out in Thailand for more than 60 years. The fishermen gained experience by first collecting mussels attached to the stakes of certain types of stationary fishing gear. It was relatively easy to convert to driving strong lengths of bamboo or date palm stakes into the muddy bottom of the shallow water zone as collectors of mussel spat. The method is commonly and successfully used along the coastal area of Thailand. The attached mussels are allowed to grow for a period of 6 – 8 months before harvesting for market. Brohmanonda (1971) reported that yield of about 10 tons could be obtained per rai.

In the Southern Province it is believed that the first mussel farming began in Chumphon Province about 16 years ago. Promotion and extension has been slow due to the lack of natural seed in the coastal areas of Nakhorn Si Thammarat, Pattani, Surat Thani, and Phangnga. The Department of Fisheries has attempted to introduce adult male and female mussels into other areas. The first trial was attempted in 1977 at Pattani. Later, a transplantation was also made at Nakorn Si Thammarat and Phangnga. The results of these attempts have been moderately successful.

At present, mussel farms occupy an area of 4,132 rai while the potential area is estimated at approximately 66,282 rai for the 23 maritime provinces, Table 2. Almost the entire production of green mussel is from culture activities.

HORSE MUSSEL CULTURE

Two species of Horse mussel are found in Thailand, Modiolus metcalfei (Hanley) and Arcuatula arcuala (Hanley). Arcuatula arcuala is an economically important bivalve in Thailand. Culture of this specie has been conducted for more than 30 years. In 1973, there were 730 rai of farming area. The area was increased to 911 rai by 1978. The other species is found on the Andaman Sea coast in smaller quantities.

Two methods of farming are usually employed: First, seed horse mussel, 5 – 10 mm in size, are spread over the mud flat at a rate of 9 – 10 tons/rai. After 8 – 12 months the mussels are harvested, by dredging, at a size of 2 – 3 cm. Production per rai ranges widely from 12 – 36 tons. Second, seed mussel are spread over the bottom of shrimp ponds. No research data are available on the yield per unit area.

The horse mussel, 2 – 3 cm in length, are sold for human consumption at 1.4 baht /kg. smaller horse mussel are harvested and sold for animal feed at a rate of 0.75 baht/kg.

The potential area for horse mussel production is over 28,000 rai or 450 hectares.

(one rai equals 1600 square meters)

COCKLE CULTURE

Cockle farming has been conducted in Thailand for many years with the early farming located in Phetchaburi Province. In that area, approximately 50 centimeter high bamboo sticks are used to fence each producers production area. The average production area is 6 rai. Farms are located in the mud flat or shore line adjacent to the mouth of the river or canal. The site must have sufficient width, intertidal, and have a small gradient. The cockle seed are collected from the wild in the same location. The prevailing species is Anadara nodifera.

During the last decade a different culture system has developed in the southern provinces on the Andaman Sea Coast and The Gulf of Thailand. Production is in the mud flat areas with water depth of 2 – 5 meters. Farm size ranges from 200 – 2000 rai. Farms require a large amount of seed for stocking. More than 4,000 tons of cockle seed were imported from Malaysia annually. The species stocked is Anadara granosa. Seed are stocked at the rate of 540 – 1080 kg/rai. The seed are dredged after a certain growth period to spread them evenly throughout the area. The market size cockle are harvested after 12 – 18 months of growth. Period of culture is dependent on size of seed cockle stocked.

Table 2: Existing Bivalve Farms and Potential Area (1983)

Table 4: Existing Bivalve Farms and Potential Area (1983) Cont.

II. General Economic Principles

Certain words that have a common meaning are used in economic analysis. In many instances the words have a more specialized meaning in an econimic sense. In extreme instances the meaning in an economic sense is unrelated to the more common use of the term. To insure that all participants are using the same meaning for terms a brief review of economic terminolgy is given.

A. Concept of Demand and Consumer Preference

Demand, in an economic sense, is defined as; The quantity of a good that a consumer is ready, willing, and able to take from a specific market at a specific time at various prices. In a practical sense, demand can never be measured since the conditions imposed by the definition never exist in the ‘real’ world.

Consumers do take goods from the market but a full range of prices do not exist at a single point in time. Equally important, a full range of goods and or perfect knowledge by the consumer does not exist. Price alone is not the only factor considered by the consumer. The prices of other goods and the relative importance of the target good to the consumer must be considered. The importance of a good to the consumer can not be judged by the price of a good.

Consumer preference means the Bundle of socio-psychological factors that determine what people choose to eat and wear apart from the monetary constraints imposed on the process of choice. People in different places do eat and wear different things. Partially this can be explanation by climatic or other geographic factors but other times the explanation is more complex.

The concept of demand and of consumer preference must be included in evaluation of economic feasibility even though it is known that precise measurements cannot be made.

B. The con-ept of Supply and Producecer Preference.

Supply, like demand, has an economic definition that differs from common usage of the term. Supply is the quantity of product a producer is ready, willing, and able to place in a specific market at a specific time for a specific price. Only one quantity would be supplied at each price but the concept embodies the entire range of quantities that would be supplied at the various prices.

Since instantaneous solutions-occur only in theoretical models, supply cannot be instantly generated as soon as price is known. Obviously a supply must already be available befor any price can be generated. In this case, price is generated by demand. Thus demand cannot be estimated an supply cannot exist. It would appear that economics is indeed built upon a shakey foundation when the fundamental concepts are so obviously not applicable to the ‘real’ world.

Producer preference, as with consumer preference, has an important role in determining what is produced. (Note, the use of produced as opposed to supplied.) It is relatively profitable to produce strawberries in Thailand, it is relatively unprofitable to produce rice or tapioca. Aside from the locational differences still a predominant number of producers persist in growing the unprofitable crops. Strawberries require a higher level of management and capital investment. In a simpler term, the producers do not know how to produce strawberries but they do know how to grow rice. This factor should not be glossed over, numerous studies have classified producers by the willingness to accept new technology. In general, people do not desire to change the traditional methods unless economically coerced into changing.

Much of biological and economic analysis is production oriented. The biologist is interested in determining a method of producing more utilizing the same inputs. The matter of disposing of the output has been left to other disciplines. This has resulted in several interesting but non viable culture systems. The applied scientist should consider the end use of the product. The tapioca mentioned above is primarily used for animal feed but there is a very limited animal feeding industry in Thailand. In the, export market the product must compete with all of the other sources of animal feed. Research into increasing production per rai of tapioca thus would have little practical significance in the short run. As will be mentioned later, the market forces can and should direct short run research efforts. Longer run efforts in research have different determinants which will not be covered here.

C. Concept of the Role of Marketing

Marketing involves all of the-activities involved in transferring goods from the producer to the consumer. In brief these activities involve time, space, and from although marketing economists would not appreciate the designations.

Time means that production may be seasonal but consumption is a daily activity. Storage of preservation must be performed so rice is available during the season when no rice is harvested.

Space means to deliver the product to the desired location which is mornally physically separated from the production area. The entire realm of import-export is contained within space. The United States consumer wants bananas in the local supermarket but the U.S. does not produce bananas. The market delivers bananas to the supermarket if and only if all market costs can be covered. It is an entirely separate question to determine how the U.S. consumer developed a demand for bananas when none were locally produced.

Form can be translated as processing as distinct from storage. Storage is contained in time but processing may be necessary to allow storage. A product may need a change in from for market acceptability. Few people would buy a cow in the market but many people purchase various cuts of beef. Often a form that was initially began for preservation purposes can become a separate product with a separate demand and supply. Tomato juice is one example. A special type of tomato used only for juice has been developed. Canned tuna fish is a second example, in a consumer survey conducted in the United States Canned tuna was identified as a salad ingredient and not as a fish product.

D. Types of Goods in the Market.

Economist identify three types of goods in the market. The economic names for the goods are; Superior, regular, and inferior. Almost like grades of gasoline. The economic terms are not precisely the same as the common usage of the terms.

A superior good must possess two economic characteristics; 1. scarcity 2. high price. The scarcity can be natural or artificially created. A related factor, the general population must recognize the good, in effect it must have readily distinguishable characteristics. A Roll Royce automobile would be one example. Possession of a superior good signifies that the owner can afford the purchase and that is all it signifies. If the price of the good declines people purchase less of the good.

A normal godd has a downward to the right sloping demand curve. This means that purchases will increase, all other prices for other goods remaining constant, with a price decrease for the good in question. Several bodies of economic endeavor are solely devoted to this concept, for our purposes it is enough to consider a rational consumer will allocate expenditures to maximize satisfaction. If something can be purchased for less and the same satisfaction is derived any rational consumer would make the purchase at the lower price. This, of course, implies that purchase of superior goods is irrational. Here one must consider what is implied by satisfaction.

An inferior good is available in abundance and is low in price. Normally the good will from the staple portion of the diet for the lower income portion of the population. Rice, corn, potato, cabbage, and other similar products have been or are inferior goods in certain areas. When the price of inferior goods increase consumption increases just as with superior goods but for a much different reason. The product forms such a large part of the diet and requires such a substantial portion of income that little remains to purchase other goods.

Obviously everybody would prefer to produce superior goods but the market is severely limited. Equally it does not appear promising to concentrate on inferior goods since an increase in supply will lower price and consumers will purchase less. The great bulk of fisheries and shellfish products are within the normal range of goods. A few are superior products, caviar and smoked salmon, and a few approach inferior good status, mullet among some segments of the population.

III Economic Analysis of Shellfish Aquaculture in Thailand

In assessing the economic feasibility of any aquacultural activity both demand and supply must be considered. In the following discussion the method of evaluating both factors will be included. Although the examples relate specifically to Thailand the procedure is similar for any location.

A. Estimation of demand

Demand, in the definitional term, cannot be estimated but a proxy measurement can be used. The normal procedure is to use cross sectional or longitudinal measurements of consumption. This procedure, unless carefully formulated, will result in a mixture of production and consumption. The data, if properly collected and properly analyzed, will give an approximation of consumer reaction to changes in price of the good. Generally the economist will attempt to gain a measurement of the elasticity of demand. Elasticity is an unfortunate term selected to represent consumer reaction to changes in price of a product. Three levels of elasticity can exist.

The introduction section of this class includes the status of shellfish culture in Thailand. The current and potential areas of production are shown as well as the revenue generated from production activities over time. Unlike estimating the potential demand for a product that is not currently produced the shellfish are produced and sold in the market. A demand exists and a supply has been available to satisfy the existing demand.

Brief analysis of the annual data would indicate that the demand for green mussel probably is elastic. Total revenue declined substantially with increase in quantity. Cockle would appear to be slightly inelastic. Oyster is difficult to classify since two entirely different products are represented in the category. (In comparisons of income data over time the term on a deflated basis is used. During the last 10 year period Thailand devalued the baht from 20=$1 U.S. to 22.5=$1 U.S. then removed the fixed baht $ U.S. ratio entirely. The in country inflation rate should always be considered when comparing prices or revenue over time.)

Cockle has one characteristic that improves estimation of economic viability for Thailand. Approximately 50% of the supply is imported from Malaysia. The concept of import substitution would imply that Thai cockles could substitute for imported cockles on a one to one basis without a change in consumer price.

B. Production

Production represents the interface between biology and economics. The biologists determines the parameters of growth under various culture systems. The economist determines the economic feasibility of the systems given the market conditions. A major difficulty with technology transfer is the variation in market conditions. In many instances the technoligy can easilyb be transferred from a technical point of view but the local markets cannot sustain the costs of the new system. Costs include both direct and indirect. A labor saving system that may be suitable for Chile may not be suitable for India or Bangladesh. The local situation must be carefully appraised before introduction of any new technology.

Green mussel are grown on bamboo stakes implanted specifically for settlement of spat or grown on the extended wings of fish traps. The extended portion of the fish trap is also designed specifically for green mussel. A study by the Fisheries Economics Section at Kesetsart University indicated Green mussel production is only marginally profitable. The return, if family labor is charged at the official minimum wage, is near zero or negative. Pairoj Brohmanonda and others have conducted experimental trails of hanging culture and indicated the biological feasibility. No producers use hanging culture. No producers perform thinning operations. No producers use placement of the green mussel on the poles. Many producers harvest a portion of each pole when green mussel are small and sell for duck feed.

Technology changes occur under specific economic conditions, assuming the changes are not imposed from outside the system. The technology changes are summarized below:

Method 1 migh include use of less aeration or protein supplement. The final output is reduced but cost is reduced more such that net revenue is increased. In green mussel the producer might stop thinning. The labor cost and fuel cost is reduced as is the value of final output. Net revenue is increased, espectally net cash revenue. Method 2 involves introduction of a cost efficient method to produce the same output. In green mussel this might involve reusing good quality bamboo stakes or more efficient harvesting techniques. Method 3 involves marketing of the product. In green mussel the producer may forego the cash flow from sale for duck feed and attempt to harvest more when in the ripe gonad condition. Method 4 is the traditional technology transfer system. In fish it involves stocking, predator control, feeding, disease control, and all the other factors that add to cost but result in much higher output. In green mussel it could include spat collection, placement on long lines, thinning, and other practices as used in Europe and in Singapore. Unfortunately the market price will not support an increase in producer cost. This leaves only methods 2 and 3 as alternatives.

The current market situation does not mean that research on technology tranfer for green mussel should not be conducted. If quality control in processing were improved and/or export markets developed the demand situation for green mussel would be substantially changed. In the short run market price constrains the type of production systems that can be utilized in green mussel production.

Cockle production in Thailand is biologically constrained by lack of adequate seed supplies. Culture techniques are relatively straightforward. The seed is spread over suitable substrate, the cockle grow for a period of months depending on the availability of nutrients, are harvested and sold live in shell. Economic analysis of the available production and input cost information indicates cockle production is not economically viable. An example is shown below.

Seed are stocked at a size of approximately 2,000–3,000 per kg and harvested at approximately 60–80 per kg. The revenue is barely sufficient to cover seed cost. The data is, of course, incorrect. Cockle production is relatively profitable and the producers in the south of Thailand have substantial investments in fixed assets including boats, shore facilities, and transportation facilities. Where the data is in error is a subject for debate. The seed cost listed may be 100% inflated since it is the price paid by the Department of Fisheries not the price paid by producers. The stocking rate and/or the yield per rai may be in error. The listed data indicates a survival rate of less than 10% on seed stocked.

Economic analysis of production cost data is only as good as the data available. In general cost estimates should be conservative representing neither the best nor the worst case situation. Speculations regarding changes can be perfomed through ‘sensitivity’ analysis. This analysis allows questions of what it.

Dyster culture must be separated by the species of oyster, not because the culture systems dramatically differ but because the marketing differs. The large oyster Crassostrea sp. that is cultured in the south of Thailand is primarily sold fresh to restaurants and specialty food shops. The product is sold in shell at a price per oyster. The small oyster Saccostrea sp. that is cultured at numerous locations throughout the coastline of Thailand is normally sold by shucked meat weight. The product is also sold to restaurants and food shops but is typically utilized in cooked dishes.

Investment in oyster culture is somewhat constrained by the front end loading of capital requirements and the ‘ripening’ period before return of any cash to the enterprise. The substrate must be purchased and put in place, then, for large oyster, the seed must be purchased and attached to the substrate. A period of about 18 months follows before the oyster reaches appropriate market size. During the initial 18 month period a continuous stocking program should be conducted to derive a constant cash flow and lobor use when harvesting begins. To date the supply of large oyster has not been sufficient to depress within Thailand price. The large oyster is a ‘luxury’ good but is not a

Marketing of shellfish in Thailand differs substantially between the different types of shellfish. A summary of the marketing of each species is given here. A detailed shellfish marketing study was conducted by Kesetsart University.

The market forms of green mussel are listed below. A study of product cost by market form was conducted by the Fisheries Economics Section of the Department of Fisheries but the results have not, as yet, been published.

Fresh in shell

In addition there are 3 sizes small, medium, and large and two condition factors; fat and thin that are included in marketing and processing decisions, Small green mussel are never sold fresh in-shell. When fat, the small are steamed, shucked, and brined or bottled. When thin the size cannot be sold. Large is typically sold fresh in-shell or shucked then dried. When thin, the product is only sold fresh in-shell and the price is substantially reduced. Fat or thin refers to condition of the gonads or dry meat weight to total weight on a more technical basis. In addition to the product forms mentioned above, some processors remove the gonads and dry the product, the price is relatively high but the quantity processed is not very significant in total marketing of green mussel.

Analysis of green mussel marketing is very complex. The dried product has 30% moisture and a very short shelf life Expanding demand by creation of a new product form and/or short term preservation appears to be the rational for processing in the dried form. Steaming before shucking reduces labor requirements in shucking. A new market form, fermented dried green mussel has been developed by the Fisheries Technology Division of the Department of Fisheries. The product has been well accepted in test marketing and could expand the demand parameters for green mussel in Thailand.

Cockle is primarily marketed fresh in shell since the production and harvesting techniques allow selection of larger sizes. A limited amount of small cockle is harvested and sold. The small cockle are brined and sold in fish sause. The major producers ship directly to the wholesale shellfish market in Samut Prakan (20 kilometers south of Bangkok. The cockles are redistributed throughout the local markets of the central, eastern, northern, and northeastern areas of Thailand from this market location. The southern markets are served by local supplies.

Small oysters are shucked in the local areas and the shucked meat is sold to collectors who service the restaurants and food shops. The large oysters are sold in shell to collectors who also service the larger restaurants and food shops. Oysters do not go through the shell-fish wholesale market nor do they go to local retail markets except in special locations.

Marketing does not represent a constraint to expansion of the shellfish industry except for green mussel. Quality control is important for shellfish products and green mussel have developed a reputation for causing stomach distress in areas removed from the seacoast. This reputation has delayed acceptance of the fresh shucked product which has a much longer shelf life if properly cooled.

IV. Summary

Shellfish aquaculture is similar to other types of aquaculture. The economic analysis is precisely the same. The bioeconimic relationships are specie specific but that is also true of any type of aquaculture. The exciting aspect of shellfish aquaculture is the enormous potential of a controlled aquaculture system without the requirements for pond construction. It is possible that shellfish culture in the nearshore area can contribute to an enhanced fishery in the offshore area. The substrate for shellfish, whether bamboo, concrete posts, or hanging ropes, could serve as a type of protection area for fish.

Economics is concerned with identification of limiting factors. A biological system should be designed with recognition of these same factors. In Thailand at the present time, capital for investment in mollusc culture is limited. Labor is freely available. A reasonable system would utilize the maximum amount of labor and a minimum amount of capital. The visit to the oyster processor at Bang Saen demonstrated this principle in action. Capital investment was nil while employment was provided for more than 60 laborers. The investment per laborer was undoubtedly less than $5. A similar plan in the southern United States would employ perhaps 3 people for the volume of oysters processed. The investment per laborer would exceed $1000,000. Transfer of the U.S, oyster processing technology to Thailand at this time would not be reasonable nor feasible. This does not imply that Thailand is unaware of the capital intensive technology.

When considering technology for your country place the analysis within the context of the situation for capital, labor, and other inputs in your country.

Suggested References:

Davy, Brian and Micheal Graham, Editors. 1984. Cultivation of Bivalves in Asia and the Pacific. International Development Research Center Box 8500 Ottawa Canada KIG 3H9 (Regional offices in Singapore and in Bogata, Columbia)

IDRC/ICLARM 1982. Aquacultural Economics Research in Asia. International Development Research Center box 8500 Ottawa Canada KIG 3H9 (Regional offices in Singapore and in Bogata, Columbia) Similar report in 1985 but not available at this date.

Allen P.G. et al. 1984. Bioeconomics of Aquaculture. Elsevier Science Publishing Co. Molenwerf 1 P.O. Box 211, 1000 Ae Amsterdam, The Netherlands.

SEAFDEC, IDRC, ICLARM, FAO and other organizations have reference library service that will provide additional studies on aquacultural economics of shellfish.