FISHFARM ECONOMICS
E C O N O M I C S
Broadly defined, economics can be said to be a study of the efforts of man to make a living. It is the job of the economists to show how the various branches of the economic system work and how they fit together into an overall pattern.
If resources were large enough and distributed well enough to satisfy all our wants or desires, there would be no economic problems, and therefore no need for economics. However, this perfect situation does not normally occur. Since our means and time are limited, most of us are constantly required to make choices in allocation of time and other resources. Governments, like individuals, must make choices on how to allocate resources so as to obtain the greatest benefits. These choices, by governments, are generally made by planning boards, such as NEDA in the Philippines. Economic systems are based on these choices between alternatives.
Any product or service which satisfies a want is said to have utility. Utility should not be confused with beneficial use. A man applied pesticide to poison fish in a pond. This is a utility for him though the effect could hardly be termed beneficial to the fish. Another example is, an aerator has more utility in an aquarium than in a fishpond. Utility of a commodity can vary between individuals and with time and place. A pork chop has no utility to a vegetarian, and an air conditioner has more utility in April in Manila than in Baguio City in December.
Utility also varies according to the quantity of a product available. A bowl of rice has great utility to a hungry man, a second bowl less, and at some point, none at all. For each commodity a point is reached where a person will prefer to spend the money on something or simply to save the money.
Prices of goods and services are the result of demand for those goods and services, and the supply available to satisfy the demand. We have said that utility of a product decreases as the availability increases. Therefore increasing supply will at some point lower prices. On the other hand, an increase in demand beyond available supply will increase prices. Demand for essentials, such as staple food items, change very little even with a dramatic change in price. Demand for such item is said to be inelastic. However, demand for luxuries, will vary a great deal as the price changes. Such demand is said to be elastic. However, the demand for any item, even essentials, becomes more elastic if there are suitable substitutes for the item. If the price of poultry rises, more fish might be used. In general, we distribute our resources or expenditures so as to get the greatest amount of satisfaction possible.
Production systems exist to satisfy wants. To do this natural resources are converted into desired products. This is termed production. While man cannot create matter, he can change matter to a more desirable form. Fish farmers do not create saleable bangus; they select seedlings from a natural occuring mixed stock and place these seedlings in a favourable environment to produce more fish than would naturally occur.
People who provide services are also producers. For example, deboning bangus changes the fish into a more desirable product and thus add value to the product.
The three factors of production are: land, labor and capital. Land is a term which includes not only land itself, but everything provided by nature: soil, fertility, vegetation, fish seedlings, sunlight, wind and water. Labor includes all effort physical or mental, which results in a tangible return, i.e., money. Labor produces goods, services or both. Capital includes all items, except land and labor, which are used in production. The net used to harvest bangus is a capital item, so with the chilling tanks, and the digging tools used for dike construction.
All production takes time. In order to support the workers and to pay for production inputs, a fish farmer must be able to accumulate negotiable capital to be used during this waiting period. In fishfarming, it is not generally possible to accumulate the end product, but these are sold to accumulate money, which is a form of capital. It is difficult to save fish for future use, but it is possible to save a part of the money from the sale of fish for this purpose.
Most functions of management can be passed on to paid managers. One function which is not normally passed on is the element of risk. Therefore, owners must be rewarded for assuming risk by earning profit. When owners borrow money for production, part of the interest paid is used to cover the element of risk assumed by the lender of the money.
Interest is the payment made by the borrower for the use of capital. There are different rates of interest in effect at any one time and at any one place. What factors contribute to this?
Part of the interest charged is payment for the risk of losing the capital lent. It is obvious that governments can borrow more cheaply than individuals, and that well-secured individuals can borrow more cheaply than those poorly secured.
Part of the interest charged is to cover the cost of monitoring the loan. Therefore, large loans generally carry a lower interest rate than small loans. Small loans cost more per unit borrowed to monitor than large loans.
Part of the interest charged is because present money is usually worth more than future money. This is partly because inflation is more common than deflation and partly because there is a demand for money to be used as a tool in production. We pay money for labor and machines to be used as tools in production, hence, we also pay to hire money.
In any case, the law of supply and demand acts on money costs. Money is a commodity and is purchased, sold, rented, and leased in much the same manner as other commodities. It pays to shop for money bargains.
Case 1: If demand is stable, and supply increases - price will decline.
Case 2: If supply is stable, and demand goes down - price will decline.
Case 3: If price is stable, and unit cost of production declines - profits will increase.
Case 4: Normal sequence of events is that cost per unit of production increases, price fluctuates upward - profits vary.
Agricultural economics is a part of general economics and the same basic rules apply. Agriculture or farming, along with hunting, fishing (which is a form of hunting), mining and lumbering are all termed primary industries. Primary industries are concerned with growing things (including fish and other animals), or extracting things such as gold or oil from the ground, trees from the forest, or fish from the sea.
Most people in the world are involved in agriculture. Advanced countries are experiencing a migration of worker from agriculture to other occupations. There is a trend to increase farm size. An increase in farm size to a point, is accompanied by a decrease in costs per unit of product produced. However, not all farms are the same size in an area. The reason for variety of size are the following:
farmers put a higher value on satisfaction than on profits.
while it appears that returns on labor to a farmer are low, they may be higher than what he can earn elsewhere.
in times of high unemployment, the farm provides greater employment opportunities than are available elsewhere, not only for the farmer but for his family.
farmers face financial restraints which prevent him from enlarging his farm size.
Some countries attempt to increase production of selected products by supporting prices. Others attempt to accomplish this by subsidizing costs of agricultural inputs. This makes the net price of inputs to the farmer less than the true market price. It should be remembered that funds to support subsidies must come from other areas of the economy. Subsidies are a result of determination by a state that the area subsidized is of greater economic importance, at the moment, than other areas of the economy. One problem to be faced by governments which subsidize inputs, is that they may be forced to pay ever-increasing subsidies to manufacturers who raise prices knowing that the government will try to maintain the same low net price to the farmer.
As agricultural economics is a part of general economics, so is fishpond economics a part of agricultural economics. Aquaculture is a specialized form of agriculture. Generally speaking, the fishfarmer requires more specialized abilities to succeed than does a grain farmer. In most cases there is more information available to grain farmers than to fish farmers. This makes our job of supplying good information through the extension system, a more valuable and important one.
There is a difference between financial evaluation and economic evaluation. The economic evaluation considers the project's effect on the economy as a whole. The financial evaluation assumes a narrower viewpoint, in that it is concerned primarily with profitability, and with the project's ability to meet financial obligation.
In any investment project, an initial capital outlay is necessary with returns accruing to the investor over a period of time. The initial outlay will be dependent on the size and design of the system. Some systems are very capital-intensive, while others are much less so. Lately it has become fashionable to advocate projects using intermediate technology, whatever this term means, in those areas of the world labeled underdeveloped or developing.
Countries in the less developed category are said to be characterized by scarce capital and shortage of skilled labor, but with cheap and abundant unskilled labor. Therefore, some economists say, such countries should only choose from those production systems which require minimum capital and maximum labor, and, by extension, space. The developed countries are expected to choose complex, capital-intensive systems to produce high cost-high value products.
There are many fallacies in cataloging countries and systems. In developed countries, large amounts of capital are not always available to all persons desiring it, while enormous amounts of capital may be available to some in less developed areas. Land requirements for extensive systems may be expensive, or simply not available, in many less developed countries with high population densities. Land is frequently more available, and perhaps even cheaper, in developed countries.
It is not often recognized that to make an economic success of a system composed of small and/or scattered units, good managerial talent is required than in a single, complex, compact unit. Small units, particularly those relying on extensive methods, almost invariably lead to subsistence level production and are often eventually abandoned.
What is needed in all areas of the world is technology and systems appropriate to the specific project at hand. To choose appropriate technology is not an easy task. To design and recommend appropriate systems requires more knowledge and data than is presently used in recommending systems for the production of fish. Systems can be designed and recommended, but it is doubtful there is any best system for specific circumstances.
Useful economic data is not easy to obtain. Technical data on fish production far exceeds the accumulation of worthwhile data on fish production economics. Technical data will continue to improve and improvement is always welcomed. Good economic data is required to do a good job.
The ultimate question to be resolved is “are we producing the maximum number of fish possible on a given unit?”
Tropical areas are in some ways physically well-suited to fish culture. Temperatures are generally favorable for year-round growth of suitable species. However, suitable species are not always locally available, and some of the normally cultured species, i.e., milkfish, mullet, and shrimps, may not be easily reproduced, and largely depend on limited or non-predictable natural production and collection from natural sources. This restraint of collection from the wild will be removed in some cases as culture and reproduction of these animals become economically feasible but successful solution of the problems of seedling transport, and the design of small, economical reproduction units is still some time off.
Tropical areas may or may not have abundant water. When sufficient, water is likely to be seasonal. Lack of water storage and distribution systems, natural or artificial, may limit the period of fish production as seriously as winter in a temperate area. The presence of a rainy season may limit production by dilution of natural or added nutrients, may increase construction costs to prevent flooding, and may lead to oxygen depletion and serious losses during prolonged cloudy periods. Site selection to minimize these adverse factors is very important.
It is generally known that to increase outputs it is also necessary to increase the inputs, although, the ratio is not direct. It requires less input per unit output at low production rates than at high rates. Thus, the cost per unit of output (production) generally rises as the rate of production increases. However, the net income per unit of production area continues to rise until the cost of input equals the price received per unit. This point will always be well below the highest possible production.
In the chart (Figure I), one unit input in the range 0 to 1 produces more than two units of output. In the input range from 4 to 5, one unit of input produces only one unit of output. Above 5 input, fewer units are produced than are put into the system. In this case the highest total net income is reached at a point corresponding to 4 input units. This point is not necessarily the point at which we achieve the maximum in effective resources allocation. Maximum effective resource allocation will usually occur well below break-even point. In other words, we maximize returns on the resources invested by stopping well short of the break-even point.
 | Fig. 1. Chart of Output (Production) and Input |
National governments often set priorities on production from various sectors. Production in high priority sectors may be encouraged by price floors, subsidies, and other government actions. This amounts to increasing output values in these sectors without a corresponding increase in input costs. As a result, production will then increase beyond the normal break-even point up to the new break-even point. Remember that this is an artificial situation, paid for by production in other sectors, and will not be maintained if supports are removed.
The slope of the curve in this sample chart is not fixed. How the slope will vary depends on many factors.
Price of the product produced
Any increase in price received, not accompanied by a corresponding increase in input costs, will steepen the slope thereby shifting the break-even point to the right.
A decrease will have the opposite effect.
Production of any by-product of value will shift the break-even point to the right. These may include saleable products other than fish, stockwater, recreational values, etc.
There are important and very numerous input factors which affect the slope of the line. If input costs are reduced they thereby affect the bottom line by sliding the break-even point to the right.
