Social net benefits from aquaculture under alternative technologies

Aquaculture production has enabled the considerably increased consumption of fish for the past decades. While fish is a good source of nutrition, its production is causing negative externalities for instance in a form of eutrophicating nutrient releases. These are attempted to diminish by regulation which has in turn enhanced the stagnation of the aquaculture sector in the EU. Most of the production is currently performed in marine net cages but to harness the economic potential of the sector without further deteriorating the waters, new, more environmentally sustainable options are sought. Bringing the production to land-based indoor facilities with recirculating water is one plausible option. The nutrient releases from these Recirculating Aquaculture Systems (RAS) are significantly smaller as most of the nitrogen (N) and phosphorus (P) can be purified. However, despite the efficiency perks the indoor rearing with adjustable conditions is yielding, the operation and especially the investment costs are likely to be much higher than in the prevailing cage-based production decreasing the desirability of the technology. I conducted a social cost-benefit analysis (CBA) to compare these two alternative aquaculture production technologies, net cage and RAS, from the society’s perspective. In addition to private costs, i.e., investment and production costs, the analysis takes into consideration the eutrophication damage of the released nutrients. The eutrophication damage is determined in monetary terms to make them commensurate with the other costs. For the same reason, all the costs and benefits are discounted to present values prior the comparison. The analysis has special focus on the Baltic Sea and Finland. Due to its dominance in the Finnish aquaculture production, rainbow trout was chosen as the main specie to study along whitefish as a higher value specie. To further examine the economic performance of RAS technology, pike perch production is also included. In addition, due to the uncertainties regarding the cost factors and developing technology, I present a comprehensive sensitivity analysis regarding the discount rate, investment costs of RAS, producer price, and eutrophication damage valuation. When it comes to large scale production of rainbow trout, the results show higher net present value (NPV) for the net cage production. However, when the eutrophication damage costs are taken into consideration the difference between net cage and RAS production decreases. RAS technology seems to be highly profitable in whitefish production, implying that is economically sensible to focus on higher value species. Under the strict environmental legislation regarding the Weser ruling of the EU Water Framework Directive (WFD) activities preventing or hindering to reach the good environmental status waters cannot be allowed. As this can also cause denial of permits for RAS production and further decreasing the distinctive nutrient load of the net cage aquaculture is a challenge considering the economic and technological restrictions, one solution could be offsetting the nutrient load. Gypsum amendment of fields has been found to be a cost-effective measure in preventing phosphorus releases; thus, the initial analysis is extended to include onetime nutrient offsets from farmers. According to the results, it is sensible offsetting measure as the environmental benefits from offsetting are higher than the costs of doing so under net cage production and at the same level under RAS production. The current environmental regulation is affecting hardest on the point sources such as aquaculture farms. This is felt unfair by the fish farmers. To shed light on the issue, another social CBA examines the social net benefits of beef and cultured meat production and compares the NPVs with rainbow trout farming under net cage and RAS technologies. The analysis is conducted with respect to produced protein to make the alternative food sources commensurate. In addition to private costs and eutrophication damage costs of nutrients, it also includes the atmospheric damage costs of carbon dioxide emissions. The results show clear superiority of aquaculture as a protein producer. The thesis concludes that due to the efficiency of aquaculture in producing protein and its potential in the blue growth sector, it is definitely reasonable to seek sustainable ways to produce fish. While net cage technology is currently the best option for large scale aquaculture, RAS has potential on the niche market of higher value species. The technological development has tendency to decrease the costs related to the necessary equipment and if the technology is to overcome its other uncertainties, it may have an important role in the future. Nevertheless, the environmental regulation ought to be adjusted to enable the blue growth in an environmentally and financially sustainable manner.