Egg&Smolt® 3.4

U.S. Salmon Digest
Volume 3, Issue 4
May/June 1993

Creating a Bankable U.S. Aquaculture Industry

In this issue:

Aquaculture provides the most promising food source solution in the face of an increasing population and over-exploited oceans. Major impediments are holding back the development of this important American industry. It lacks clear and legal property rights, and is faced by a regulatory environment that stifles the industry by discouraging commerce.

The poultry industry had similar setbacks in its beginnings, but overcame many of them through the National Poultry Improvement Plan. By following the poultry industry in making positive political steps, the American aquaculture industry will become bankable, and capable of competing on world food markets.


U.S. aquaculture as a bankable industry faces critical challenges over the next few years. Will the growth of the industry compensate for the decline in the wild fishery? Will investment incentives prove adequate for the financial community? Or will the United States, which controls close to one quarter of the world's continental shelf, continue its policies of neglect and regulatory obstruction, and postpone an agricultural revolution at a time of serious population increase?

During the past four decades, the high seas fisheries showed consistent growth, peaking at a production of almost 100 million metric tons in the mid 1980's. But since that time, the worldwide harvest of wild fish has declined about 3% each year. The Atlantic cod catch has fallen from 3.1 million metric tons in 1970 to only 0.9 million metric tons in 1991. Like the cod catch, the harvests of Atlantic rockfish, herring and mackerel have declined. In Alaska, the salmon catch has plateued with record harvests consisting of smaller fish. Further south along the Pacific Coast of North America most salmon runs are in danger of extinction. On the East Coast, the U.S. Government has had to pay native fishermen to stop fishing off the Greenland banks in order to save the valuable resource. In Canada the Grand Banks of the Newfoundland and Northeast coast have become a virtual desert, leading to massive unemployment in fishing communities that are some of the oldest settlements in the Americas. In the Atlantic and Pacific alike, efficient factory trawlers, drift netters, bottom trawlers and other state of the art fishing operations have imperiled the wild resource. The UN Food and Agriculture Organization has flatly stated that over fishing has driven most of the commercial wild fishery to extinction.

While the wild harvest has declined, the demand for seafood has continued to grow. Most of this growth is attributed to the increase in world population and the desired health benefits of seafood over red meats. At the present rate of population increase (1.7% per year) the world's population will reach nearly 6.5 billion by the turn of the twenty-first century. Assuming that per capita consumption of seafood will remain at the same level, the total quantity demanded may reach 121 million metric tons by that time.

The wild fishery is not the only world food source stretched to the limit. The world's supply of agricultural land is also limited. Most farmland is located near urban areas where population growth impinges on the most fertile soil. Twenty-five percent of us produce, for example, is grown in the San Joaquin and Imperial Valleys of California, areas that are seeing large population growth. Those valleys are also ancient seas, where year-by-year salt leeching requires increasingly sophisticated and expensive recovery efforts.

Everywhere agricultural expansion is limited by the availability of water. Agriculture typically requires 90% of a nation's water supply, and tensions over water use are apparent in every major agricultural nation. During the last few decades, efforts have been made to create new agricultural zones by burning down rainforests, but the results have been a disaster from every perspective, whether in terms of productivity or in terms of the threat to global environmental systems. Finally, many traditional forms of agriculture are expensive because of the costs of feed and fertilizer. Cattle, for example, consume eight pounds of feed to produce a single pound of beef, a conversion ratio of 8 to 1.

The alternative to traditional farming is aquaculture. It is an ancient practice with roots back to the early civilization of China. Yet the industry has barely developed beyond its infancy in the last twenty years a growth due in large measure to the success of American research and innovation. Like other recent American innovations, however, the aquaculture industry was commercialized not by Americans but by other countries. Salmon, one of the most successful farmed species, can now be produced at a 1 to 1 conversion ratio: one pound of feed produces one pound of fish. In some experiments, an unprecedented ratio of 0.6 to 1 has been reached, opening the way to an extraordinarily efficient method of desirable protein production. Moreover farmed salmon, tilapia, shrimp, mussels, clams, and other species, are raised in saline water, preserving fresh water for agriculture and human consumption.

Over these last two decades, aquaculture throughout the world has grown from a tiny industry to one that supplies 20% of the world's seafood need - enough to keep pace with the decline in the wild fishery. But that is not enough. With the world population predicted to grow to 10 billion by 2025, aquaculture must grow tenfold to meet the rising demand for seafood. The simple fact is that aquaculture is the most promising new source of world food. Traditional farming and the wild fishery are reaching their limits.

Fish farming represents the future for the United States and not only from an economic standpoint. Fish farming is not merely an argument for a more efficient system of producing inexpensive protein as a substitute for steak in the center of the plate. Nor is it merely a method for producing new food without taking water needed for other human uses. There is a moral imperative to put to productive use America's farthest frontier, a vast continental shelf where sea farming can be carried out with few environmental risks to the continent's estuaries.

With 25% of the planet's continental shelf and temperate, well flushed ocean sites, the United States can contribute significantly to the commercialization of a new and exciting farming industry.

Why are we behind? Why is American aquaculture a barely visible industry? Why as aquaculture developed so well in Norway, Chile, Tasmania, Scotland, Japan, China, Thailand, Mexico, Sri Lanka, and other nations? The United States, to be sure, is more sensitive to environmental impacts than many other nations, but environmental issues are not the primary obstacles in the path to a developed industry. There are, in fact, two related obstacles, both of them obstacles of legal policy and concept rather than obstacles of science or technology, and they are obstacles that have been overcome at the beginning of other farming revolutions. The chief obstacle to fish farming is that it is not yet an industry based on property rights which can be efficiently exchanged in our formal market-economic system. Aquaculture differs from traditional agriculture because it operates in an informal market, which makes trade or commerce of its products possible only at enormous effort and risk.

These risks manifest themselves in several ways. The lack of formalized title to the product produces questionable property rights between buyer and seller. Thus the right of the seller to tender the product to a buyer always holds the risk of dispute. Similarly, transfer of the product across legal boundaries may cause dispute. In fact, new owners will always be concerned with the issue of whether enforcement agencies will accept their legal possession of the product. In addition there are few effective means the seller or the buyer can apply to protect themselves from wrongful claims either by over-zealous enforcement agents or fraudulent individuals.

This potential dispute of ownership is inherent in our present legal definition of aquaculture plants, fish, and shellfish. Our laws now classify them as wildlife or game animals. And to deter poaching, all game laws and regulations prohibit these products to enter commerce. Thus the aquaculture industry, in order to generate any kind of economic growth, must trade its products in an informal market. This market is best described in terms of its extreme inefficiencies caused by prohibitive regulations and governed by inconsistent state laws, international treaties, and the Lacey Act.

The Lacey Act specifically defines all fish and shellfish as wildlife. It also classifies salmonids as injurious wildlife, which brings about a heightened level of transfer restrictions for both farmed and wild salmon. Most of these restrictions are brought upon the industry under the guise of deterring the spread of fish disease. Thus regulators have designed extremely cumbersome and costly permit systems for moving salmonids both domestically and internationally. Alleged failure to comply with these regulations and the permit process has produced horror stories involving prosecution of legitimate farmers.

The most recent examples are the legal battles fought by Mr. Cochran and Dr. H. Hagen. In both cases overzealous federal enforcement agents, with the backing of the Lacey Act, brought these farmers to their economic ruin. In Dr. Hagen's case the issue was an apparent lack of an obscure interstate transfer permit for farmed trout. The Federal Government was unable to prove its case in court even after several appeals. Nevertheless the Hagens lost their farm due to the cost of defending themselves.

The Cochrans also lost their farm fighting a case very similar to the Hagens'. At the time of the indictment, Mr. Cochran was an outstanding leader of the fish farming community. He was the president of the US Trout Farmers Association and a renowned entrepreneur and innovator in the industry. It was this desire to expand the frontier of the industry that caused a confrontation with federal and state regulators. When he imported white sturgeon from the West Coast to Georgia, his fish were seized because he was accused of not having an exotic fish permit. Although the court ruled that exotic fish legislation was unconstitutionally vague and that white sturgeon are neither exotic nor wildlife, Cochran was compelled to file for bankruptcy as a result of the incident.

To prevent these personal tragedies in the future, the aquaculture industry needs to be based on a legal framework suitable for a developed industry like traditional farming. Only if the industry can enter our modern market economy will it generate growth and new jobs. The key to achieving this status lies in the industry's ability to obtain formalized titles to its product similar to the way farmers own their livestock.

The fish farmer's ability to acquire formal title to the means of production will resolve a number of issues. Foremost the ownership right will generate a formal market for aquaculture products. Generating this formal market will cause the necessary low-cost exchange of products resulting in the desired growth of the industry. This growth in turn will force specialization and greater productivity in an ever-expanding market.

The granting of formalized titles to the fish farmer will also provide added benefits to the emerging industry such as increased innovation and capital formation. In a recent article in The Economist, Hernando de Soto observed that "…when people have formalized titles they feel that their property is under their own legal control and they therefore have the incentive to invest their intelligence and work in improving it." He also related the fact that formalized titles open the door to credit. In the United States, for example, some 70% of the credit that new businesses receive comes from using formal titles as collateral for loans. This type of asset based financing is extremely important in rural agriculture development, which uses crops or livestock as collateral. Unfortunately fish farmer's inventory is not accepted as security by banks and thus the industry is in essence not bankable.

To make fish farming bankable today, it needs a similar legal framework to the one, which the poultry industry in cooperation with the US Department of Agriculture instituted some sixty years ago. The industry-government cooperative alliance produced the National Poultry Improvement Plan, which formalized titles to the industry's livestock by providing a central system of registered titles governed by legal rules. The ability to register and protect the farmers' investment in research and development, and the ability of a whole industry, working in cooperation with the government to set national standards, conferred value on the product and built confidence in the marketplace. Ownership rights provided the foundation for the phenomenal growth of the poultry industry in the 20th Century.

By looking at poultry industry statistics, we can see the dramatic results that occurred as a result of the Poultry Improvement Plan. Broiler production increased from 34 million animals valued at $19 million in 1934 to over 5 billion animals valued at $7 billion in 1987. Today broilers produced in the United States are being marketed at an average live weight of 4.5 pounds after 7 weeks, with an average feed conversion of 2.0 pounds of feed per pound of live weight. In the 20's the average broiler weighed 3.8 pounds at 16 weeks of age, with a feed conversion of 13 pounds of feed per pound of live broiler.

This phenomenal growth of the industry and the improvement in production efficiency through genetics also greatly benefited the consumer. Since the early 50's the retail price of broilers has dropped by almost 70%, while consumption increased more than five times. Today the per capita consumption of broilers represents 76 pounds at an inflation-adjusted price (1967 = 100) of less than $0.20. In 1955 the US consumed less than 14 pounds per individual while paying almost $0.70 per pound. (See Graph, page 2)

Despite the lack of ownership rights in the aquaculture industry, a salmon farming bonanza occurred during the last decade. Now farmed salmon accounts for as much as 30 percent of the world's salmon production or the equivalent of Alaska's entire salmon harvest. This boom has positively affected the economies of nations around the world especially Chile. Norway, and Canada who exported their product to the United States. Nevertheless this boom was based in large part on research and development conducted at the University of Washington and the National Marine Fisheries laboratory in Seattle. But neither the university, the federal organizations, nor the domestic industry profited because there were no incentives through formal ownership to apply the R&D to improve domesticated salmon and market the genetic material similar to the way it was done in the local poultry industry. Hopefully this costly lesson will not be repeated. Deputy Secretary of the US Department of Agriculture, Richard Rominger has affirmed that the United States is poised to develop a competitive aquaculture industry. As quoted in Water Farming Journal, he stressed that: "Industry leaders are telling us United States aquaculture could be promoted with better coordination between our government authorities and an improved regulatory environment."

The government can cooperate with the industry in two ways. First, aquaculture products need to be legally classified as a livestock as proposed in the National Aquaculture Development, Commercialization and Promotion Act introduced by Senator Akaka (SB 1288). The Lacey Act restrictions on the transfer of farmed and domesticated fish and shellfish must be abolished. This is not a call for environmentally risky actions or for a regulatory environment without controls. It is merely a call for farmed aquatic plants and animals to be put on the same legal basis as sheep, pigs, cattle, and chickens. Secondly, the government can cooperate with the industry to establish an industry-wide system of formal title registration to ensure private ownership of aquatic livestock. This registration will confirm property rights and attract investment. Ownership will provide incentives for productivity and self-policing, and it will build confidence in the domestic and international market for aquaculture products.

The demand for seafood is certainly there. The United States imports 60 percent of its fish and shellfish, resulting in a $4.9 billion trade deficit. This gap exists in spite of the fact that the United States is one of the largest fishing nations, and in the face of the reality that we hold the equivalent of a national title to many of the richest sea farming sites in the world. The world's needs and our own economic best interests point in the same direction: aquaculture. Americans pioneered much of the technology and made some of the key advances, for example, in the development of farmed salmon. American scientists helped establish the industry in Chile, Norway, and the Far East. The products of aquaculture are in high demand. All that is required now is the kind of cooperative effort that built the American poultry industry. It can be done again. The time is right to create a bankable US aquaculture industry able to compete in the world food market.