Carole R. Engle
Engle-Stone Aquatic$ LLC
Changing Business Climate
The term “business climate” is a broad term that refers to the combined effect on the ability to do business of factors that range from political changes to new social mores to external economic shocks. Given the broad range of factors that affect a business, some set of these is likely to change in any given year. Such changes affect demand for products sold by an aquaculture farm.
For example, globalization and increased international trade have changed the competitiveness of many aquaculture farms. While the supply of seafood historically was based on the day’s catch from local fishermen, today’s seafood markets consist of products that originate from around the world. Such increased international trade has created threats such as transmission of diseases and aquatic nuisance species, competition from lower-priced products, concerns over food safety, and political and economic conflicts. However, international trade also creates opportunities for export and for increasing domestic sales as consumers become more wary of the safety of imported seafood.
Changing social mores and “social license” also offer threats and opportunities to aquaculture businesses. “Social license” refers generally to the degree of social acceptance of a business. For example, there is little tolerance in the U.S. for activities that degrade environmental quality. The expectation is that, as a society: 1) new species with potential to become invasive (i.e., aquatic nuisance species) or injurious should not be introduced; 2) animals raised on farms should be treated in a humane manner (i.e., animal welfare); and 3) that biodiversity be protected. Other expectations include increasing welfare of employees, reducing income inequality, and improving tolerance of cultural diversity, but also of growing concerns over the safety, quality, and security of food supplies. As a result, new regulations continue to be developed that affect aquaculture, often in negative ways. Yet, changing social mores also create opportunities. For example, the emerging demand for locally-grown food creates opportunities for U.S. aquaculture businesses that produce healthy and safe products in environmentally sustainable and socially responsible ways.
Assessing New Threats and Opportunities
What is a business to do in the midst of constant changes in the business climate? It is clearly critical to keep informed of business news and events. The ready availability of electronic devices with access to internet news alerts is an advantage in today’s world.
In addition, it is more critical than ever to join and maintain membership in a variety of aquaculture associations. Most associations send newsletters and alerts, organize conferences, present the latest research, and inform members of changes in regulations and policies. Meetings also offer valuable opportunities to learn about market trends and industry changes through networking with other farmers. Membership in national associations (i.e., National Aquaculture Association), species-specific associations ( i.e., Catfish Farmers of America, U.S. Trout Farmers Association, Striped Bass Growers Association), and regional (i.e., East Coast Shellfish Growers Association, Pacific Coast Shellfish Growers Association) and state aquaculture associations is an opportunity to keep up with key changes in the business climate.
Previous columns have discussed assessment of threats and opportunities as a component of an annual business review and financial checkup. Based on such an annual assessment, short- and long-term goals should be revised at least annually, and management strategies developed to achieve those goals.
Effects of Lost Sales Due to Changing Business Conditions
The changing business climate in the U.S. has resulted in the continued proliferation of regulations at the federal, state, and local levels that target aquaculture and other businesses. While the effects of such regulations have been discussed for many decades in the U.S., there is increasing evidence that the total set of regulations in the U.S. has resulted in compliance costs that impose substantial costs for many aquaculture farms.
One result of the complex and stringent regulatory environment in the U.S. has been restricted access to markets and the subsequent loss of sales from aquaculture businesses. In many cases, the sales lost due to the regulatory environment are not captured by other farms because the regulations that restrict access to markets affect all farms equally. In some cases, sales have been lost due to direct bans of certain species, varieties, or strains. In other cases, the ban is related to a species such as a tadpole or crayfish that, while included inadvertently in a fish shipment, can result in legal action against the farm. Still other sales are lost due to fears related to minor paperwork violations that emanate from various regulatory agencies but that could constitute grounds for prosecution under the Lacey Act with severe fines and possible jail time. Given the complexity of the regulatory environment, and the delays commonly experienced in obtaining required permits/licenses from multiple agencies, some farms opt to cease sales to specific markets.
A farm that loses sales and cannot replace them will suffer negative economic effects in addition to that of the reduced revenue. Most aquaculture is capital intensive with high annual fixed costs that create economies of scale. To operate efficiently when economies of scale are present, a farm should seek to increase production and sales to spread annual fixed costs over greater volumes of production. Thus, restricted access to markets and the loss of sales due to the regulatory environment forces farms to operate at a less efficient scale of production that results in greater per-pound costs.
What Can Aquaculture Businesses Do to React to New Threats?
Clearly, aquaculture businesses need to examine how to adjust their business goals and management strategies to meet changes in the business climate. Annual review of the total business performance, as described in previous columns, is essential, with annual adjustment of short and long-term goals.
However, a changing business climate affects other aquaculture farms as well. There is strength in numbers, and aquaculture associations play important roles in framing and creating the social license needed to increase social acceptance of aquaculture. Associations can engage with regulatory agencies to attempt to ensure that regulations are reasonable and unlikely to create unintended negative consequences for aquaculture.
Aquaculture farms also need to be politically active. Many aquaculture farms are important businesses with owners who are respected citizens in their communities. It is important for aquaculture farm owners to get to know their elected officials and make certain that elected officials are well informed about the nature of their farm and the types of political actions that would be beneficial or harmful.
Changes in the business climate create new business opportunities for those with the vision to see them. Technology today provides ways to connect with end consumers with unprecedented ease, but it may require hiring a younger marketing associate to take full advantage of the opportunities. The local food movement, greater acceptance of aquaculture by environmental groups, the intrinsic health benefits of eating seafood, the flavor of fresh aquaculture products, and continued economic growth in the U.S. all offer opportunities for aquaculture farms.
The business climate will continue to change over time, and aquaculture farm businesses need to adjust and adapt to changing conditions. However, every successful aquaculture farm, in my experience, is run by a resilient, resourceful, and dedicated individual who has survived many challenges in the past. The key is continued vigilance, networking with other farmers, annual adjustment of goals and strategies, and increased engagement with elected officials, customers, and the general public.
Carole Engle holds a B.A. degree in Biology/Rural Development from Friends World College and M.S. and Ph.D. degrees from Auburn University where she specialized in aquaculture economics. Dr. Engle is a past-President of the U.S. Aquaculture Society and the International Association of Aquaculture Economics and Management. She is currently a Principal in Engle-Stone Aquatic$ LLC, and can be reached at email@example.com