Aquaculture Economics, Management, And Marketing AQM 43 4

The Regulatory Cost Burden on U.S. Baitfish/Sportfish Farms

By Jonathan van Senten, Ph.D. as guest columnist1 and Carole R. Engle, Ph.D.2

“Measurement is the first step that leads to control and eventually improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” – H. James Harrington

What follows then, is a story of measurement. An ambitious attempt to quantify direct and indirect costs stemming from compliance with the United States regulatory environment; described as the 3rd most stringent amongst a group of developed and developing nations (Abate et.al. 2016, Aquaculture Economics & Management 20(2): 201–221). In terms of total aquaculture production, the U.S. was ranked as the 17th largest producer in the world in 2014 (FAO, The State of World Fisheries and Aquaculture, 2016). While global aquaculture has continued to grow, now contributing half of the total seafood production, the U.S. industry has not been developing as quickly as others. In fact, from 2000 to 2014, the U.S. has exhibited a 0.3 % decline in the growth rate of aquaculture (FAO); causing great concern amongst industry members and stakeholders. While the U.S. regulatory environment is just one of the areas believed to be contributing to this trend (See Lockwood 2017 for detail – Aquaculture Magazine April/May 2017, pp. 72-75), it was the one we sought to measure; specifically, for baitfish and sportfish production.
As most of the producers we met with during this study would point out, the interactions and resulting frictions between U.S. aquaculture and regulatory agencies are nothing new.

There is evidence in the literature dating back to the 1970s and 1990s discussing the regulatory barriers to aquaculture in the U.S. (Anonymous 1979, “Aquaculturists seek relief from regulatory constraints,” The Commercial Fish Farmer and Aquaculture News January 5(2): 8–11, 44–45; Gibson 1979, “Red tape versus green light,” The Commercial Fish Farmer and Aquaculture News May/June 5(4): 12–14; and Thunberg et al. 1994, “Economic, regulatory, and technological barriers to entry into the Florida aquaculture industry,” Journal of Applied Aquaculture 4(2): 3–14).

An earlier effort to characterize the complexity of the U.S. regulatory environment identified over 1,300 laws at local, state, and federal levels that affected the aquaculture sector (Engle and Stone 2013, “Competitiveness of U.S. aquaculture within the current U.S. regulatory framework,” Aquaculture Economics & Management 17(3): 251–280). Our more recent effort to quantify the farm-level regulatory burden and its economic effects on the baitfish and sportfish aquaculture industry sector is in direct response to the many calls for relief from the industry and from aquaculture experts. It would also be prudent to point out that the baitfish and sportfish study, has now become the first in a series of projects to assess the cost of regulatory compliance on multiple aquaculture sectors; including west coast shellfish and trout, which are currently ongoing.

Throughout 2015 a survey of U.S. baitfish and sportfish producers was conducted, targeting the 13 major U.S. production states as identified by the USDA Census of Agriculture. The survey was conducted as a census, attempting to capture the totality of the baitfish and sportfish industry in the relevant study states. When all was said and done, survey responses captured 74 % of the U.S. volume of baitfish and sportfish production (van Senten and Engle 2017, “The Costs of Regulations on U.S. Baitfish and Sportfish Producers,” Journal of the World Aquaculture Society 48(3): 503-517).

Summarizing the data collected from producers revealed that as a national average, only 1 % of total regulatory costs were direct costs of regulation, such as permit and license fees. The remaining 99 % of the regulatory compliance costs are due to lost or foregone sales (60 %), changes in management or infrastructure to remain in compliance (23 %), and manpower used for compliance (11 %). Using the collected data, it was estimated that the farm-level compliance cost to the United States baitfish and sportfish industry was in excess of $12 million. Across all respondents the average regulatory costs were found to be $148,554/farm, or $2,998/acre; although there was variation amongst study states. The analysis also demonstrated that the regulatory burden on small farms was relatively higher, with farms under 50 acres in size averaging $5,631/acre in annual compliance costs, compared to $321/acre for large farms over 500 acres in size. The data also revealed that the cost of regulations exceeded the value of profits on 38 % of participating baitfish and sportfish farms, a concerning discovery.

The dataset was also used to perform a statistical analysis to assess the impact of various cost factors on overall farm efficiency. While this technical efficiency analysis produced efficiency estimates for participating baitfish and sportfish producers, it more importantly revealed that regulatory costs factors, specifically the cost of manpower to comply and the number of annual permit and license renewals, were statistically significant contributors to inefficiency on farms.

While the research team is not advocating for a removal of all regulations governing aquaculture, the findings from this study do confirm previous reports of the complexity of the U.S. regulatory environment. Results demonstrated that the total regulatory burden has increased farm-level costs and restricted access to markets, thereby reducing profitability and contributing to reduced growth of the baitfish and sportfish industry. This reduced access to markets is particularly troubling, given that it limits the ability of producers to spread increasing costs over increased sales volumes. In a sense, the regulatory environment is having a double effect on producers; namely increasing costs, while simultaneously restricting their ability to spread those increased costs over increased sales volumes.

A look at recent USDA Census of Aquaculture data reveals that there has been a 25 % decline in the number of baitfish and sportfish farms between 2005 and 2013. However, the number of the large baitfish/sportfish farms in existence over that period has remained unchanged, the number of medium-sized farms declined by 21 %, and small farms declined by 29 %. Regulatory costs, constraints, and complexity may not have been the sole cause of this decline, but the disproportionately greater regulatory costs per acre for smaller farms observed in our study may explain a portion of this decline. The findings of this regulatory cost study on the baitfish/sportfish sector support the conclusions of Abate et al. (2016) that the stringency of environmental regulations in the U.S. have contributed to limited growth of U.S. aquaculture.

Now that the measuring is done, it is time for understanding and improvements to be made. Based on the findings of this study, the research team strongly recommends that policy makers identify ways to streamline the regulatory processes, reduce duplication in licenses, permits, and reporting requirements, and develop user friendly information systems to notify farmers promptly and reliably of regulatory changes. Furthermore, we recommend that policy makers consider the economic impacts of their proposed legislation at the farm level, and ensure their decisions are informed by the best available science. It is clearly in the best interest of our nation for regulators and representatives of aquaculture farms to sit down and search for ways to provide adequate oversight without the redundancies, overlap, and delays that impose unreasonable and excessive cost burdens on a U.S. sector recognized for its environmental sustainability.

For more information, see:
http://arec.vaes.vt.edu/arec/virginia-seafood/research/regulatory-costs-for-us-baitfish-and-sportfish.html

 

1Post-doctoral Researcher, Virginia Tech University (Guest Columnist) jvansenten@vt.edu
2Carole 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 cengle8523@gmail.com

 

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