By: Jonathan van Senten, VA Seafood AREC, Virginia Tech University; Carole R. Engle, Engle-Stone Aquatic$ LLC; Bobbi Hudson, Pacific Shellfish Institute; Fred S. Conte, University of California, Davis *
The latest study of the farm-level costs of regulations on U.S. aquaculture has focused on Pacific Coast shellfish farms. Previous studies have measured regulatory costs on baitfish/sportfish (van Senten et al. 2017) and trout and salmon farms (Engle et al. 2019) in the U.S. It is important to understand that the underlying rationale for these studies is not to seek to eliminate all laws and regulations but rather to better understand the on-farm economic effects of the regulatory compliance burden on farms as a basis for identifying more efficient regulatory mechanisms.
Shellfish farming is a major segment of U.S. aquaculture that differs from the previously studied segments. It is subject to coastal and marine regulatory frameworks instead of the primary freshwater regulations examined in previous studies.
A comprehensive survey of shellfish farms in California, Oregon, and Washington was conducted to collect detailed information on the direct cash costs associated with the various regulatory requirements, as well as the indirect costs of personnel time spent to obtain permits and licenses and of on-going monitoring and compliance activities.
The economic effects of obtaining permits were also explored in the survey. The principal economic effects of regulations on Pacific Coast shellfish farms were:
1) increased farm costs and
2) decreased farm revenue in lost sales, and lost opportunities due to regulatory actions.
When asked about major challenges to their shellfish farm, 51% of survey respondents reported that regulations were the most significant challenge, followed by 11% who reported that diseases were the greatest challenge, 10% seed availability, 8% labor, and 6% markets (see Figure 1).
Total direct regulatory costs were estimated to be $15.6 million annually (see Figure 2), and annual losses due to regulatory action or trade barriers were $110 million. Opportunities lost due to regulatory actions that impeded expansion and/ or diversification were estimated to be $170 million a year.
The average regulatory cost was found to be $240,621 per farm and $68,936 per hectare. Regulatory costs, both the direct costs and the two categories of lost sales revenue due to regulatory requirements, were variable across states in terms of per-farm, per-hectare, and the total statewide regulatory costs measured.
The greatest regulatory costs were found to be those for environmental management permits and regulatory filings, followed by those associated with aquaculture permits, food safety, legal and labor standards, and interstate transportation.
“Overall, the costs associated with obtaining necessary permits and licenses were 45% greater than the costs associated with monitoring and compliance.”
However, lost sales revenue from attempts to obtain permits and licenses were 47 times greater than sales lost due to monitoring and compliance. The value of reported lost opportunities was exclusively due to delays in obtaining permits and licenses.
Of the various line-item cost categories associated with obtaining licenses and permits, legal fees constituted the most significant portion of regulatory costs, followed by the workforce, sunk costs, consultants, permits and licenses, and expert witnesses.
Of the total time spent on obtaining permits and licenses, the greatest percentage (45%) was used to prepare and handle required paperwork, followed by attendance at meetings, in public relations activities, compiling the relevant science for regulatory issues, and in testifying at hearings.
Of the time spent on monitoring and compliance, 38% was for record-keeping, 35% for monitoring, 33% for sampling, 30% for reporting, and 19% on attendance at meetings. Overall, direct regulatory costs accounted for 29% of total annual farm costs for Pacific Coast shellfish farms.
This study also found that the regulatory cost burden was disproportionately greater on smaller farms, with the regulatory cost on the smallest farm size eight times greater than that of the next smallest farm size.
This finding of greater negative effects of regulations on smaller farm sizes is similar to previous findings which indicated that regulatory cost compliance is a substantial barrier, and constraint, to small-scale aquaculture farms (van Senten et al. 2017, Engle et al. 2019).
“Results of this study indicate that regulatory delays have constrained the ability of the shellfish sector to respond to increased demand for shellfish.”
It is important to note that the problems lie not so much in the laws themselves, but in the complex nature of the rule development processes by multiple local, state, and federal agencies and the subsequent interpretation of those rules by inspectors, permit writers, and others.
Furthermore, the permit approval process’s sequential nature contributes to the length of permitting delays for shellfish farmers. Pacific Coast shellfish farms surveyed in this study were found to face substantial adverse economic effects from regulatory frameworks.
Streamlining permitting processes to reduce the time required to obtain permits would reduce negative effects on farms. Despite the strong demand for U.S. farmed shellfish products, the regulatory environment has constrained Pacific Coast shellfish farms’ ability to meet their products’ market demand.
This article is a brief summary of a recently published scientific article: van Senten, J., C.R. Engle, B. Hudson, and F.S. Conte. 2020.
Regulatory costs on Pacific coast shellfish farms. Aquaculture Economics & Management.
The full version of the original article can be accessed through: doi.org/10.1080/13657305.2020.1781293/
References cited by the authors available under previous request to our editorial team.