Risk management in aquaculture

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Southeast Asian Fisheries Development Center Aquaculture Department

SEAFDEC/AQD Institutional Repository http://repository.seafdec.org.ph

Journals/Magazines Aqua Farm News

1989

Risk management in aquaculture

Aquaculture Department, Southeast Asian Fisheries Development Center

Southeast Asian Fisheries Development Center, Aquaculture Department (1989). Risk management in aquaculture. Aqua Farm News, 7(3-4), 14-18.

http://hdl.handle.net/10862/2668

Downloaded from http://repository.seafdec.org.ph, SEAFDEC/AQD's Institutional Repository

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14 Aqua Farm News VII(3, 4) May-June, July-August 1989

his recent social encyclical Sollicitudo Reis Socialis (Social C oncern) th a t “ A greater res

ponsibility rests on those w ho have m ore and can do m ore.” Those w ho have m ore than enough to provide fo r themselves and their families a decent and com fortable life c annot be deaf to the P ope’s call: “I wish to ask them to be convinced of the seriousness of the present m o m en t and o f each o n e’s individual responsibility, and to im plem ent — by the way th e y live as individuals and as families, by the use of their resources, by their civic activity, by co n tributing to econom ic and political decisions and by personal co m m it

m e n t to national and international undertakings — the measures inspired by solidarity and love of preference fo r the p o o r.”

Source: “ Perspectives,” The M anila Chronicle, April 28, 1988.

RISK MANAGEMENT IN AQUACULTURE

Risk m anagem ent is defined as “ the identification, m easurem ent and econom ic co n tro l o f risks th a t threaten th e assets and incom e of a venture.”

H usbandry of the stock m ust remain the focal p o in t of interest th roughout. H ow ever, any com prehensive study m ust exam ine m anagem ent o f the risks during harvesting, processing, packaging, shipping and m arketing of stock.

Knowledge o f the com parative level of risk inherent in the business is also useful.

On a scale of one to a hundred, it m ight be said th a t we know 75% of the biology of hum an beings, and perhaps we know 50 to 60% o f the biology of chickens, cows, pigs and o th e r farm animals. But our knowledge o f the aquatic creatures we farm ranges from a m inim um of 20% down to 5%. We thus have a good indication of one of the in d u stry ’s prim e risks — th e biological one.

A ny a tte m p t at uniform identification of risks across the industry encounters the problem o f its enorm ous diversity, e.g., the hazards to tro u t in Denmark are sub

stantially different from those in Italy. To fu rth er com plicate the problem , there are differences in risk w ithin th e cycle o f each species. Thus the hatchery-to-sm olt stage o f th e salm on involves a vastly different set of risks from those of the cage-rearing stage.

B ut th e re are also similarities, w ith a surprising num ber of aspects of each type o f rearing system com m on from one system to another. Moving w ater in a controlled way is very com m on in m any system s; so, to o , is heating, filtering and sterilizing it.

A lthough aquatic plants and creatures have widely different biological dem ands, they can still share com m on needs such as treatm en t of parasites, trea tm e n t w ith antibio

tics, and com m on w ater tem peratures.

Equally com m on to all aquacultural operations, regardless of species and their requirem ents, or even the systems involved, are the perils o f the elem ents — of w ind, wave, flood, drought, freezing, and so on.

It is clear th a t, despite the diversity of the in d u stry , techniques developed for the m anagem ent o f any risk, while they may be related to a particular species or system , m ay be directly transferable to another species or system. But th e risks need to be identified.

For convenience, the various types o f risk can be grouped w ithin tw o main cate

gories — Business Risk and Pure Risk.

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Business Risks

1. Social risks (changes in consum er tastes or social behavior). I t is probable th a t seafood can gain substantial ground in world food m arkets through aquaculture. It is equally probable th a t it can hold th a t ground. To do so, how ever, there will have to be considerable expansion of production and an a tten d an t increase in the area of the w o rld ’s m arine and freshw ater resources th a t are taken over for aquaculture. Such an expansion in p ro d u ctio n could possibly engender social resistance to the take-over by the industry o f w h at is seen by th e public as recreational territory.

2. E conom ic risks (inflation, changes in the level of econom ic activity, the actions o f com petitors).

3. M arketing risks (errors in forecasting dem and, loss of m arkets to com petitors).

The problem o f forecasting dem and is a subject for separate discussion, as is the loss of m arkets w hich may arise for a substantial num ber of reasons. However, the high biologi

cal risk fa c to r in aquaculture is very relevant to this heading. It is well recognized th a t, to com pete in the m arket, th e fish farm product m ust arrive in perfect condition. Indeed the flexibility afforded by being able to harvest at the last m om ent, w hen a purchaser has been found, is one o f the advantages th a t aquaculture enjoys over traditional fish hunting.

The potential fo r disease to im pede grow th, or to cause unbalanced grow th, is quite substantial. Several sectors of aquaculture have already had to grapple w ith the problem s o f unsightly lesions, m isshapen p ro d u ct, “ m u d d y ” taste, and p o o r shell-to-m eat ratios.

4. Production risks (changes in cost, problem s in supply of raw m aterials and services, in terru p tio n s in production). Probably the m ajor topics deserving discussion u n d e r this heading are, firstly, the supply of juveniles in a rapidly expanding industry, and secondly, the generally scarce resources of biological knowledge which are needed to ensure the success o f each venture in the industry. Any business which is founded in circum stances in w hich th e supply of juveniles is very lim ited, m u st in effect bear the burden o f the risks to the hatchery th a t supplies it. If the hatchery goes dow n, and there is no o th e r source o f juveniles, then production facilities could lie idle fo r a long time.

P roduction risks are also greatly increased in a situation w here a high level o f biological skill is needed b u t is n o t available. More often than n o t, success can be traced to the quality o f governm ent back-up or to the availability of a skilled technical back-up p ro vided by universities and o th e r centers o f excellence. Much w aste in an industry can be elim inated if an active, knowledgeable source of risk m anagem ent is available to it. Insur

ance is one o f the m ost effective tools for handling risk. However, such are the p ro d u ction risks o f aquaculture th a t the insurance industry is handling them w ith great difficulty. Some m ajor production risks are virtually uninsurable. It is still a possibility th a t th e insurance industry m ay in the future w ithdraw from covering, or decline to cover, a num ber o f o th e r risks of production.

5. Political risks (nationalization, political u nrest, war, trade restrictions).

6. Financial risks (changes in the availability or cost of credit, bad debts, etc.).

The availability of credit could becom e a problem for the industry. The early successes o f the industry have engendered a form idable desire on the p a rt of some banks to lend m oney on new aquacultural ventures. In m any instances, these investm ents have been based on unsound business plans, form ulated on unsound basic assum ptions. A round

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the w orld, a num ber o f projects have failed and lending in stitutions have lost substantial am ount of m oney: m ore may well follow. Risk m anagem ent has a great deal to offer banks and o th e r investors. But unless they em brace the concept of risk m anagem ent and apply it to their investm ent considerations, they will go on investing in projects w hich stand no chance o f success.

7. “B usiness” technical risks (snags in new processes, lack of know ledge). If we know twice as m uch o f the biology o f chickens as we know of the biology o f tro u t, it could be said the risks of growing tro u t are fundam entally tw ice as great as those o f growing chickens. In fact, because of the “ w ater” elem ent in the tro u t business, the risks o f growing them are even g reater; supplying air to chickens is a lo t easier than supplying w ater to tro u t.

New processes and technologies abound th roughout aquaculture: it is impossible to overem phasize the risks associated w ith them . When com bined w ith a general lack o f biological know ledge, they can be debilitating to the aquacultural business venture.

Pure Risks

1. Physical effects o f nature (w indstorm , earth q u ak e, drought, flood, etc.). It is an old, thoroughly proven, adage in the aquacultural insurance m arket that “ if you w ant to find o ut about the extrem es of nature in a particular place, then put a fish farm th e re .” A t every stage of the production cycle, aquaculture has to manage the risks associated with w ater, and w ith all the physical effects of nature.

2. “Pure” technical risks (the breakdow n of plant, failure of safety devices, hazardous processes going wrong).

Alarm system s te n d to be seen as a panacea for all the risks associated w ith co n trolled-flow (intensive) farm s. Four things have to be u n derstood about alarm systems:

• They d o n ’t always w ork.

• Each one can only m o n ito r a very lim ited p art of a site.

• They are only as effective as the response tim e and know ledgeability of the staff, m easured against the tolerance o f the species, as related to the situation concerned.

• They can engender an unw arranted feeling of security which can directly cause losses.

There are m any exam ples, to o num erous to detail, where alarms have failed to fun ctio n , or w here th ey have fu nctioned bu t there has been nobody to respond, or where they have functioned bu t the response has been ill-equipped to handle the situation.

The relevance of pure, technical risks varies according to the type of growing system involved. However, there is no d oubt th at the breakdow n of plant and the failure o f safety devices afford one o f the m ost fruitful areas for risk m anagem ent investigation.

3. Deviations fro m exp ected standards o f social co n d u ct (th eft, fraud, riot, sabotage, m alicious damage, etc.)

4. Liability (hostile legal action from clients, em ployees, the public). It only needs one careless producer to sell one infected fish for the image o f the industry in a whole c o u n try , or even w ider afield, to be blackened. The liability exposure is one thing, but consequent effect on m arkets could be devastating. It has happened in the canning industry; it could happen in aquaculture.

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Some areas o f liability to be w atched are:

• Liability o f the vendor of fish for the transfer of diseases to the purchaser, to his site, and his other stock. (There is no such thing as “ Disease F ree” in aquaculture!)

• Liability for environm ental damage by fish farms.

• Liability o f system designers (and builders!) whose system do n o t com e up to standards o f perform ance prom ised.

• Liability of equipm ent m anufacturers, as in the preceding.

• Liability o f others for polluting fish farms.

• Liability to the general public.

• Liability to em ployees.

“ A certain p ro p o rtio n o f risk to the aquaculture venture is site-related and th e re

fore a prerequisite to measuring the risks in individual operations is a large am ount of inform ation on each particular venture and on the site(s) it operates.” T hat is a state

m e n t related to m easuring risk at a very basic and isolated level. The risk exposures to individual sites can be intelligently estim ated if an appropriate am ount of inform ation is available.

There is a need to coordinate all kinds o f risk-related inform ation o f which the following are general examples:

• The average and the extrem e effects of various catastrophic and sub-catas

trophic diseases.

• The average and extrem es of various environm ental factors such as droughts, h o t cycles, cold cycles, floods, etc.

• The basic param eters for m ooring cages and rafts in the m arine environm ent.

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• The incidence o f plankton bloom s, their m ake-up. the circum stances in which th e y occur, the e x te n t of the area they cover, and the way in which they can be h an d led .

• Advisable stocking densities.

• A cceptable alarm systems.

• The efficacy of vaccines.

• W orking conditions in aquaculture.

The list will prove to be a long one. But the com piling of risk m anagem ent priori

ties in aquaculture urgently needs to be undertaken. Such a priority task deserves the im m ediate a tten tio n of the leading authorities in the industry.

Source: P.A.D. S ecretan, “ Risk m anagem ent in A quaculture,” Fish Farming Inter

national, Vol . 15, No. 2, F ebruary 1988.

ANATOMY OF THE PRAWN INDUSTRY IN CRISIS: TAIWAN EXPERIENCE

The steady, u n in te rru p te d grow th of the industry over tw o decades was capped by a trem endous o u tp u t of 95.000 t in 1987. The sudden drop of production volum e to 30,0 0 0 t in 1988 came unexpectedly, and for a while rem ained a puzzle to m any o b servers in o th e r countries w ho were following closely the developm ent of Taiw an’s prawn culture industry. A ctually, though, as early as 1987, the local scientists were already noticing some scattered signs of an im pending crisis, b u t by the tim e, there was practi-