Accounting for economic risk and uncertainty in offshore aquaculture: A case study of Korean rock bream [Oplegnathus fasciats] production
2010
Lipton, D.W., University of Maryland (USA) | Kim, D.H.
Interest is growing in offshore aquaculture as a means of overcoming environmental concerns that plague nearshore and coastal aquaculture production. The challenge of dealing in the offshore environment adds expenses that are not present in other aquaculture production systems. We collected financial and production performance data from a commercial scale offshore aquaculture production system for rock bream off the coast of Korea. Financial performance of the system was evaluated using Aquasim, a stochastic financial simulator. To compare performance, we focused on the ten year internal rate of return and net present value based on different assumptions regarding fish survival rates and market prices. The baseline model which used the observed survival and market prices had a high probability of financial success and an internal rate of return of 18%. Financial performance became a lot riskier when we assumed that survival rates followed a triangular distribution with a 25% minimum survival that increased 5% per year, even when the mean survival rate was as high as 97%. Rock bream aquaculture could be successful under that survival scenario if prices are high for the first five years and then start declining due to the industry expanding. In that case, the internal rate of return is around 14%, but with greater variability than the baseline. If prices fall from the initial baseline level in the early years of production, then the operation has little chance of surviving.
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