Technical inefficiency, cost frontiers and learning-by-doing in Norwegian farming of juvenile salmonids

ABSTRACT

For an industry’s total competitiveness, it is important how the suppliers perform. In this respect, efficiency improvement in smolt production is highly important for the Norwegian salmon industry. Smolt is one of the key input factors in salmon farming. After feed, it makes up for the highest cost share. The objective of this research was to analyze the efficiency in Norwegian production of juvenile salmonids from 1988–2012. A special interest in this research was to investigate how the age of the firm affects the technological efficiency. This econometric analysis is undertaken in a stochastic cost frontier framework. The results indicate that significant technical inefficiency is present in smolt production, and that there exist productivity differences between regions. Furthermore, there seems to be a learning-by-doing effect in juvenile production because older firms perform slightly better than the new ones with respect to technical efficiency.

KEYWORDS:

• Inefficiency
• juvenile salmonids
• learning-by-doing
• stochastic cost frontier approach
• technological leapfrogging

Acknowledgments

The author would like to thank Ragnar Tveterås and Frank Asche and two anonymous reviewers for helpful comments. Any remaining mistakes are the authors’ responsibility.

Notes

Juvenile production includes production of fry and smolt. The fish is called fry from hatched at the age of 4–6 weeks and until it reaches the smoltification stage at the age of 8–14 months. Fry are sold to other hatcheries for further growth in fresh water. Smolt is sold to grow-out farms for further growth in salt water. Hence, smolt is the main product of interest for the hatcheries.

Juveniles will undergo the biological changes that prepare them for life in saltwater during their first year of life. As the process progress, the skin turns silver, and they can be called a smolt. The fish has then usually reached a weight of 60–100 g. After 9–18 months in fresh water the salmon are transferred to sea using well-boats. This usually takes place the fall after it is hatched, or the second spring after it is hatched. The roe usually hatch in December or January. If it is released the fall after it is hatched, it is called Zero-year-old smolt. It is released the second spring after it is hatched, it is called One-year-old smolt.

The legislations in juvenile production are, and have been, somewhat different from the regulations of the grow-out farms. The differences are both related to the process leading to granting of a licence, and to the content and criteria according to the licence. First, in juvenile production, the government has continuously received and processed applications (except from the peak of new permissions in 1985). In the grow-out production, the licences have been allocated through license rounds since 1981. Second, in juvenile production the size of the license varies from firm to firm because the restrictions on production are given individually. This is in contrast to grow-out farming where the licenses are given with the same restrictions. The license in grow-out farming is set to a maximum allowed biomass (MAB) of 780 tons. For the northernmost counties, Finnmark and Troms, MAB is allowed to be 945 tons.

Water recycling involves the removal of particles, nitrogenous metabolites and carbon dioxide, as well as the addition of new oxygen. Particles are removed with mechanically filters or sludge basins, carbon dioxide are vented, while metabolites usually are removed by biological filtration.

The hatcheries do not report the weight of the sold fish (only number of units sold) on the questionnaire. However, industry sources indicate that the average weight of a smolt has not changed very much. The increased growth has primarily lead to earlier release time and thereby increased production capacity.

Conventional econometric models assume that all producers are technically efficient.

A production frontier characterizes the minimum output producible with various input bundles, and a given technology.

The full county names are: VA = Vest Agder, R = Rogaland, H = Hordaland, SF = Sogn og Fjordane, M = Møre og Romsdal, ST = Sør Trøndelag, NT = Nord Trøndelag, N = Nordland, T = Troms and F = Finnmark.