Economic tradeoffs and risk between traditional bottom and container culture of oysters on Maryland farms

Abstract

Availability of new oyster production methods offers a variety of choices for oyster farmers that include the overall business model, marketing strategy, scale of production, and the production method. Cost structures and relative profitability vary across production methods, scales, and business models. Maryland oyster farms were used as the basis for an assessment of the relative economic tradeoffs among traditional and newer, more intensive, production methods based on farm-level data. Oyster farmers in Maryland were interviewed in 2018 and 2019 to collect data from farm records on expenditures, prices, investment in equipment and facilities, and common problems. Production method/scale categories identified included annual production levels of ≤200 bushels and >200 bushels for traditional bottom culture and ≤6,000 and >6,000 boxes (100-count) for container culture. Cost structures were identified for each category, and accounting and economic net returns (profit) calculated for each (in $/bushel for traditional bottom culture and $/box for container culture). Stochastic dominance for profitability was assessed across the four farming categories. Cost structures differed substantially across the four categories, with fuel the greatest expense for traditional bottom culture farms and labor, followed by marketing costs, the greatest expenses for container culture farms. All categories were profitable based on accounting net returns, but only the large-scale farms for each production method were profitable in terms of economic net returns. The most profitable category was the large-scale container culture category followed by the large-scale bottom culture category, but the larger traditional bottom culture category was the least risky (by first-order stochastic dominance). Risk was substantially greater for the larger container culture category and for the smaller bottom culture category. Continued Extension support is needed to provide assistance with comprehensive business financial planning and risk mitigation (including efforts to reduce yield variability), especially for startup farms seeking to grow to provide full-time salaries for owners/operators.

Keywords:

• Oysters
• production costs
• risk
• bottom culture
• suspended culture
• container culture

Acknowledgments

We thank the oyster producers who took the time to participate and contribute information for this study.

Notes

1 “Watermen” is a term used in the U.S. to refer to those who make a living from fishing, typically in coastal areas.

2 In Maryland, a bushel is equal to 0.459 cubic meters, or 1.0194 times the U.S. standard bushel (Maryland Department of Natural Resources, n.d.).

3 Accounting net returns were calculated without annual depreciation and opportunity costs of investment capital whereas economic net returns were calculated including annual depreciation and opportunity costs of investment capital at 5%. While Campo and Zuniga-Jara (2018) reported an average cost of capital of 10% used in research publications, in the U.S. the Federal Funds Rate that determines trends in prevailing interest rates has been 75% lower in the decades of the 2000’s as compared to the previous 30 years. Thus, a more realistic cost of capital was used in this study, especially given the low rate of borrowing in general among survey respondents.

4 “Watermen” is a term used in the U.S. to refer to those who make a living from fishing, typically in coastal areas.

Additional information

Funding

This work was supported in part by the University of Maryland Sea Grant Extension Grant Number NA14OAR4170090, Project Number A/AQ-4 and the Chesapeake Bay Foundation under award number NA14NMF4740362 from the National Oceanic and Atmospheric Administration, U.S. Department of Commerce.