Marketing and Economic Analysis - PD/A CRSP Eighth Work Plan

The involvement of social scientists in the PD/A CRSP has increased gradually over time. In the past, economists and social scientists conducted studies of a localized nature which focused on specific research questions. A broader approach was implemented in the Continuation Plan 1996-2001 which proposed more comprehensive economic analyses across regions. The proposed studies seek to find answers to important questions such as: 1) what are the constraints to aquaculture development that are common to all regions?; and 2) what are the key factors that determine economic feasibility of aquaculture that are common to all regions?

This regional approach will link prime and companion sites with on-going economic analysis in the US. Much of the research proposed for the new African site in Kenya will be developed from a US template designed to identify information needed for pro forma business plans. Additional economic information will be garnered from economic studies which focus on impact and risk analyses. A beneficial side effect of these activities is the heightened interaction among economists and prime site personnel.

In Honduras, an increased interest in aquaculture investment generated a need for further economic information. The base survey data to be collected from shrimp and tilapia farms in Honduras will provide important information on farm practices, farmer-identified needs, and on adoption of CRSP-developed technologies. This information is expected to help refine the future research agenda at the prime site.

To develop estimates of social and economic returns attributable to PD/A CRSP technologies.

The Pond Dynamics/Aquaculture CRSP is a global research activity directed toward improving the reliability and efficiency of pond aquaculture production. The ultimate benefit of this effort will be the economic and social returns that represent the impact from farmers adopting new technologies developed by the PD/A CRSP. This study will also provide additional information on production economics and investment which were identified as constraints in the PD/A CRSP Continuation Plan 1996-2001.

Results of this study will be useful for the PD/A CRSP to justify continued funding by quantifying benefits and impacts of the research effort. This study will provide the first estimates of the global social and economic returns generated by the PD/A CRSP. The results of this project will document the contribution that the PD/A CRSP research has made and will continue to make over time in both social and economic terms. This is essential to justify continued funding for the CRSP in the U.S. and for host country support.

The principal beneficiaries of this study will be the PD/A CRSP. These results will provide a sound basis for justifying continued funding of the PD/A CRSP. USAID will benefit from seeing estimates of impacts. Other aquaculture research consortia such as the USDA Regional Aquaculture Centers will benefit from having access to estimates of returns to aquaculture research. Host countries will benefit from these results as well by having quantitative results of economic benefits of the CRSP research. These results can be used with host country governments, USAID, bilateral and multilateral donor agencies, and NGOs to justify continued support for
culture research. This project represents the first thorough analysis of the economic and social returns from aquaculture research. Thus, results of this effort are expected to be of wide interest to institutions involved in aquaculture research around the world. Agencies that fund aquaculture research will find it of interest and the methodologies used in this project will be relevant and applicable to other agencies and research centers.

This study does not require direct collaboration other than access to project data available from the PMO in terms of project expenditures, training, annual and quarterly reports, etc. However, one trip is planned to each site. Through these trips and at the Annual Meetings, the PIs will meet with host country personnel. The purpose of these meetings will be to review, critique, and modify as necessary the specification, assumptions, datasets, and key variables of the analytical model developed. This will be done prior to any estimation efforts. This input from host country and project staff will ensure that the analysis is complete and directed towards the most important benefits.

Research Plan: Economic and production relationships will be used as the basis for modeling technical progress in fish farming technologies in Honduras, Rwanda, and Thailand. Technical progress will be modeled as a lagged function of research expenditures. The approach will follow Chavas and Cox (1992) and is attractive because it requires no restrictions on substitution possibilities among inputs; allows for joint estimation of the production technology, technical change, and the effects of research on technical progress using very disaggregate inputs, and the approach allows flexibility in the investigation of the length and shape of the lag distribution between research and productivity. Finally, the approach empirically is attractive in that it requires only a standard linear programming algorithm. This model will estimate the length of time required to fully translate public research expenditures into economic benefits and will estimate internal rates of return for the research expenditures. Following Ayer and Schur (1972), Ardito-Barletta (1971) and others, social rates of return will be estimated. Both supply-shifting (cost-reducing) and demand-lifting (quality improvement) effects of new technologies will be assessed.

As a preliminary impact, a cost-benefit analysis will be conducted to evaluate the general impact of the PD/A CRSP projects. In practice, many benefits/costs may not be quantifiable. Cost-benefit analysis would value all outputs and inputs at their shadow prices (an imputed valuation of a commodity or service which has no market price and represents the opportunity cost of producing or consuming a commodity which is generally not traded in the economy).

Given the nature of the PD/A CRSP projects and in conjunction with the different groups involved in the PD/A CRSP projects, it is necessary to evaluate the net social welfare resulting from the implementation of these projects. Although welfare economics is concerned with policy recommendations, it can also be used as an evaluation tool to determine the social impact of a given project. In an attempt to measure the PD/A CRSP impact, a function describing the net social benefits can be estimated. While the different groups involved in these projects are usually not mutually exclusive and in conjunction with the compensation criterion, social welfare can be measured as follows:

CS_Q is consumers' surplus for the host country which can be measured as surplus for final consumers plus all forward rents;

PS_X is producers' surplus measured as rent inputs plus all backward rents plus surplus for raw materials;

Data to be used will include both quantity and price data for the following variables: land, labor, structures, other capital, feed and seed, energy, fertilizers, pesticides, and education/training. While complete price series are not available for these data for aquaculture, there are enough budgets that have been done in the host sites over time to provide key data points which can be used to construct price series. These previous budget analyses will form the core of the dataset, so that little additional primary data collection will be required.

Information generated from this project will be published in scientific journals and presented at professional economics and aquaculture meetings. A Research Series Bulletin will be published to be accessible to many interdisciplinary audiences and a Fact Sheet will be developed that highlights key impacts measured.

Year 2: Completion of analysis of impacts of Honduran site. Other sites will be included in subsequent years.

Ardito-Barletta, N. 1971. Costs and social benefits of agricultural research in Mexico. Ph.D. thesis, University of Chicago.

Ayer, H. W. and G. E. Schuh. 1972. Social rates of return and other aspects of agricultural research: the case of cotton research in Sao Paulo, Brazil. American Journal of Agricultural Economics 54:557-569.

Chavas, J. P. and T. L. Cox. 1992. A nonparametric analysis of the influence of research on agricultural productivity. American Journal of Agricultural Economics 74(3):583-591.

To analyze the integration of pond fertilization schemes into farming systems including explicit treatment of risk factors.

This study will analyze pond production management systems from a microlevel or farm perspective to identify the complex interactions between proposed new management systems and the farming system practiced by the farmer. It will provide further information on production economics, efficient resource utilization, and risk which were identified as constraints in the PD/A CRSP Continuation Plan 1996-2001. Also illuminated will be related issues such as household food insecurity and barriers to assimilation of technological innovations. Environmental factors included in the analytical model will provide a basis for introducing environmental concerns as a variable in farm-level decision-making.

This study will provide important insights into the integration of CRSP technologies into host country farming systems and will provide recommendations for increasing incomes to farmers and to rural communities. While this study focuses on Thailand, later studies will focus on the other host sites. These results will benefit primarily CRSP researchers and beneficiaries in Thailand. However, as later work plans address additional sites, common results across the studies should emerge to provide more global indications of the usefulness and effectiveness of CRSP-generated technologies.

The primary beneficiaries will be host country and PD/A CRSP personnel who will have better insight into how aquaculture fits within host-country farming systems. The scientific community will benefit from extending risk analysis techniques.

The only collaboration required for this project will be for host country and PD/A CRSP personnel with long-term experience in the country to review key assumptions and parameters.

Research Plan: Cost and returns data from Thailand for fish and livestock production, along with fish growth models (Springborn et al., 1992) will be used to construct a mathematical programming model of aquaculture production.

In this type of analysis, a "typical farm" is modeled in terms of key economic parameters. These include: extent of land holdings, quantity of labor available (both family and hired), investment capital and operating capital available. These are determined from published surveys, from statistical service reports, and in consultation with host country personnel. The set of alternative agricultural crops is specified again in conjunction with host country personnel and extension workers. Annual cost and returns estimates from published enterprise budgets are used to develop technical coefficients for the model. In the case of Thailand, these are developed for several types of aquaculture and livestock alternatives. If available for horticulture crops, these will be used and, if not, the analysis will focus on livestock alternatives.

The nature of fish and livestock production, in conjunction with the adoption of new technologies, changing market structure, and environmental conditions, affects prices and can lead to variations in farmers' income and decision making. The expectation of farmers of a higher expected return as compensation for an increase in risk denotes a "risk aversion" behavior. A risk averter can, therefore, diversify his portfolio over different assets. "Unless these risk responses are adequately reflected in planning models, the results generated in empirical analysis may bear little resemblance to actual decisions and may be of little use either in direct decision making or in policy analysis." (Boisvert and McCarl, 1990).

Risk functions will be incorporated to assess potential benefits of fish farming that may result from reducing production risk of other crops due to the presence of a source of water, to reducing financial risk or reducing risk of hunger that may result from poor yields of staple crops, etc.

Given the nature of the problem and the assumption that decision makers are concerned about income falling below some minimum level, a "safety-first" model will be developed to conduct the analysis. The model can be viewed as a mean-risk dominance model in which risk will be measured by a probability weighted function of deviations below a specific target return. In practice, a Target MOTAD or a Mean-Gini model can be developed as a second degree stochastic dominance model under certain conditions.

Y_k is a negative deviation of income under the Kth state of nature below the target income;

l is the maximum amount subject to the normal resource constraints and two new constraints.

This study is not a replicated experiment, but rather a whole-farm economic analysis. Key assumptions of the model include the following: that economic returns are normally distributed, and that the expected value of technical coefficients is the mean. Risks are not an assumption of the model, but rather the types of risk involved are determined in consultation with host country and extension personnel. Typically, risks include production, market or financial risk. In economics, risk is defined as the variability in crop yields, prices, interest rates, etc. Price and interest rate risk data will be obtained from secondary sources whereas the variability in crop yields will be estimated by developing a probability distribution based on CRSP-generated data.

Information generated from this project will be published in scientific journals and presented at professional economics and aquaculture meetings.

Boisvert, R. N. and B. McCarl. 1990. Agricultural risk modeling using mathematical programming. Southern Cooperative Series, Bulletin 356. Cornell University, Ithaca, NY.

Springborn, R. R., A. L. Jensen, W. Y. B. Chang, and C. Engle. 1992. Optimum harvest time in aquaculture: an application of economic principles to a tilapia growth model. Aquaculture and Fisheries Management 23:639-647.

The Pond Dynamics/Aquaculture CRSP is funded under USAID Grant No. LAG-G-00-96-90015-00 and by the participating US and Host Country institutions. Questions for or about the Aquaculture CRSP? Comments about this site? Email ACRSP@oregonstate.edu.

Disclaimers

Eighth Work Plan
1 August 1996 to 31 July 1998
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