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A New Oyster for Chesapeake Bay? An Economic Perspective To Support the Development of an EIS Doug Lipton Department of Agricultural & Resource Economics.

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Presentation on theme: "A New Oyster for Chesapeake Bay? An Economic Perspective To Support the Development of an EIS Doug Lipton Department of Agricultural & Resource Economics."— Presentation transcript:

1 A New Oyster for Chesapeake Bay? An Economic Perspective To Support the Development of an EIS Doug Lipton Department of Agricultural & Resource Economics Maryland Sea Grant Extension Program

2 Presentation Outline Overview of Economic Considerations Benefits Benefits Costs Costs Risks Risks A Restored Oyster Market – Price and Production Other Benefit & Cost Information

3 What are the economic benefits of a restored oyster resource in Chesapeake Bay?

4 Direct Use Benefits Commercial Fishermen Incomes Oyster Dealer/Processor Incomes Oyster Consumers

5 Indirect Use Benefits Habitat improvement leading to increased populations of other commercial & recreational species (e.g. striped bass, blue crab) Water quality Increased populations of other commercial & recreational species Increased populations of other commercial & recreational species Boating, swimming & beach use Boating, swimming & beach use Increased value of waterfront property Increased value of waterfront property Potential cost savings in achieving mandated water quality standards Potential cost savings in achieving mandated water quality standards

6 Non or Passive Use Value Existence Value – Exclusive of the direct use of the oyster as a food resource or its indirect value in supporting other uses, what are citizens of the region willing-to-pay to have a restored oyster population in Chesapeake Bay? Existence Value – Exclusive of the direct use of the oyster as a food resource or its indirect value in supporting other uses, what are citizens of the region willing-to-pay to have a restored oyster population in Chesapeake Bay?

7 Benefits of C. virginica vs. C. ariakensis Will one species be more profitable than the other? Will consumers prefer one species over the other? Will one species create better habitat for other fish species than the other? Will one species be more effective in improving water quality than the other? Does the general public care whether the oyster in Chesapeake Bay is a non-native species? Does the general public care whether the oyster in Chesapeake Bay is a non-native species? Will one species generate these benefits significantly more rapidly than the other?

8 Costs and Risks of C. virginica vs C. ariakensis Will it be more costly to achieve the population goals with one species compared to the other? Will it be more costly to achieve the population goals with one species compared to the other? What risks are there in introducing a non-native species into the Chesapeake ecoystem: Introduce new diseases – diminished probability with ICES Protocol Introduce new diseases – diminished probability with ICES Protocol Be a vector for indigenous disease organisms – e.g., Bonamia sp. in North Carolina Be a vector for indigenous disease organisms – e.g., Bonamia sp. in North Carolina Destroy habitat Destroy habitat Irreversibility Irreversibility Outcompeting native oyster Outcompeting native oyster Something else we cant anticipate Something else we cant anticipate

9 A Risk-Time Trade-off Risk Time

10 Estimating Direct Use Benefits

11 U.S. Oyster Production by Region

12 Market Share of Production By Region

13 Nominal & Real Oyster Prices

14 What Will Happen to Oyster Prices if Chesapeake Bay Production Increases? Stated goal is to increase oyster populations to a level that will result in a sustainable harvest equal to the harvest from the period. Stated goal is to increase oyster populations to a level that will result in a sustainable harvest equal to the harvest from the period. Thats 4.9 million bushels a year! Probably was not a sustainable harvest Probably was not a sustainable harvest Overharvesting in early part of the period Relied on repletion program in latter part Is this harvest feasible? (Todays Focus) Is this harvest feasible? (Todays Focus)

15 A Note About the Impact of Hurricanes Katrina & Rita on Gulf Oysters and the Market Short-Run Impacts Water quality concerns? Water quality concerns? What is mortality from storms? What is mortality from storms? Loss of fleet and displacement of fishermen? Loss of fleet and displacement of fishermen? Long-Run Impacts

16 Inverse Demand for Chesapeake Bay Oyster Production Chesapeake Bay Oyster Price Is a Function Of: CB production CB production Production in other regions Production in other regions A demand shift over time (1979) A demand shift over time (1979) Concerns about Vibrio vulnificus in Gulf of Mexico oysters (1991) Concerns about Vibrio vulnificus in Gulf of Mexico oysters (1991)

17 Estimate Inverse Demand Coefficients Standard Errort Stat Intercept * Chesapeake-7.2E-081.1E * Mid - Atlantic-5.4E E * New England1.98E E South Atlantic3.67E E * Gulf of Mexico-5E E * Pacific Coast1.52E E * Dummy * Vibrio vulnificus-1.5E E * *Indicates significance at 90% confidence level.R 2 = 0.79

18 Demand Analysis Results If the Chesapeake Bay Oyster Fishery Produced 4.9 Million Bushels: prices would fall from: prices would fall from: Average of $27 per bushel to restored fishery price of $10.60 per bushel to restored fishery price of $10.60 per bushel Price is Probably Unprofitable Use Industry Expert Survey of Price to Determine Industry Size

19 Survey of Oyster Dealers Oyster Industry believes median projection of bushel price for a restored fishery is $18.80 for either species. Solving inverse demand estimate for this price: EIS Harvest Goal – 4.9 million bushels EIS Harvest Goal – 4.9 million bushels Predicted Actual Harvest – 2.57 million bushels Predicted Actual Harvest – 2.57 million bushels

20 What Would the Annual Benefits Be? Gross Value Net BenefitComments Harvesters/producer$48.4?Depends on fishing costs and earning power of watermen in alternative employment. Processors/Packers$98.7- $102.8 ?Depends on costs of oysters, costs of creating value-added and profits relative to alternative investments. Consumers?$11.6Depends on assumptions regarding nature of inverse demand curve used to estimate.

21 Some Caveats The net values may be significantly lower than the gross values, and even zero. Depends on opportunity costs of time and investments. May be able to earn more money not fishing or processing oysters. Depends on opportunity costs of time and investments. May be able to earn more money not fishing or processing oysters. Depends on management system. Property rights such as leased bottom more likely to yield positive benefits than a public fishery where watermen increase harvesting costs in order to catch the same oyster. Depends on management system. Property rights such as leased bottom more likely to yield positive benefits than a public fishery where watermen increase harvesting costs in order to catch the same oyster.

22 What About Other Values?

23 Indirect Use Values – Recreational Fishing Recreational Fishing Striped Bass Value (Lipton & Hicks, 2003) Striped Bass Value (Lipton & Hicks, 2003) Total Value of Striped Bass Fishing in Chesapeake Bay - $77 million (A Risk Factor) Declines in DO from current levels costly $6.6 - $9.5 million per year $6.6 - $9.5 million per year Improvements from current levels are small $255 - $320 thousand per year $255 - $320 thousand per year Other species may benefit as well Other species may benefit as well

24 Indirect Use Values – Recreational Boaters Maryland Boaters (Lipton, 2004) Boaters self-ranked water quality on a Likert scale (1-5) Boaters self-ranked water quality on a Likert scale (1-5) Annual benefit to moving up one unit in ranking Annual benefit to moving up one unit in ranking $8.3 million

25 Existence Value In a random digit dial phone survey, 69% of respondents either didnt know the status of oyster populations in the Bay or thought they were stable or increasing over the past 10 years!

26 Mandated Nutrient Reduction Chesapeake Bay Commissions Cost Effective Measures Waste Treatment Upgrades - $8.56/lb N Waste Treatment Upgrades - $8.56/lb N Enhanced Nutrient Management - $4.41/lb N Enhanced Nutrient Management - $4.41/lb N Cover Crops - $3.13/lb N Cover Crops - $3.13/lb N Nutrient Management - $1.66/lb N Nutrient Management - $1.66/lb N Conservation Tillage - $1.57/lb N Conservation Tillage - $1.57/lb N Diet and Feed Changes - $?/lb N Diet and Feed Changes - $?/lb N Gets to 80% of Nutrient Reduction Goal Getting to the remaining 20% is more expensive and a potential measure of cost savings due to oyster restoration if it is done instead.

27 Concluding Comments The dominant difference in the benefits between the two species will be the time frame in which they are realized. The dominant difference in the costs of the options is due to the unknown risks associated with C. ariakensis Even if we can quantify in economic terms what is at risk, what probability will we assign to these risks to determine an expected value? We can not do controlled experiments to determine a priori many of these probabilities. Even if we can quantify in economic terms what is at risk, what probability will we assign to these risks to determine an expected value? We can not do controlled experiments to determine a priori many of these probabilities. Decision making under large uncertainty calls for a precautionary approach. What is precautionary is in the eyes of the beholder. For the oyster industry, the risky thing is to do nothing. For others, the introduction is the risky approach. What is precautionary is in the eyes of the beholder. For the oyster industry, the risky thing is to do nothing. For others, the introduction is the risky approach.


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