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Risk Management in Aquaculture: Case Study of Haiti

Experts have always considered the vast oceans as our salvation with respect to food problems and increasing world population, merely because of their immensity. However, open seas (about 90%) are biological deserts. The main active areas (the remaining 10%) are: (1) the estuaries that act as traps for nutrients entering from freshwater flow, (2) upwelling areas where deep, cold water rich in nutrients is brought to the top and (3) waters overlying the continental shelves. Ac- cording to J. Matthew Roney (Earth Policy Institute , 2012), the United Nations Food and Agri- culture Organization (FAO) projects that harvested fishery products from all ocean waters will fall below 90 million tons in 2012, 4 percent below the all-time peak haul of nearly 94 million tons in 1996. Wild fish catch per person has dropped from 17 kilograms in 1998 to 13 kilo- grams in 2012, the lowest in 37 years. This follows an earlier report by FAO  stating that 80 percent of fish stocks are either fully exploited, overploited, or have collapsed. Though a catch reduction of 20 to 50 percent is needed to make global fisheries sustainable, the demand for fish is expected to increase by 35 million tons by 2030 due to increased consumption and a “rapidly increasing human population.”

 

Fish Hatchery

 

Aquaculture (the husbandry of aquatic food organisms) has been seen as the solution.  Global production of fish, crustaceans, mollusks and other aquatic animals has seen a steady increase for the past forty years reaching 148.5 million tons in 2010.  The industry has shown a strong growth of 6.3% since 2001 from 34.6 million tons to 59.9 million tons in 2010, netting nearly USD120 billion for that year.  However, with success comes tremendous risks and managing these risks is critical for continuing success.  Risks in aquaculture, as it is the case for agriculture in general, include disease, poor product quality, competition, equipment failure, and, of course, natural disasters.  The fundamental question that we all ask ourselves is How do we manage risk?  The USDA Risk Management Agency (RMA) defines risk as “the chanceof something bad happening” and chance implies a degree of uncertainty.  That uncertainty has been a key factor in limiting investments in aquaculture in underdeveloped countries in Africa and other parts of the world.

 

How do you manage risk? Case study of Haiti

Risk management is about reducing the cost of risk.  In relative term, it is about “losing less money as compared to losing more money”.  Since the cost of money is higher in developing countries because of high interest and inflation rates, understanding risk management becomes paramount for successful aquaculture operations.  To understand risk, one needs to understand three important concepts: 1) Awareness of the risks; 2) Understanding of the benefit of a sound risk management plan, and 3) understanding of the likelihood and severity of possible loss due to risk.

Haiti, also known as the Republic of Haiti, is a Caribbean country. It occupies the western, smaller portion of the island of Hispaniola, in the Greater Antillean archipelago, which it shares with the Dominican Republic.  Haiti, with a population of over 10.4 million people, is the poorest country in the western hemisphere. Aquaculture is not well developed because of the lack of private investments in the sector.  Most aquaculture programs are run by missionary groups and non-government organizations.  For the past five years, the Haitian government and a portion of the International community have multiplied their efforts to attract private investments in the aquaculture sector which, surprisingly enough, offers excellent opportunities.  Understanding and managing risks can foster further development in the sector, generate thousands of jobs and create economic opportunities for millions.

 

Farmers building cage

 

Awareness of the risks:  A person investing in aquaculture in Haiti should be aware of the uncontrollable force of mother nature.  Hurricanes and tropical storms go through the country each year from June to November and cause substantial damages.  The prime risks are flooding and physical damages to production facilities.  Flooding can also introduce pathogens and cause great changes in water quality.  In 2008, after the passage of tropical storms Fay, Gustave, Hannah and Hurricane Ike, over 70% of production facilities were destroyed.  Viral and bacterial diseases were observed in ponds right after the passage of these storms.  Aside from production risks, producers also face marketing risk, often associated to species and are system specific. Marketing risks include product pricing, access to market due to difficult road conditions, competition not only against seafood imports but also against other commodities such as poultry, beef and pork.  Finally, everlasting land tenure issues can also hinder aquaculture development in the country.  Production and marketing risks can result in substantial financial losses.

Understanding the benefit of a risk management plan:  Large corporations have long understood the benefit of sound risk management plans.  However, in small countries like Haiti where most operators in the aquaculture sector are small, often uneducated, farmers, understanding risk management and elaborating risk management plans are completely alien concepts.  Investments in aquaculture are often on the basis of poorly designed “projects”.  Preliminary studies are not usually done to assess the risks and risk management plans are simply ignored.

Understanding the likelihood and the severity of potential losses: That concept becomes important since financial resources are limited.  Most producers never recover from losses because they simply do not have the money to start all over again.  Access to loans, especially in the agricultural sector, is almost non-existent.

The solutions:  A number of options exist to manage risks and many solutions are available, even in small countries like Haiti.  The first one is theinsurance option.  Typically, crop insurance programs are intended to transfer risk from one party to another, generally away from the producer and to the insurance underwriter.  One of the immediate benefits is that insurance companies can afford to commission and elaborate risk management plans, thus responding to the second concept in risk management.  Aquaculture commodity insurance is non-existent in Haiti and even in the United States has not yet become commonplace. The sector, in general, has made it difficult, if not impossible, to develop an affordable insurance product that is appropriate for all species or production methods.  In Haiti, the government is working with institutions such as the Inter-American Development Bank (IADB) and the USG Overseas Private Investment Corporation (OPIC) on programs to provide crop insurance in the agriculture sector in Haiti.  Those institutions can underwrite the premium required by banks or insurance companies.  Whether or not aquaculture will be included remains to be seen.  The second option is to shift the focus from small farmers to corporate ones. Corporate investors are required to compile risk management plans in order to protect their investment and they can afford to pay the hefty insurance premium.  Third, non-insurance optionsmay provide farmers with viable alternatives.  Management of production risks such as disease, poor water quality, environmental degradation and power outages can be accomplished by a number of methods: 1) better training, design and supervision; 2) changing husbandry practices; 3) building redundancy in production systems; 4) improving feeding practices; and finally 5) employing stringent bio-security measures.

Source – FARMD