A New Oyster for A New Oyster for Chesapeake Bay?Chesapeake Bay?

An Economic Perspective To An Economic Perspective To Support the Development of Support the Development of

an EISan EIS

Doug LiptonDoug Lipton

Department of Agricultural & Resource EconomicsDepartment of Agricultural & Resource Economics

Maryland Sea Grant Extension ProgramMaryland Sea Grant Extension Program

Presentation OutlinePresentation Outline

Overview of Economic ConsiderationsOverview of Economic Considerations BenefitsBenefits CostsCosts RisksRisks

A Restored Oyster Market – Price and A Restored Oyster Market – Price and ProductionProduction

Other Benefit & Cost InformationOther Benefit & Cost Information

What are the economic What are the economic benefits of a restored oyster benefits of a restored oyster

resource in Chesapeake resource in Chesapeake Bay?Bay?

Direct Use BenefitsDirect Use Benefits

Commercial Fishermen IncomesCommercial Fishermen Incomes

Oyster Dealer/Processor IncomesOyster Dealer/Processor Incomes

Oyster ConsumersOyster Consumers

Indirect Use BenefitsIndirect Use Benefits

Habitat improvement leading to increased Habitat improvement leading to increased populations of other commercial & recreational populations of other commercial & recreational species (e.g. striped bass, blue crab)species (e.g. striped bass, blue crab)

Water qualityWater quality Increased populations of other commercial & Increased populations of other commercial &

recreational speciesrecreational species Boating, swimming & beach useBoating, swimming & beach use Increased value of waterfront propertyIncreased value of waterfront property Potential cost savings in achieving mandated water Potential cost savings in achieving mandated water

quality standardsquality standards

Non or Passive Use ValueNon or Passive Use Value

Existence Value – Exclusive of the direct use Existence Value – Exclusive of the direct use of the oyster as a food resource or it’s indirect of the oyster as a food resource or it’s indirect value in supporting other uses, what are value in supporting other uses, what are citizen’s of the region willing-to-pay to have a citizen’s of the region willing-to-pay to have a restored oyster population in Chesapeake restored oyster population in Chesapeake Bay?Bay?

Benefits of Benefits of C.C. virginicavirginica vs. vs.C. ariakensisC. ariakensis

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

Costs and Risks of Costs and Risks of C.C. virginicavirginica vs vs C. ariakensisC. ariakensis

Will it be more costly to achieve the population Will it be more costly to achieve the population goals with one species compared to the other?goals with one species compared to the other?What risks are there in introducing a non-native What risks are there in introducing a non-native species into the Chesapeake ecoystem:species into the Chesapeake ecoystem: Introduce new diseases – diminished probability with Introduce new diseases – diminished probability with

ICES ProtocolICES Protocol Be a vector for indigenous disease organisms – e.g., Be a vector for indigenous disease organisms – e.g.,

Bonamia sp. in North CarolinaBonamia sp. in North Carolina Destroy habitatDestroy habitat IrreversibilityIrreversibility Outcompeting native oysterOutcompeting native oyster Something else we can’t anticipateSomething else we can’t anticipate

A Risk-Time Trade-offA Risk-Time Trade-off

Risk

Time

Estimating Direct Use Estimating Direct Use BenefitsBenefits

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

New England

Mid-Atlantic

S. Atlantic

Gulf

Pacific

Chesapeake

U.S. Oyster Production by RegionU.S. Oyster Production by Region

Market Share of Production By Market Share of Production By RegionRegion

0%

20%

40%

60%

80%

100%

New England

Mid-Atlantic

S. Atlantic

Gulf

Pacific

Chesapeake

Nominal & Real Oyster PricesNominal & Real Oyster Prices

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Nominal 2003 $

What Will Happen to Oyster Prices if What Will Happen to Oyster Prices if Chesapeake Bay Production Chesapeake Bay Production

Increases?Increases?

Stated goal is to increase oyster Stated goal is to increase oyster populations to a level that will result in a populations to a level that will result in a sustainable harvest equal to the harvest sustainable harvest equal to the harvest from the 1920-1970 period.from the 1920-1970 period.

That’s 4.9 million bushels a year!That’s 4.9 million bushels a year! Probably was not a sustainable harvestProbably was not a sustainable harvest

Overharvesting in early part of the periodOverharvesting in early part of the period

Relied on repletion program in latter partRelied on repletion program in latter part Is this harvest feasible? (Today’s Focus)Is this harvest feasible? (Today’s Focus)

A Note About the Impact of Hurricanes A Note About the Impact of Hurricanes Katrina & Rita on Gulf Oysters and the Katrina & Rita on Gulf Oysters and the

MarketMarket

Short-Run ImpactsShort-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 ImpactsLong-Run Impacts

Inverse Demand for Chesapeake Bay Inverse Demand for Chesapeake Bay Oyster ProductionOyster Production

Chesapeake Bay Oyster Price Is a Chesapeake Bay Oyster Price Is a Function Of:Function Of: CB productionCB production Production in other regionsProduction in other regions A demand shift over time (1979)A demand shift over time (1979) Concerns about Vibrio vulnificus in Gulf of Concerns about Vibrio vulnificus in Gulf of

Mexico oysters (1991)Mexico oysters (1991)

Estimate Inverse DemandEstimate Inverse Demand

  CoefficientsStandard

Error t Stat

Intercept 4.109317 0.478911 8.580544*

Chesapeake -7.2E-08 1.1E-08 -6.57307*

Mid - Atlantic -5.4E-08 1.53E-08 -3.50706*

New England 1.98E-09 3.65E-08 0.054304

South Atlantic 3.67E-07 6.94E-08 5.290569*

Gulf of Mexico -5E-08 1.41E-08 -3.53745*

Pacific Coast 1.52E-07 2.77E-08 5.468255*

Dummy -0.55648 0.167197 -3.3283*

Vibrio vulnificus -1.5E-08 8.37E-09 -1.76588*

*Indicates significance at 90% confidence level.R2 = 0.79

Demand Analysis ResultsDemand Analysis Results

If the Chesapeake Bay Oyster Fishery If the Chesapeake Bay Oyster Fishery Produced 4.9 Million Bushels:Produced 4.9 Million Bushels: prices would fall from:prices would fall from:

1999-2003 Average of $27 per bushel1999-2003 Average of $27 per bushel

to restored fishery price of $10.60 per bushelto restored fishery price of $10.60 per bushel

Price is Probably UnprofitablePrice is Probably Unprofitable

Use Industry Expert Survey of Price to Use Industry Expert Survey of Price to Determine Industry SizeDetermine Industry Size

Survey of Oyster DealersSurvey of Oyster Dealers

Oyster Industry believes median projection Oyster Industry believes median projection of bushel price for a “restored” fishery is of bushel price for a “restored” fishery is $18.80 for either species.$18.80 for either species.

Solving inverse demand estimate for this Solving inverse demand estimate for this price:price: EIS Harvest Goal – 4.9 million bushelsEIS Harvest Goal – 4.9 million bushels Predicted Actual Harvest – 2.57 million Predicted Actual Harvest – 2.57 million

bushelsbushels

What Would the Annual Benefits What Would the Annual Benefits Be?Be?

Gross Value Net Benefit Comments

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 ? $11.6 Depends on assumptions regarding nature of inverse demand curve used to estimate.

Some CaveatsSome Caveats

The net values may be significantly lower The net values may be significantly lower than the gross values, and even zero.than the gross values, and even zero. Depends on opportunity costs of time and Depends on opportunity costs of time and

investments. May be able to earn more investments. May be able to earn more money not fishing or processing oysters.money not fishing or processing oysters.

Depends on management system. Property Depends on management system. Property rights such as leased bottom more likely to rights such as leased bottom more likely to yield positive benefits than a public fishery yield positive benefits than a public fishery where watermen increase harvesting costs in where watermen increase harvesting costs in order to catch the same oyster.order to catch the same oyster.

What About Other What About Other Values?Values?

Indirect Use Values – Recreational Indirect Use Values – Recreational FishingFishing

Recreational FishingRecreational Fishing Striped Bass Value (Lipton & Hicks, 2003)Striped Bass Value (Lipton & Hicks, 2003)

Total Value of Striped Bass Fishing in Chesapeake Total Value of Striped Bass Fishing in Chesapeake Bay - $77 million (A Risk Factor)Bay - $77 million (A Risk Factor)

Declines in DO from current levels costly 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 smallImprovements from current levels are small $255 - $320 thousand per year$255 - $320 thousand per year

Other species may benefit as wellOther species may benefit as well

Indirect Use Values – Recreational Indirect Use Values – Recreational BoatersBoaters

Maryland Boaters (Lipton, 2004)Maryland Boaters (Lipton, 2004) Boaters self-ranked water quality on a Likert Boaters self-ranked water quality on a Likert

scale (1-5)scale (1-5) Annual benefit to moving up one unit in Annual benefit to moving up one unit in

rankingranking$8.3 million$8.3 million

Existence ValueExistence Value

In a random digit dial phone survey, 69% In a random digit dial phone survey, 69% of respondents either didn’t know the of respondents either didn’t know the status of oyster populations in the Bay or status of oyster populations in the Bay or thought they were stable or increasing thought they were stable or increasing over the past 10 years!over the past 10 years!

Mandated Nutrient ReductionMandated Nutrient Reduction

Chesapeake Bay Commission’s Cost Effective Chesapeake Bay Commission’s Cost Effective MeasuresMeasures Waste Treatment Upgrades - $8.56/lb NWaste Treatment Upgrades - $8.56/lb N Enhanced Nutrient Management - $4.41/lb NEnhanced Nutrient Management - $4.41/lb N Cover Crops - $3.13/lb NCover Crops - $3.13/lb N Nutrient Management - $1.66/lb NNutrient Management - $1.66/lb N Conservation Tillage - $1.57/lb NConservation Tillage - $1.57/lb N Diet and Feed Changes - $?/lb NDiet and Feed Changes - $?/lb N

Gets to 80% of Nutrient Reduction GoalGets to 80% of Nutrient Reduction GoalGetting to the remaining 20% is more expensive Getting to the remaining 20% is more expensive and a potential measure of cost savings due to and a potential measure of cost savings due to oyster restoration if it is done instead.oyster restoration if it is done instead.

Concluding CommentsConcluding Comments

The dominant difference in the benefits between the two The dominant difference in the benefits between the two species will be the time frame in which they are realized.species will be the time frame in which they are realized.

The dominant difference in the costs of the options is The dominant difference in the costs of the options is due to the unknown risks associated with due to the unknown risks associated with C.C. ariakensisariakensis

Even if we can quantify in economic terms what is at risk, what Even if we can quantify in economic terms what is at risk, what probability will we assign to these risks to determine an expected probability will we assign to these risks to determine an expected value? We can not do controlled experiments to determine a value? We can not do controlled experiments to determine a priori many of these probabilities.priori many of these probabilities.

Decision making under large uncertainty calls for a Decision making under large uncertainty calls for a precautionary approach.precautionary approach.

What is precautionary is in the eyes of the beholder. For the What is precautionary is in the eyes of the beholder. For the oyster industry, the risky thing is to do nothing. For others, the oyster industry, the risky thing is to do nothing. For others, the introduction is the risky approach.introduction is the risky approach.