Determinants of Variation in Aquaculture Profits

Abstract

Substantial increases in profitability, in both fisheries and aquaculture, in the recent years have prompted increased attention to rent creation and rent capture in the seafood sector. In fact, Iceland, The Faroe Island and Norway have all recently implemented taxation of economic rent from salmon aquaculture. Estimation of economic rent is challenging for many reasons, particularly due to its elusive nature and widespread confusion amongst academics as to how to identify and quantify different sources of economic rent. Moreover, accurate rent estimations require that inframarginal profits are not ignored but estimated alongside rent. Ignoring inframarginal profits will overestimate economic rents, which could be problematic since in some industries inframarginal profits can be substantial. We find that salmon aquaculture is one of these. Using data on auction of salmon production capacity from 2018 and 2020, we estimate the market values of salmon farming licenses include a substantial value from inframarginal profits. We find that companies that are less efficient have a larger willingness to pay for marginal production capacity than larger salmon farming companies do, suggesting that inframarginal profits are important in explaining the variation in willingness to pay for new production capacity.