On the drivers of cost changes in the Norwegian salmon aquaculture sector: a decomposition of a flexible cost function from 2001 to 2014

Abstract

Since 2005, Norwegian salmon farmers have experienced increasing unit costs, contrasting pre-2005 trends characterized by innovations, rapid productivity growth, and diminishing unit costs. This article investigates these cost changes using a panel of salmon producers. The drivers behind cost changes in the industry are identified for the period of 2001–2014 using a flexible cost function. In particular, it is explored how cost changes can be attributable to scale economies, negative productivity shocks, production expansion, and input prices. The results indicate that cost increases in the sector are affected by external factors out of the control of individual firms such as input prices and environmental conditions like sea lice.