Allison - Economics of Adaptation to Climate Change: Vietnam's Aquaculture Sector
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Cost of CC adaptation case study 2009-2010• Vietnam case study (World Bank Global EACC) – 2008, aquaculture production accounted for 6.6% of the national GDP – Multiple productions systems (capture/culture, species, intensive/extensive) – CC impacts: Temperature, rainfall changes, Sea level rise, (storm frequency and severity) (MONRE, 2009)FAO partnership excellence growth!
partnership excellence growth !Impact assessment: – What is the vulnerability of the aquaculture sector to CC impacts? – What are the physical as well as economic losses which may be expected over the period 2010 to 2050 as a result of CC? Adapta.on op.ons: – What are the plausible adapta?on op?ons? • planned • autonomous – What are the costs and beneﬁts of these adapta?on op?ons? 3
Vulnerability analysis: country scale/provinceEXPOSURE (E) DEPENDENCY (D)Sea level rise: % of province area flooded Direct livelihood: % hh engaged in aquacultureTemperature rise: Avg temperature increase relative Indirect employment: employees in fishery enterprisesto 1980-99 as % of total enterprise employeesRainfall change: Annual rainfall change relative to Macro-economics: Fish output as % of country GDP;1980-99 seafood export processing facilitiesCoastal extreme events: Aquaculture area damaged, Food security: Per capita annual fish & shrimpdue to storms & typhoons 1989-2008 consumptionFloods: Aquaculture area damaged by floods,1989-2008 ADAPTIVE CAPACITY (AC) Poverty: % of population below poverty line; % of hh monthly food expenditure spent on fish & shrimp Infrastructure: Telephone lines per 100 people; # of hospital beds per 1000 people POTENTIAL IMPACTS (PI) Education: Graduates of 2o education as % of total - impacts that will occur without adaptation candidates PI = f(E,D) Disaster response to CC: # of disaster management programs; DRM investments in construction projects; DRM investments in non-construction projects Social capital: share of fishery cooperatives as % of national total Education: % of fishery employees with education Black: Generic; Red: CC related; Blue: aquaculture sector VULNERABILITY - the nature & extent of losses incurred by the aquaculture sector due to CC V = f(PI, AC) partnership excellence growth!
Vulnerability indices by Province, Vietnam Provinces most vulnerable to climate-induced changes in the aquaculture sector are in the Mekong Delta, Red River Delta and Central Province Preliminary results World Bank study please do not cite partnership excellence growth!
The Mekong River delta • Accounts for 80% of Vietnam’s total shrimp produc?on; 75% of total ﬁsh produc?on Freshwater ca6ish (Pangasianodon hypophthalmus) • Inland provinces • “Coastal” provinces Black 9ger shrimp (Penaeus monodon) • (Improved) extensive scale • Semi-‐intensive/intensive scale 6 partnership excellence growth!
CC Potential Impacts in the MRDAreas subjected to increments of maximum flooding depths during the rainy season (for 50-cm SLR by 2050 scenario), superimposed with catfish pond areas in An Giang, Dong Thap & Can Tho provinces Increment of Aﬀected ca6ish pond area, ha (%) max ﬂood depth (m) An Giang Dong Thap Can Tho <0.5 0.5-‐1 1-‐1.5 178 13% 273 26% 1.5-‐2 163 8% 89 6% FAO 509 48% 2-‐2.5 1,236 62% 211 15% 286 27% 2.5-‐3 394 20% 497 36% > 3 210 10% 402 29% Total 2,003 100% 1,376 100% 1,068 100 % Preliminary results World Bank study please do not cite partnership excellence growth!
Traditional approach economics of adaptation1. Baseline – no climate change2. Impact with no adaptation => Future Society & Future Climate3. With adaptation => Adapted Future Society & Future Climate=> Cost of adaptation is the difference between 3) & 2)Limita9on of tradi9onal approach • Diﬃcult to dis?nguish between impacts and responses • Assumes autonomous adapta?on does not occur => “dumb farmer hypothesis” 8 partnership excellence growth!
Fussel and Klein (2002)Expected impacts: Costs of autonomous adaptation included 9 partnership excellence growth!
STEP 1 Base production costs for catfish -‐1 -‐1 VND million ha crop Inland Coastal Gross Income 4868.9 3738.1 Total Costs ~ 20,000 VD + 1 USD 4617.0 3644.7 Total Fixed Costs 20.9 28.3 -‐ Deprecia?on of ponds 11.6 17.15 -‐ Deprecia?on of machinery 7.17 8.15 -‐ Land taxes 2.13 3 Total Variable Costs 4596.1 3616.4 -‐ Pond prepara?on 23.6 27.2 -‐ Seed 329.1 263.7 -‐ Feed 3772.5 3051.2 94%, 96% of variable -‐ Chemicals and drugs 205.4 152.4 costs -‐ Dyke upgrade 11 4.6 -‐ Fuel and electricity 48.7 7.7 -‐ Harvest and transporta?on 28.8 25.4 -‐ Labour 39.2 44.7 -‐ Interest on loans 127.4 33.9 -‐ Miscellaneous 10.4 5.6 Net Income 252.1 93.4 11 Sinh (2008) Margins: 5%, 3% partnership excellence growth!
STEP 1 Base production costs for shrimp -‐1 -‐1 Input (VND million ha crop ) SII Extensive Gross Income 431.1 65.9 Total Costs 193.3 28.8 Total Fixed Costs 13.53 2.94 -‐ Deprecia?on of ponds 7.58 1.79 -‐ Deprecia?on of machinery 4.6 0.85 -‐ Land taxes 1.35 0.3 Total Variable Costs 179.68 25.86 -‐ Pond prepara?on 8.09 2.2 -‐ Seed 9.35 3.13 88%, 81% of -‐ Feed 119 13.7 variable costs -‐ Chemical and drugs 21 1.88 -‐ Dyke upgrade 3.05 0.31 -‐ Fuel and electricity 8.63 1.37 -‐ Harvest and transporta?on 1.61 0.1 -‐ Labour 6.11 1.45 -‐ Interest on loans 1.41 1.14 -‐ Miscellaneous 1.43 0.58 Net Income 237.8 37.1 6.5 X higher for Margins: 123%, 129% SII shrimp 12 Sinh (2008) partnership excellence growth!
STEP 2 Summary of the CC impact pathways on aquaculture Climate change effect on Aquaculture system Costs affected by climate change production Coastal catfish feed, pond preparation, dyke upgrade, Decrease in survival rate and infrastructure damage longer growing period will likely medicine/chemical, fuel/electricity, pond decrease total production per year construction, pumping equipment Inland catfish feed, seed, dyke upgrade, labour, fuel/ Decrease in survival rate and electricity, pond construction, pumping longer growing period will likely equipment, infrastructure damage decrease total production per year Semi-intensive/intensive feed, dyke upgrade, medicine/chemical, Decrease in survival rate, but will shrimp fuel/electricity, pond construction, be offset by improved grow-out pumping equipment, infrastructure techniques. Yield is expected to damage decrease Extensive shrimp dyke upgrade, seed cost, pond Increase in survival rate & possible preparation, fuel/electricity, pond increase in aquaculture area. Yield construction, pumping equipment, is expected to increase. infrastructure damage 13 partnership excellence growth!
STEP 2 Stakeholders’ assessment of cost changes 2010 Expected % Cost variable for coastal ca6ish Value change from 2010-‐2020 Feed cost -‐ Feed price (VND kg-‐1) 7,850 +75 -‐ Food conversion ra9o 1.6 -‐5 Seed cost -‐ Stocking density (ﬁsh m-‐2) 33 0 -‐ Seed price (VND piece-‐1) 663 +50 Chemicals/drugs (VND kg-‐1 of ﬁsh) 750 +125 Pond prepara9on (VND million ha-‐1) 45 +25 … and similarly for the other three production systems 14 partnership excellence growth!
STEP 2 Stakeholders’ opinion on % of input costs attributed to CC impacts, 2000-2010 Input cost Percentage (%) of cost due to climate change Extensive SII shrimp Coastal Inland shrimp ca6ish ca6ish Fixed cost 25 20 30 20 Feed 20 10 10 20 Seed 20 n/s 20 5 Chemicals/drugs n/s 10 20 10 Pond prepara9on 20 n/s 30 n/s Fuel/electricity 20 20 20 30 Labour n/s n/s 10 n/s n/s: not stated - Basis for Cost-benefit Analysis for “CC” and “NCC” scenarios 15 partnership excellence growth!
STEP 2 Experts’ opinion on changes in yield and price of outputs Yield Price -‐1 t ha year % change VND kg-‐1 % change year -‐1 -‐1 2010 2010-‐20 2010 2010-‐20 2020-‐50 Ca6ish – Coastal 399 Ca6ish – Inland 651 1.0% 17,000 3.0% 2.3% Shrimp – 0.60 2.3% Extensive Shrimp -‐ Semi-‐ 100,300 1.4% 1.4% int/Intensive 8.63 1.8% Assumption: yields are maintained under CC scenario but at higher costs 16 partnership excellence growth!
STEP 3 Economic impacts of CC on inland catfish production system (farm-level analysis) Net Farm Income 2010-2020 Beyond 2020 CC hastens trend towards unprofitability 17 partnership excellence growth!
STEP 3 Economic impacts of CC on catfish production systems (farm-level analysis) Net Present Value (NPV) 18 Discount rate = 6% p.a. partnership excellence growth!
STEP 3 Economic impacts of CC on extensive shrimp production system (farm-level analysis) Net Farm Income 19 partnership excellence growth!
STEP 3 Economic impacts of CC on shrimp production systems (farm-level analysis) Net Present Value (NPV) Discount 20 rate = 6% partnership excellence growth! p.a.
STEP 4 - estimate area of current production impacted by cc - determine future area planned for aquaculture production - conduct Cost-benefit analysis of maintaining this area in production, distinguishing between farm- level adaptation (autonomous) and state-planned adaptation. partnership excellence growth!
STEP 4 Areas subjected to increments of maximum flooding depths (for 50-cm SLR scenario), superimposed with catfish pond areas in An Giang, Dong Thap & Can Tho provinces Increment of Aﬀected ca6ish pond area, ha (%) max ﬂood depth (m) An Giang Dong Thap Can Tho <0.5 0.5-‐1 1-‐1.5 178 13% 273 26% 1.5-‐2 163 8% 89 6% 509 48% 2-‐2.5 1,236 62% 211 15% 286 27% 2.5-‐3 394 20% 497 36% > 3 210 10% 402 29% Total 2,003 100% 1,376 100% 1,068 100% Source: SIWRP 22 partnership excellence growth!
STEP 4 Land use, 2007 Source: SIWRP Source: Sub- Increment of salinity intrusion (ppt) NIAPP for 50-cm SLR scenario Increment of water salinity, ppt Province <0 0-‐1 1-‐2 2-‐3 3-‐4 4-‐8 Total Bac Lieu 20,720 48,041 14,451 16,563 6,189 2,014 107,978 Ben Tre 11,806 30,027 41,833 Ca Mau 109,420 34,739 1,607 1,972 2,588 15,821 166,147 Kien Giang 27,059 747 1,776 29,583 Soc Trang 2,652 14,613 4,300 31,565 Tien Giang 2,559 1,201 3,760 Tra Vinh 12,848 17,837 30,685 Vinh Long 25 124 148 23 All provinces 187,089 146,581 30,358 18,536 9,524 19,612 411,699 partnership excellence growth!
STEP4 Projected production area (ha) based on development plans 2010 2015 2020 Extensive shrimp1 480,964 478,398 474,120 Semi-‐intensive/Intensive shrimp1 127,339 130,044 134,427 Coastal ca6ish2 1,400 1,750 2,600 Inland ca6ish2 7,200 9,250 10,400 1. Projected shrimp areas were based on Op.on IIIb of Lai (2009) for the whole country, with the assump.on that semi-‐intensive/intensive scale of shrimp culture is prac.ced outside of the Mekong River delta. 2. Projected caLish areas are based on MARD (2009). 24 partnership excellence growth!
STEP 4 Economic impacts of CC (production industry level analysis) Net Present Value (NPV) Discount 25 rate = 6% partnership excellence growth! p.a.
STEP 5 Benefits of planned adaptation Beneﬁts: avoided damage costs or the accrued beneﬁts following the adop?on and implementa?on of adapta?on measures Our study: • public investment needed now to reduce or oﬀset the cost of expected impacts farmers will have to face in the future => min. amount needed to maintain the same net income as achieved with autonomous adapta?on. • focus on dyke upgrading & water pumping costs Dyke Electricity Total Produc9on system upgrading and fuel Extensive shrimp 9.1 8.2 17.3 Semi-‐intensive/Intensive shrimp 117.8 26.3 144.1 Inland cajish 432.9 14.8 447.7 Coastal cajish 59.1 3.3 62.3 Total 618.9 52.6 671.5 26 partnership excellence growth!
STEP 5 Catfish Autonomous adaptation cost of upgrading dykes at the production industry level At the farm level: starting 2015 the cost of autonomously adapting to CC will be too high! 27 partnership excellence growth!
On catfish:• Economic viability is precarious- average net income is 3-5% of total farm costs• CC impacts and costs of autonomous adaptation may contribute to making the industry uncompetitive within the next decade• Increase profit margins key to survival and adaptation to CC (“no- regret strategy”): 1) reduce cost of inputs, 2) transfer cost of adaption across the value chain and across sectors (dykes) partnership excellence growth!
On shrimp:• Positive net benefits for a longer period than catfish operators due to lower total costs relative to gross income (Avg. net income 123-129% of total farm costs)• Extensive systems: profitable, high level of dependency in terms of livelihoods, low capitalization => good candidate for planned adaption• Threats: intensification and expansion risks of collapse (disease problems) + thermal stress, & costs of flooding & storm damage could increase costs and increase uncertainty of production• CC impacts (SLR, increased salinity) offer new opportunities for increased production => trade-offs between maintaining delta land for rice, or allowing saline water intrusion for shrimp farming partnership excellence growth!
Key problems and limitations in analysis (1)• CC impact costs based on perceived climate-related costs in last 10 years, projected forward (linear projection); not explicitly linked to results of vulnerability analysis• Lack of clarity whether projected costs are in nominal or real terms• The cost-benefit study projects forward only 10 years at present – may be extrapolated another 10 (to 2030), but beyond this, extrapolation becomes increasingly unreliable without better knowledge of likely feedback responses• Economic analyses are done on average values; economic performance (of which feed is a major cost) varies significantly across the industry and only better performers are likely to survive 30 partnership excellence growth!
Key problems and limitations in analysis (2)• Economic analysis focuses on the production stage, not on the value chain• Stretching the NPV concept from an individual enterprise to an entire industry (i.e. exit-entry of actors)• Costs of planned adaptation cannot be attributed only to aquaculture and must be spread among other sectors (agriculture, defense of coastal infrastructure, protection of homes, businesses and livelihoods etc) – needs integration of the sectoral studies• Impacts on capture fisheries and mariculture (e.g. cage aquaculture) and other forms of aquaculture not analyzed in this study – so these make up only part of the likely total costs of CC to the fishery/aquaculture sector in Vietnam. 31 partnership excellence growth!
Key economic planning questions: • Do current CC adaptation plans in the Mekong adequately consider the potential impact on aquaculture development trajectories? • If not, is the aquaculture industry of sufficient economic importance to consider modifying existing coastal and land use planning for CC adaptation in the Mekong delta? • What would these modifications cost, and what would their impacts on other sectors be? • What other investments are required in aquaculture to ensure that the sector is able to respond to both a changing climate and a changing domestic economy and global market? 32 partnership excellence growth!
Further work • Address data limitations: future drivers of change and scenario work with farmers (linear projection issue) • Economic impacts of climate change on capture fisheries and other aquaculture systems • Link with vulnerability and value chain analysis Improved linkages with other economic sectors, and with macro-level planning, for adaptation policy analysis 33 partnership excellence growth!
Acknowledgements• World Bank EACC for economic analysis• QUEST_fish project (NERC/UK) for vulnerability analysisFull Report:Kam S.P, Badjeck M-C, Teh L., Teh L., Bé Năm V.T, Hiền T.T, Huệ N.T, Phillips M., Pomeroy R., Sinh L.X (2010). Economics of adaptation to climate change in Vietnam’s aquaculture sector: A case study. Report to the World Bank (currently embargoed) partnership excellence growth!