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close this bookEconomics of the Philippine Milkfish Resource System (UNU, 1982, 66 pages)
close this folderIV. The transformation sub-system: cultivation to market size in fishpens
View the document1. Introduction
View the document2. Some efficiency measures

2. Some efficiency measures

How profitable are the milkfish pen operations? Unfortunately, no economic analysis has been conducted since the mid-1970s. It is, therefore, not useful to report here any detailed costs and returns analysis.

TABLE 20. The Laguna de Bay Fishery, 1963, 1968, 1973, and 1976

  1963 1968 1973 1976
Number of fishing households 6,511 7,812 7,839 n.a.
Approx. number of fishermen 13,000 16,000a 16,000a n.a.
Number of fishing gear units 9,740 n.a. n.a. n.a.
Capture fishery catch (tonnes)        
Fishb 82,882 39,055 20,723 1 36 678
Shrimp 19,096 27,552 23,597  
Snails 247,770 96,483 77,560 36,228
Total 349,748 163,090 121,880 72,906
Fishpen harvest (tonnes) - - 19,204 47,020
Total production 349,748 163,090 141,084 119,926
Production per hectare (kg) from capture fisheryd  
Fish 921 433 246  
Shrimp 219 306 274 426
Snails 2,753 1,072 902 421
Total 3,893 1,811 1,422 847
Value of production (million pesos) n.a. 77.2 149 1c n.a.

Sources: 1963 data-see note 55; 1968 and 1973 data-see note 56;
1976 data-the statistics section, BFAR, Manlia (c. Ramos, personal communication)
- = none
n.a.= not available

a. Calculated based on approximately two fishermen per household, as implied by 1963 data,
b. Excluding fishpen harvest
c.51 per cent of value comes from fishpens. Value from capture fishery declined to P72.3 million.
d. Adjusted to reflect use of 4,000 ha of lake for fishpen purposes in 1973, leaving 86,000 ha for capture

Nevertheless, for 1974, the rate of return on investment was variously estimated at 27 per cent 53 and 60 per cent.60 Ramirez61 estimated a 35 per cent internal rate of return for the same period. There are significant economies of scale in fishpen construction costs because the major fixed cost is the double net and bamboo perimeter of the enclosure (fig. 33). Pen area can be quadrupled by only doubling the perimeter. Consequently, the smaller pen sizes appear to be uneconomical, with the largest pens in the lake in 1980 exceeding 100 ha. In 1974, construction costs were estimated at P78 per metre, or P98,600 for a 10-ha pen. The cost of bamboo has more than doubled since that time, but the continued expansion of the area under production indicates that profits are still being made.

Few details are available regarding the economic efficiency of the fishpen sub-sector, although Ramirez61 estimated the input-output relationship of milkfish production in pens using a Cobb-Douglas production function. On the basis of the data of Nicolas et al.,62 Ramirez concluded that the average-size pen in 1974 (6.5 ha) was too small and that stocking rate and labour inputs per hectare should be increased to maximize profits.

If one wishes to make comparisons between the fishpen and fishpond sectors, it is important first to distinguish between "production maximization" and "profit maximization." Due to diminishing returns, the maximum production per unit area is not the same level of production that maximizes profits. Similarly, it is profit potential, not production potential, that determines to which sector additionally available inputs should be applied. The basic rule is that society will benefit the most if the inputs are used in that sector where their contribution to total returns (the value of the marginal product) is the greatest. If the added value derived from the marginal input (i.e., fingerlings) is higher in one sector than in another, a disequilibrium condition exists, assuming each sector pays the same input price.63 This point can be clearly illustrated by comparing the output response to added fingerling input in fishpens as compared to that in brackish-water fishponds.

Fishpen producers are able to achieve high rates of return, despite mortalities during rearing that approach 45-50 per cent.64 The mortality rate for fingerlings reared to market size in brackish-water ponds is lower at approximately 35 per cent.28 Based on these average (not marginal) mortality rates, each 1,000 fingerlings stocked in fishponds will produce, on average, approximately 162.5 kg of market size milkfish (four pieces per kg). The same quantity of fingerling stocked in fishpens will, on average, produce only 137.5 kg (four pieces per kg). If one looked only at the average products above, one would incorrectly conclude that society would benefit more by stocking fingerlings in fishponds rather than in fishpens.

The relevant principle for maximizing profits, however, is a marginal, and not an average concept. In other words, it is the response of output to the added (marginal) input that is important. The production elasticities (which measure the responsiveness of output to the marginal input) of fingerling in the fishpond and fishpen sectors are 0.14 and 0.52 respectively.65 These elasticity estimates imply that a 10 per cent increase in the stocking rate in fishponds will result in only a 1.4 per cent increase in output; in fishpens, a 10 per cent increase in stocking rate will result in a 5.2 per cent increase in output, ceteris paribus. These results are consistent with the findings reported earlier that while the average stocking rate of fingerlings in fishponds is roughly optimal, in fishpens it is too low. Profits as a whole (and benefits to society) could be increased if the fingerling stocking rate in fishpens were increased, even if it had to be at the expense of reduced supply of fingerlings for fishponds.

The fact that this situation prevails is indicative of disequilibrium in the transformation sub-system. Ten years ago, before fishpens were introduced to Laguna de Bay, 100 per cent of fingerlings produced were stocked in fishponds; currently only 35 per cent of fingerlings produced are stocked in fishponds, with the remaining 65 per cent stocked in fishpens. Given the relatively short period involved since the introduction of fishpens, and the occasional typhoons that have heavily damaged them from time to time, it is still fair to characterize the fishpen sector as an "infant industry." In this sense, the division of fingerlings between fishponds and fishpens is in a transitional stage, responding to the relative economics of the two sectors. Given the higher profits (due apparently to lower average costs of production) and the higher production elasticities in fishpens, one can expect that as time passes an increasingly larger proportion of fingerlings will be stocked in fishpens until equilibrium (equal value of the marginal product) between the two sectors is attained.

Earlier, we argued that the supply elasticity of fry was high; in 1974-1977 fry supply appeared to respond to the added demand for fingerlings to stock the fishpens. If fry are not a constraint, fishpen production, with its lower average productivity per 1,000 fingerlings stocked but higher profits, will benefit society as a whole because total milkfish production in the Philippines will have increased, and at a lower average cost of production. In fact, fishpens have increased total milkfish supply by over 45,000 tonnes, or approximately 45 per cent, since 1971.

We also carefully pointed out, however, that fry supply response cannot be predicted in the face of more recently expanding fishpen area and higher stocking rates in fishponds. If fry (and hence fingerlings) are a constraint, the current preference for stocking fingerlings in fishpens instead of fishponds should be a matter of concern, from the point of view of both nutritional standards and income distribution. If fishpens expand to the full 15,000 ha allowable in Laguna de Bay, they will require 450 million fingerlings for stocking, possibly more than the procurement subsystem can supply and still meet recommended fishpond requirements. For nursery-pond operators to rear this quantity of fingerlings will require 682 million fry (survival from fry to fingerling in brackish-water ponds is 66 per cent), or over one-half of the annual fry catch in 1976. If the fishpen and fishpond requirements cannot both be met, the matter will be resolved by the price system, and the relative economics of the two sub-sectors will determine to which of the two the available fingerling supply will be allocated. Current relative economics would favour the fishpens, in which case the absolute quantity of milkfish produced (assuming current survival rates) would be reduced. Private entrepreneurs who can afford the sizeable capital investment required for fishpens would benefit, however.

To some extent, higher prices of fry and fingerling are a blessing in disguise. To begin with, assuming no biological overfishing, supply of fry will be higher at higher prices. (Fry gatherers stopped gathering in mid-1977 because of low prices.) More important, higher fry prices will encourage fishpond producers to become more efficient and to lower their average costs of production. In particular, higher fry prices may encourage entrepreneurs in the transformation subsystem to increase the survival rates of their fry and fingerling through better handling and acclimatization.

These questions regarding the impact of the fishpen industry on both the milkfish resource system and the Laguna de Bay capture fishery are complicated by the fact that there are several alternative uses for the water of Laguna de Bay, of which fisheries are only one. In addition to seeing it as a possible water source for Manila, LLDA also envisions pumping lake water to nearby Cavite Province for irrigation purposes. To a certain extent, both of these uses could still be complementary to the capture fishery and to pens and cages. A potentially more serious problem for the fishpens is related to the building of a hydraulic control structure at the confluence of the Pasig and Marikina rivers just north of the Bay, designed to minimize flooding in Manila by diverting the Marikina River into Laguna de Bay when necessary, and to prevent saltwater intrusion to the lake through the Pasig River during the dry season when the water level of the lake is low. The Pasig River links Laguna de Bay with Manila Bay and runs through the heart of the city.

There is a debate as to what effect this hydraulic control structure will have on the milkfish pen industry, however.

As pointed out earlier, milkfish (unlike the hardier tilapias) are particularly susceptible to stress when low levels of dissolved oxygen occur. Algae growth is beneficial to production, but only to a point. When algae blooms collapse and dissolved oxygen levels fall, fish kills may result. The occurrence of algae blooms is a function of temperature, light, and nutrient loadings, the first two of which are beyond human control. In making their case for construction of the hydraulic control structure, LLDA stated that it would prevent nitrogenous wastes in the Pasig River from entering the lake, thereby removing approximately 30 per cent of the current nitrogen loading.66 Their belief was that nitrogen limits phytoplankton production and hence, in addition to its other uses, the structure would benefit the fish industry. An internal rate of return of 24.7 per cent was estimated for the structure, based in part upon the added benefits expected to accrue to the Laguna de Bay fisheries, including fishpens.

An alternative point of view, put forward by Nielsen et al.,52 is that nitrogen is not the limiting factor and, therefore, the assumed benefits of excluding nitrogenous wastes are based upon a false assumption. Moreover, Nielsen et al. believe that periodic intrusions of saline water are essential to maintain a balanced production of the plankton on which the fishpen industry depends and that such intrusions reduce the likelihood of fish kills caused by collapsing algae blooms. Saltwater intrusions clear inorganic turbidity from the water column, and Nielsen et al. conclude that turbidity, not nitrogen, is the limiting factor. They cite the negative correlation between saltwater intrusion and fish kills in support of their argument. However, it should be pointed out that correlation does not necessarily imply causality.

These ecological questions are extremely complex, and detailed discussion of them is beyond the scope of this paper. Suffice it to say, however, that if Nielsen et al. are correct, the hydraulic control structure may have a negative impact on production of milkfish and other species susceptible to low levels of dissolved oxygen, with a consequent reduction in milkfish fingerling demand.

It is quite apparent from the foregoing discussion that the potential impact of the fishpen sub-sector on the milkfish resource system is considerable. Continued expansion of fishpen area, if it produces higher fry prices, will lend added impetus to the development of milkfish hatcheries. However, many of the foregoing predictions remain hypotheses. Further research on the biological and economic impact of fishpens on the milkfish resource system, on the Laguna de Bay capture fishery, and on the ecology of the lake would appear to be most worthwhile.