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IV. The transformation sub-system: cultivation to market size in fishpens

1. Introduction
2. Some efficiency measures

1. Introduction

An alternative method of rearing market-size milkfish entails transformation from fingerlings in bamboo and net enclosures (fig. 33). In contrast to rearing in brackishwater ponds, fishpens are operated in bodies of freshwater, where the operator has much less control over the fishrearing environment. Although the pen concept has resulted in experimental operations in many small lakes in the country, the only large-scale commercial activity is in the shallow 90,000-ha Laguna de Bay, adjacent to Metro Manila (fig. 34). Although Laguna de Bay is a reasonably productive eutrophic lake, it is not as productive as many other tropical lakes, such as Lake George in Uganda.⁵² In 19701971, the Laguna Lake Development Authority (LLDA) successfully introduced the pen method of fish culture, achieving yields of close to 4 tonnes per hectare per year relying solely on the abundant natural food available in the lake.

By 1973, the fishpen sub-sector was producing annual harvests valued at P77 million from 4,800 ha of fishpens.53 BY early 1976, pen area had grown to over 7,000 ha, and estimated total milkfish production to 47,000 tonnes (table 20): quite remarkable growth for only a seven-year period. The rapid growth in fishpen area in the early 1970s is indicative of the dynamism of the private sector in the Philippine economy and its willingness to take risks with a new venture.

Despite the attractiveness of fishpens to private investors because of the high rate of return on investment that can be achieved, numerous problems have surfaced. These problems relate, on the one hand, to environmental factors beyond the control of fishpen operators, such as the weather, aquatic macrophytes, and plankton blooms that result in fish kills and, on the other hand, to socio-economic factors brought about by the alleged impact of fishpens on the capture fishery that has existed in the lake for centuries. These problems combined to reduce fishpen area in 1976-1977 to approximately 4,000 ha.

Plankton blooms, most probably caused by the enriched inflow from the heavily fertilized rice-fields of Laguna Province and from sewage wastes of urban communities, result in rapid reductions in dissolved oxygen which cause fish kills in several parts of the lake. In 1973, for example, the loss of an estimated 1 million fish was recorded; some owners lost 90 per cent of their stock.⁵³

A typhoon that occurred unseasonably early in 1976 resulted in widespread destruction of fishpens, further discouraging the large number of lawyers, doctors, and even movie stars who had rushed to invest in fishpens after LLDA's success became known. Water hyacinth, driven by high winds, damaged the bamboo and netting materials, allowing large quantities of fish to escape to the delight of the small-scale fishermen living around the lake who then caught them with their gill nets. Similarly, major typhoons occurred in 1978, but the three years since have been characterized by relatively calm weather.

Serious as these risks from typhoons were for the fishpen entrepreneurs involved, socio-economic problems were just as pressing. While fishpen production continued to climb, catch from the lake capture fishery was declining (table 20). The capture fishery had actually been declining continuously since 1963 so it is not possible to ascribe the decline exclusively to the presence of fishpens. However, the initial uncontrolled erection of fishpens in the lake produced conficts with the small-scale fishermen, who claimed that fishpens had reduced their fishing area and in extreme cases had even blocked access to the water. Sabotage of fishpen nets became common, and most fishpens now have guard houses at regular intervals along the perimeter of the pen to guard against these surreptitious acts.

Controlling the location of fishpens of private investors has been a major problem for LLDA. Jurisdictional disputes between LLDA, the Bureau of Fisheries and Aquatic Resources (BFAR), and the municipalities around the lake have only recently been resolved in favour of LLDA, which now has exclusive licensing authority. A 15,000-ha fishpen belt has been designated within which all pens must be located (fig.34).

Laguna de Bay, like any other body of water, has a certain carrying capacity based upon its primary productivity. Delmendo and Gedney⁵³ have made the only estimate of the lake's potential productivity (63,000 - 270,000 tonnes), based on conditions prevailing in 1973. What effect fishpens may have on the lake's productivity is debatable.

Fig. 33. Details of Fishpen Enclosures. Source: See note 53.

Increased stocking of milkfish in pens may even increase carrying capacity if they crop phytoplankton that is left untouched by other species. Construction of fishpens has certainly reduced fishing areas; however, one cannot ascribe the declining capture fishery catch solely to fishpen expansign, since it had been declining for several years before the first fishpens appeared. From 1963 to 1973, while the number of small-scale fishermen increased from 13,000 to 16,000 and shrimp catch increased by 25 per cent, catch of fish from the capture fishery declined by more than 75 per cent, and snail harvest declined by almost 75 per cent. Total production in Laguna de Bay declined from almost 350,000 tonnes in 1963 to only 120,000 tonnes in 1976.57 In part, therefore, declining capture fishery catch is due to overfishing.

While the value of production from the lake increased from P77.2 million in 1968 to P149.1 million in 1973, all of this increase in revenue accrued to the owners of fishpens. The value of the capture fishery (fish, shrimp, and snails) actually declined over the period from P77.2 million to P72.3 million. The decline in value in real terms was even greater. Except on those occasions when milkfish escape from fishpens after typhoons, and are subsequently caught by municipal fishermen, or when fishermen are employed as fishpen labourers, the fishpen business has apparently had little positive impact on the many fishermen living around the lake.58

To deal with the need to involve former small-scale fishermen in more than simply providing labour to fishpen owners, the LLDA has recently embarked on a project with financial support from the Asian Development Bank to develop 2,500 ha of fishpens in 2.5-ha, 5.0-ha, and 10-ha modules that would be managed by former fishing families or groups of families.59 The project has both milkfish and tilapia components, the tilapia to be raised in cages rather than pens. Tilapia cage culture, based primarily on supple mental feeding-in contrast to milkfish in pens, which feed on the lake's natural production-is already practiced by many fishing households. The nutrient flow and detrital production from the lakeside duck farms has undoubtedly aided tilapia production from cages near the shoreline. Participation in the project is limited to families with annual incomes less than P9,000, and the loan to participants carries a 14 per cent interest rate and is payable in five years through deductions from proceeds of sales of milkfish through LLDA.

Fig.34. Laguna de Bay, Showing the Fish Sanctuary and the Fishpen Belt. Source: See note 54.

Three problems, however, must be overcome for the milkfish component of this project to succeed. First, reliable supplies of large quantities of fingerling must be found (the 2,500 ha to be developed will require approximately 75 million milkfish fingerlings annually). Secondly, a way must be found for the small 2.5-5.0-ha modules to remain profitable despite economies of scale that favour larger pen sizes. Finally, the project may experience difficulties in persuading fishermen with low incomes to invest in the capital-intensive fishpens.

Managing the capture fishery to reduce overfishing and allow stocks to recover to produce higher sustainable yields is an alternative approach that might be considered to assist the small-scale fishermen. A second alternative may place added emphasis on tilapia cages with their lower investment requirements, rather than requiring fishermen co-operators in the project to invest in both milkfish pens and tilapia cages concurrently.

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

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
fishery.

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.

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