Economics and Marketing

Striped Bass and Other Morone Culture R.M. Harrell (Editor) 9 1997 Elsevier Science B.V. All rights reserved.

315

Chapter 12

Economics and Marketing Douglas W. Lipton and Conrado M. Gempesaw, II

12.1 INTRODUCTION Before the advent of hybrid striped bass aquaculture the market relied on a wild striped bass fishery in the Middle Atlantic and Chesapeake Bay states. As early as 1888, the harvest in these two regions amounted to about three million pounds (National Marine Fisheries Service, 1990). Striped bass harvests peaked in 1973 at 14.7 million pounds when the fishery was valued at the harvest level (ex-vessel) at $4.7 million (National Marine Fisheries Service, 1992). Unfortunately, this harvest level, coupled with extended periods of recruitment failure represented severe over fishing, and landings declined dramatically that by 1983, striped bass harvest was reduced to 1.7 million pounds. In 1985, fishing moratoriums were put into effect in Maryland and Delaware to aid in population rebuilding, and in 1986 and 1987 in New York and New Jersey because of PCB contamination. By 1991, harvests hit a recorded low of 254 thousand pounds. However, the moratoriums have returned dividends with the Atlantic States Marine Fisheries Commission now declaring the population as being recovered. Limited fishing is now allowed, with the 1994 striped bass harvest at 1.7 million pounds with an ex-vessel value of $2.8 million (National Marine Fisheries Service, 1995). Events in the wild fishery for striped bass set the stage for the development of aquaculture of striped bass and its hybrids. The early history of commercial striped bass aquaculture was reviewed by Van Olst and Carlberg (1990), with the earliest commercial production of about 10 thousand pounds dating back to 1973. It was not until 1987 when approximately 395 thousand pounds were produced that there was any substantial production. Current production figures are difficult to come by. Bush and Anderson (1993) conducted a survey of Northeast (from Maine to Maryland) aquaculture producers that estimated 1992 production at 947 thousand pounds, with a farm gate value of $2.3 million. Rhodes (1993) estimated South Carolina production in 1992 to be around 500 thousand pounds, valued at $1.1 million (see Chapter). An earlier study (Rhodes and Sheehan, 1991) conducted for the Striped Bass Growers' Association, estimated that nationwide production of hybrid striped bass in 1992 would be about 7.7 million pounds (Table 1.2, Chapter 1). The most recent production survey revealed that the 1994 production exceeded 8 million pounds (Carlberg and Massingill, 1995; Table 1.2 Chapter 1). These production figures suggest that hybrid striped bass production has grown significantly since 1987, and production is a significant percentage of historic striped bass fishery production levels. Striped bass production still has a long way to go to equal the domestic catfish aquaculture production of 459 million pounds in 1993 (USDA, 1994).

12.2 PRODUCTION COSTS Information on striped bass production costs is extremely limited, reflective of the relatively small size of the industry, its dispersion, and its developing nature. AquacultureMagazine's 1994 Buyers Guide and Industry Directory lists 41 firms involved in culture of market sized striped bass and hybrids. Familiarity with the scant literature makes one wary of its accuracy because of the lack of independence of the various studies. One of the earliest studies (Brown et al., 1988) was based on a couple of operations that had not yet produced market fish in North Carolina, and used published data on catfish production costs. A subsequent evaluation by Strand and Lipton (1989) modified the Brown et al. (1988) data for production in Maryland, and further

316 production cost analyses by Gempesaw et al. (1993) relied heavily on the Strand and Lipton (1989) study. These studies share a common feature which is a reliance on "engineered" cost estimates as opposed to a statistical analysis of real production costs. Because of this lack of actual production performance information, Gempesaw et al. (1993) relied on a stochastic model of financial performance which uses Monte Carlo analysis to provide meaningful risk information to prospective aquaculturists. This approach is discussed further in Section 12.4. 12.2.1 Costs of Production Systems In terms of numbers of operations, evidence suggests that most striped bass aquaculture operations are conducted in open or static pond systems. Rhodes and Sheehan (1991) study estimated that 41% of producers used ponds, 29% used recirculating tank systems, 25% grew fish in raceways and 5% used cages or net-pens. Bush and Anderson's (1993) northeast aquaculture survey found, in terms of production volume, 42% were produced in open ponds and 40% in recirculating systems. They also found that producers expected to significantly increase the share coming from recirculating systems. The reader should keep in mind that these percentages are of a relatively small level of production so that one or two firms producing in one type system or another can greatly affect the ratios. 12.2.1.1 Hatcheries In addition to the grow-out systems discussed above, there are hatchery production systems to produce fry and fingerlings for either an in-house vertically integrated operation or to supply other producers. Of all the production systems for striped bass and hybrid culture, the least amount of economic analysis has been performed on hatchery operations. Gempesaw et al. (I 993), in their attempt to look at degrees of vertical integration in hybrid striped bass production, "engineered" costs for a hatchery facility capable of producing about 36 million eggs or, with 25% survival, about 9 million fry. The capital investment for this operation, on about 5 acres, was less than $100,000. The more common scenario is an integrated hatchery-fingerling producer producing phase I and some phase II fingerlings for sale. The Gempesaw et al. (1993) version of this farm produces an average of 2.3 million phase I fingerlings on an additional thirty acres of ponds. The investment cost for this operation was almost $570 thousand, the highest of any integration scenario described. The major expense in this scenario is the numerous small ponds that must be constructed for the fry and fingerlings as opposed to fewer larger ponds, which elevates the relative costs. 12.2.1.2 Static ponds The cost of static pond grow-out systems is fairly well understood, given that it emulates the more well-established catfish culture operations. Variability in land acquisition costs from farm to farm, variations in topography and water supply make it difficult to generalize about what pond construction costs will be. Generally, costs of pond construction will rely directly on the amount of earth movement needed to construct levees and obtain the proper pond depths. The number and size of wells will also vary greatly depending on the size, quality and depth of the local aquifer. If surface waters are available, their use can decrease the expense of maintaining the pond water supply. Pond construction costs will also vary depending on the individual pond size and layout. For example, a configuration where ponds share levees saves on earthmoving costs. To estimate pond construction costs you need to determine the total linear feet of levees, determine the width of the levees and the slope to estimate the total cubic yardage of earth that will have to be moved,

317 then multiply this value times the cost of moving a cubic yard of soil. The layout of water pipes, wells, pumps, and drainage structures would also be determined at the same time. For a 30 acre operation, Brown et al. (1988) calculated that pond construction and equipment costs, amortized over a ten year period, contributed about $0.15 per pound to the cost of growing fish. Strand and Lipton (1989) computed the cost to be about $0.17-$0.30 for a 25 acre operation in Maryland, and $0.21-$0.35 if the cost of land acquisition was included. 12.2.1.3 Tanks The published literature on the economics of striped bass production in tank systems is almost nonexistent. A number of tank systems are in use nationwide to grow hybrid striped bass, but there is little documentation of their economic production and performance. Gempesaw et al. (1992) "engineered" costs for a small (50,000 pounds per year) recirculating tank system requiring a $271 thousand investment. In the relatively successful Aquatic Systems Inc. (now Kent Sea Farms) operation in California, a geothermal aquifer supplies water for the tank systems (Van Olst and Carlberg, 1990). 12.2.1.4 Net-pen and cage culture Many existing farm ponds cannot be seined to harvest fish, and would be unsuitable for open pond culture. These ponds lend themselves to the placement of cages or net-pens. Because it is assumed that the pond is already in place, the only major cost is construction of the cages. This can be done with inexpensive materials. Strand and Lipton (1989) estimated that a 64 cubic foot cage could be constructed for less than $200. In order to stock the cages at commercial densities, supplemental aeration would be required. The cost of the aerator plus the installation of electric service to the pond would add an additional $0.10 per pound to the cost of production, but the increased production would lower the contribution of the cage costs per pound of fish produced from $0.09 to $0.06. These costs are for production in a 5-acre pond at a production level of 2,500 pounds per acre. Another application of cage or net-pen culture is the culture of striped bass in open estuarine systems. System requirements would be similar to the net-pens or cages placed in ponds, but might require some modification for tethering and access to the pens. Although Asian countries have been culturing marine species (i.e., yellowtail) in cages for decades, Norwegian's first developed the net-pen technology to produce Atlantic salmon, and that technology has been adopted in the United Kingdom, the United States, Chile, Canada and other countries with suitable growing conditions for salmon and other species. Bettencourt and Anderson (1990) documented the costs of these salmon net-pen operations, and costs ranged from $25,000 for four, self-assembled pens to $2 million for a 40 pen system. Currently, there are two small scale net-pen production sites for striped bass in Maryland, but no data on economic costs and retums are available yet. 12.2.2 Operating Costs Operating costs are those that vary from period to period based on the level of production of the aquaculture facility. The lack of a history of commercial scale striped bass production precludes econometric analysis of operating costs. Instead, information has relied on engineered budgets. As a result there can be no testing of hypotheses regarding economic items of interest such as returns to scale and input substitutability. The major operating cost items for aquaculture products are typically feed costs and the cost of the seed stock (i.e., the starting point in the life cycle of the organism being cultured). The contribution of feed

318 and seed costs to production are a direct result of the production relationship, which may vary among production systems, species being cultured, sizes stocked and harvested, and feeding rates. Whenever figures are quoted regarding production costs in aquaculture, there are underlying production assumptions that should be evaluated for their accuracy, such as survival and feed conversion rates. 12.2.2.1 .Stocking costs Stocking costs will depend on what point in the striped bass life cycle production is being initiated. For a hatchery, stocking entails obtaining and maintaining brood stock. Typically, for grow-out operations, stocking of phase I or phase II fish is performed, although some might start with fry. Fry prices are usually about $0.01 a piece, and fingerling prices about $0.10 an inch. Thus, phase I fingerlings can be purchased at $0.20-$0.30 and phase II fingerlings at $0.60-$0.80 apiece, with price breaks for large quantity purchases. The contribution of stocking to the final production cost will depend on the of the fry or fingerling price (or the production cost of fry if the operation includes a hatchery), the average weight of the harvested fish, and the survival rate from stocking to harvest: C ostseed-

P r i c e seed (Weighth .... ~

Survival) .

Using this formula, stocking phase I fingerlings costing $0.25 each, with 70% survival to grow-out at an average of 1.25 pounds, ends up contributing $0.29 per pound to the cost of the final product due to the mortality effect. If survival can be increased to 90%, the cost drops 24% to $0.22 per pound. If in addition to increased survival, fingerling production costs, and hence the fingerling price, falls to $0.15, stocking costs contribute only $0.13 per pound to final production costs. It is easily seen how technological efforts to increase survival and decrease the cost of seed stock reduces the overall production costs. 12.2.2.2 Feed costs Feed costs are typically the greatest operating expense for aquaculture enterprises. The competitiveness of striped bass and hybrid culture will depend greatly on obtaining a low cost feed that is efficiently converted into final product weight by the fish. The feed price will depend on its ingredients, higher protein feeds being more expensive. In addition, the contribution of feed costs will depend on the survival of striped bass in the production system, and the timing of that mortality. Mortality that occurs early in the production cycle has little impact on feed costs because the quantity fed to fish at that point is small. If mortality occurs just before harvesting, then most of the investment in feed has already been made, and the cost of feed per pound of fish ultimately harvested is much greater. If we assume that mortality is uniform over the growing cycle, the following formula can be used to estimate feed cost contributions to fish production:

Pricefeed X WeightGain X ConversionRatio Costfee d -

1 - [0.5 X (1-Survival)]

Using the above formula, a typical calculation for striped bass might entail a survival rate of 70% for phase I fingerlings to grow-out, a feed conversion ration of 2.5:1, a weight gain of 1.25 pounds and feed costs of $0.20 per pound. The result is a contribution to production costs due to feed of $0.74. Changing any of those variables can substantially raise or lower costs. A production technology and feed that results in 80% survival, a 2:1 feed conversion rate and a feed that costs only $0.15 per pound lowers the contribution of feed costs by 43% to just $0.42 per pound.

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12.2.2.3 Other costs Other important operating costs include labor, utilities, and water monitoring. Labor costs are typically treated as a variable cost, with more labor needed, the greater the production. Some labor may be concentrated during specific periods of the operation such as harvesting, and it may be more effective to contract for this activity. An important fixed cost is that paid for management. In an owner-operator situation, this might not actually entail a cash payment for management, but the opportunity cost of the manager's time -- what the manager could earn in alternative employment -- should be considered in evaluating the economic performance of the aquaculture operation. Often the financial performance of such an operation will be reported as returns to management, so care must be taken in comparing this with other enterprises where management costs are explicitly considered. 12.3 DEMAND

One of the most naive assumptions that can be made about developing aquaculture industries is that the price of the product will be the same several years in the future as it is today. The assumed price of the product in future years of production will determine the rate of return on the investment. Thus, wrong investment decisions may be made by not using all the information available on potential future prices. The major aquaculture products that have experienced large expansions in production over the past decade (i.e., shrimp, salmon, catfish) have all experienced real price declines. An understanding of seafood demand and how the seafood market works in general is essential for the successful aquaculturist. 12.3.1 Seafood Demand There is a widely held expectation about the extent of expanding seafood demand that is not supported by the available data. In part this perception was fueled by a significant expansion in U.S. per capita seafood consumption during the mid- 1980's (Figure 12.1). From 1980 to 1987, per capita consumption increased from 12.5 to 16.2 pounds. Since its peak, however, per capita consumption has fallen and stood at 15.2 pounds in 1993. This is less than the 1985 figure and only 13% greater than per capita consumption in 1978. Strikingly, today's per capita seafood consumption is only 32% greater than it was over 80 years ago in 1913. Although it is clear that there was a significant gain in seafood per capita consumption in the 1970s and 1980s, there is little evidence that this rate of expansion is being sustained. Still, some experts predict that consumption of seafood products will almost double during the next three decades resulting in shortages in seafood products (Dowdell, 1990; Rogness and Weddig, 1991). With these caveats, we can still state that the outlook for seafood demand is positive. It is showing a long-term increase, and U.S. and world population growth will continue the need for increases in seafood production in order to maintain current price levels. In addition, per capita seafood consumption in other industrialized countries is substantially higher than U.S. seafood per capita consumption (Bjorndal, 1990). This correlation between industrialization and seafood demand suggests that as the economy improves in developing countries, their demand for seafood may increase. Demand, however, entails looking at both the quantity consumed and the relative price of seafood. Prices at the consumer level have tended to increase greater than the overall rate of inflation, leading to a real price increase. If demand is not increasing, then a real price increase will lead to a fall in per capita consumption, such as was observed from 1987-1993. Another issue is that retail price increases for seafood have not always translated into price increases for the producer. While retail seafood prices increased by 14% from 1988-1993, producer prices increased only 5%. More relevant to striped bass and hybrids producers, the producer price index for finfish actually fell 3.7% over that time period.

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Figure 1. U.S. Seafood Per Capita Consumption, 1909-1993

20

Pounds per capita

1909

14

19

24

29

34

39

44

49

54

59

64

69

74

79

84

89

94

Year

12.3.2 The Striped Bass Market Most of what is known about the striped bass market is based on studies before the collapse of the market in the mid to late 1980's. During that period the market became very confused with the plethora of regulations regarding the sale and possession of striped bass and striped bass hybrids in the various states. Some of the restrictions on marketing where due to concerns about PCB contamination of wild striped bass from the Hudson River. Some states were concerned about enforcing a fishing moratorium and forbade the possession of any striped bass or hybrid. Thus, aquaculturists were prevented from initiating the development of their industry by regulations intended to protect wild populations. 12.3.2.1 The wild fishery Yamashita (1981) and Adriance (1982) studied both the marketing practices of striped bass agents and price determination in the wholesale and ex-vessel markets. Yamashita, studying the 1972-1978 period, found New York City's Fulton Market to be an important element in the marketing of striped bass. She found that much of the reported Chesapeake landings were marketed there, especially in the months of April, May and June. Currently, Chesapeake commercial fishing is not allowed in those months. Fifty percent of the Chesapeake wholesalers reported using Fulton prices to establish the prices they paid fishermen. All of them also differentiated their prices based on size, with sometimes small fish and sometimes large fish commanding a premium. It is not known to what extent these pre-moratorium preferences hold today in a highly regulated wild fishery, and an aquaculture industry producing four times the amount of the wild fishery. Adriance (1982) and Norton et al. (1983) estimated a statistical model of price determination for the 1976-1979 period. In 1988 dollars, Fulton and Baltimore wholesale market prices dropped approximately 4.8 cents for each 10,000 pounds marketed.

321 12.3.2.2 Hybrid striped bass Strand et al. (1988) used existing information on the wild striped bass market to determine the expected effect of increased cultured striped bass production on prices. Implicit in this analysis is the assumption that hybrid striped bass is a perfect substitute for striped bass and would trade in the same market channels. An eight block system of equations was developed for striped bass price:

Price i:ao+a~(Production/Population) +a2(~,y~roductionJPopulation ) +a3(U.S. Per Capita Income) +a4PCB

Where, I is the subscript for the state, production is the ith state's striped bass production, population is East Coast and South Atlantic human population and PCB is a dummy variable representing closure of the New York market. Based on the results of this analysis, it was concluded that the price distribution of hybrid striped bass would fall in the $2.00-$3.00 per pound range. This is consistent with the actual prices as have been reported by the Maryland Department of Agriculture's wholesale market report for the past several years. 12.4 FINANCIAL PERFORMANCE OF STRIPED BASS AQUACULTURE Given the uncertainty in the production economics and market for striped bass and hybrids aquaculture, point estimates of financial performance based on deterministic analysis can be very misleading. The computer program Aquasim (Gempesaw et al., 1992; Gempesaw et al., 1993), although generic for different aquaculture species, was initially developed to analyze striped bass hybrid aquaculture. Aquasim is a farm-level dynamic and stochastic capital budgeting computer simulation model, and has been used for analysis of striped bass financial performance under a variety of scenarios and assumptions about prices and production performance. In the two published studies, one comparing tank and pond production (Gempesaw et al., 1992) and the other comparing vertical integration in pond production (Gempesaw et al., 1993), results were characterized by high sensitivity to the price and production scenarios, as well as great variability of results within a scenario. Pond production of hybrid striped bass had a higher internal rate of return than production in recirculating tanks in all scenarios modeled. However, in both production systems the coefficient of variation of the discounted net cash income was close to or exceeded the expected value, indicating that there was a significant probability that these operations would fail, economically. Similar results were found when comparing different levels of vertical integration for the farm. In fact, for all but the extremes of only a hatchery operation and only a fully-integrated operation, the coefficient of variation for discounted net cash income exceeded the expected value by several orders of magnitude. For the most typical operation of raising phase I fingerlings to market size on a 30-acre farm, the internal rate of retum was 29% with a coefficient of variation of 51.6%. The discounted net cash income was $48,500 with a coefficient of variation of $222,550. This huge uncertainty in financial performance has probably contributed to an unwillingness in the investment community to become involved heavily in striped bass aquaculture. Although the figures demonstrate the potential for substantial profit and retum on investments, this is accompanied by significant risk. There has been no published verification based on actual performance of real operations.

322 12.5 THE HYBRID STRIPED BASS MARKET Given the risk involved in investing in the developing hybrid striped bass industry, it is essential that attention be paid to marketing as well as production. The information presented here reviews the existing information on hybrid striped bass marketing. 12.5.1 Hybrid Striped Bass Marketing Studies Numerous studies have been undertaken to investigate the market potential of hybrid striped bass. Before these studies can be reviewed, it is important to understand the various marketing channels for aquaculture products. These various marketing channels include the wholesaler, retailer, restaurants, and finally the consumers themselves. Studies on hybrid striped bass marketing have generally focused on various parts of these marketing channels. Harvey et al. (1990) conducted a study dealing with two distinct market segments, i.e., restaurants and wholesalers across the Mid-Atlantic region with major emphasis on the restaurant market. Two market surveys were conducted. The restaurant survey was designed to obtain specific information about the restaurant market concerning familiarity with hybrid striped bass, present and future use, product form, price, and size. The authors reported that a total of 13,460 restaurants located in New York, Pennsylvania, New Jersey, Virginia, Massachusetts, Maryland, Connecticut, Washington, D.C., Rhode Island, and Delaware were surveyed with a response rate of less than eight percent. The wholesaler survey consisted of 894 wholesalers in Virginia, Maryland, Washington, D.C., New York, and Pennsylvania with a response rate of also less than eight percent. One of the primary objectives of the Harvey et al. (1990) study was to investigate whether hybrid striped bass could occupy a "market niche" in restaurants located in the Northeast region. Of the 948 restaurants responding to the familiarity question, only 22 percent answered with a positive response. Among the factors that would encourage restaurants to offer hybrid striped bass were the possibility of high margins and consistency in supply. Most of the respondents indicated that they preferred product size to be less than two pounds with fillet as the most popular product form. Almost a third of the restaurants responding stated that they were willing to pay between $2.50 to $3.00 per pound and preferred individual negotiations with hybrid striped bass producers in determining the final price. Similar questions were also asked of Northeast seafood wholesalers. Close to two-thirds of the wholesalers responded that they were familiar with hybrid striped bass with the primary sales area identified as New York followed by Maryland. Again the top two factors cited by the wholesalers for buying hybrid striped bass were the possibility of consistent supply and high margins. At least forty percent of the wholesalers preferred a two pound fish. At least a third of the wholesalers noted that they were willing to pay between $2.08 to $3.36 per pound. An important conclusion from the study was that although restaurants indicated a strong willingness to offer the product, less than a fourth of the respondents were familiar with the product. Furthermore, the wholesalers, though more familiar with the product, seemed to find that market demand was not strong enough. A marketing study was conducted by Wirth et al. (1990) to investigate the purchase decision of MidAtlantic seafood buyers when purchasing farm-raised hybrid striped bass. A conjoint design survey questionnaire was developed and sent to wholesalers, retailers, and restaurants located from New York down to North Carolina. Over 2,400 surveys were sent out with a response rate of about 12 percent. The authors found that wholesalers and retailers were more concerned with price while restaurants gave product form more importance in their purchase decisions. This implies that wholesalers and retailers are more price sensitive

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than the restaurant market. The fillet form was also found to be the preferred product form with the retail and wholesale markets having a preference for a two pound fish. Fuller et al. (1990) conducted a study on the consumer acceptance of hybrid striped bass in a Mississippi Gulf Coast restaurant. The fish were served over an eight-week period starting in November 1988. A total of 192 useable responses were obtained from consumers who ordered the fish during that time period. Approximately 40 percent of the consumers rated hybrid striped bass as better than their favorite fish. The most popular fish for the consumers who participated in the survey were trout, redfish, red snapper, flounder, catfish, and grouper in that order. Consumers were also asked whether they would order hybrid striped bass again at prices comparable to their favorite fish. Nearly 86 percent of the respondents answered that they would order the fish again. As a measure of quality, consumers rated appearance as very important followed by freshness, texture, and flavor. D'Souza et al. (1993) reported a study on the marketing potential of aquaculture products in West Virginia by conducting a survey of consumer, restauranteur, and wholesaler attitudes. The study dealt with several aquaculture products including hybrid striped bass. A random sample of 2,000 West Virginia households were asked to participate in the survey with a response rate of almost 16 percent. A total of 250 restaurants in West Virginia were identified as serving seafood products. The restaurants were sent a survey questionnaire and yielded a response rate of almost 13 percent. In addition, two out of the nine seafood wholesalers in the state accepted the invitation to participate in the marketing study. At least half of the consumer respondents indicated that they have eaten farm-raised fish and identified freshness and/or appearance as the most important factor they consider when buying fish products. Over half of the respondents answered that they are familiar with farm-raised trout, but only 23% responded that they have heard of hybrid striped bass. The respondents stated that they have eaten catfish (78%) and trout (58%) but only 13% have actually eaten hybrid striped bass. The restaurant managers identified consistent quality and dependable supply as important factors in influencing their purchase decisions of farm-raised fish products. Less than one-third of the respondents were offering farm-raised fish in their restaurants citing "availability" and "never heard of it" as the two most common reasons for not offering the product. In the specific case of hybrid striped bass, 81% of the respondents indicated no interest in offering the product. What is more surprising is that none of the restaurants offered hybrid striped bass. Trout, shrimp, scallops, salmon, and catfish were the most popular fish products offered by the restaurants. The wholesalers supported these findings by identifying shrimps, scallops, flounder, cod, orange roughy, and catfish as their best selling species. In 1993, the Northeastem Regional Aquaculture Center funded a regional study entitled "Altemative Marketing Options to Improve the Profitability of Northeast Aquaculture Industry." Among its objectives was to gather information regarding consumer attitudes and preferences for finfish products, one of which was hybrid striped bass. A mail survey questionnaire was developed and sent to 5,000 randomly selected households in the Northeast region. The project was supervised by Cathy Wessels, University of Rhode Island, Alberto Manalo, University of New Hampshire, and Conrado Gempesaw, University of Delaware. The states included in the survey were Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania, Maryland, New Jersey, Delaware, Virginia and West Virginia, and Washington, D.C. A total of 1,529 responses were received for the finfish survey yielding a response rate of over 30%. Several studies have been undertaken using this data set. For example, Gempesaw et al. (1985) reported that the most common reasons for not consuming hybrid striped bass were: 1) the respondents' lack of familiarity of the species, 2) the respondents had never seen this fish in stores and, 3) a dislike for its taste.

324 Nauman et al. (1995), using the same survey data, used the evoked set framework to analyze the demand for finfish products, which included hybrid striped bass. Limited dependent variable estimation techniques were used to model the effect of socio-economic variables and other explanatory factors on consumer experiences, perceptions, preferences, and ultimate choice for hybrid striped bass. The model was developed showing that consumer seafood purchase decision is formed in a manner suggested by a four equation recursive system:

(1) (2) (3) (4)

Experience =f(Socioeconomic/Demographic Factors) Perception =f(Socioeconomic/Demographic Factors, Experience) Preference =f(Socioeconomic/Demographic Factors, Experience, Perception) Choice =f(Socioeconomic/Demographic Factors, Experience, Perception, Preference)

The experience variable was represented by a binary variable assuming a value of one if the respondent was a frequent purchaser of seafood products in general (weekly to at least four times per year) and was set to zero if the respondent was an infrequent purchaser of hybrid striped bass (less than four times a year to never purchased). The perception variable represented four classifications of how hybrid striped bass was perceived by the respondents. The four categories were health and nutritional value, adds variety to diet, good taste, and easy to prepare. The four categories were also specified as a binary variable and given a value of one if the respondent perceived hybrid striped bass as having a specific attribute and zero otherwise. The preference variable was represented by the number of individuals in a household who have consumed hybrid striped bass and was specified as a continuous variable. Finally, the choice variable was specified as a binary variable with a value of one if the individual has purchased hybrid striped bass and zero otherwise. The results show that over 77% of the respondents were a frequent purchaser of seafood products in general. The variables that were found to significantly affect seafood purchases were education (higher education had a positive effect), race (non-caucasians tend to buy more seafood), location of residence (the farther from the ocean, the lower the incidence of seafood purchases), and stories from the media about seafood (positively contributed to seafood purchases). In the perception model, only 9% of the respondents indicated that the health and nutritional value was a major perceived reason for their buying hybrid striped bass. The variables that influenced health and nutritional value as a perceived attribute for hybrid striped bass were race (non-caucasians having a positive impact), location of residence and knowledge that the fish is farm-raised (positive impact), and experience (a consumer who has purchased seafood products in general will more likely perceive hybrid striped bass as having a health and nutritional value). Only 11% of the respondents indicated that variety of diet was one of the important aspects of their decision to eat hybrid striped bass. The knowledge that hybrid striped bass is farm-raised and experience with seafood products significantly affected this particular perception. Similarly, around 10% of the respondents answered affirmatively when asked whether taste was a major reason for consuming hybrid striped bass. This perception was significantly influenced by age (consumers between the ages 20 to 40), knowledge that hybrid striped bass is farm-raised, and having experience with seafood products. In the easy to prepare perception model, only 5% of the respondents indicated that hybrid striped bass was easy to prepare. This perception was affected significantly by age (consumers between 40 and 60 years of age did not agree with this perception), knowledge that hybrid striped bass is farm-raised and having experience with seafood products. At least 23% of the respondents indicated that one or more individuals in their household has consumed hybrid striped bass. The variables that were found to positively influenced the respondents' preference for hybrid striped bass were knowledge that hybrid striped bass is farm-raised, having a perception

325 that hybrid striped bass adds variety to diet and is healthy and nutritious, and good taste. In the choice model, approximately 77% of the respondents noted that they have not purchased hybrid striped bass. Thus, hybrid striped bass is currently not part of the evoked set of a large proportion of the respondents. Caucasians were found to be less likely to purchase hybrid striped bass while the attributes of farm-raised, healthy, good taste, and easy to prepare, and having experienced seafood in general contributed to the likelihood of the respondents in consuming hybrid striped bass. In a much larger study, Nauman (1995) compared three finfish products (salmon, trout, and hybrid striped bass) and three shellfish products (mussels, clams, and oysters) using the same survey data set. By far, hybrid striped bass was found to be the least popular among the respondents. In fact, hybrid striped bass rated only slightly higher than tilapia, which was dropped from the study due to insufficient response. It is interesting to note that these two finfish products are incidentally very popular with aquaculture producers in the Mid-Atlantic region. A survey of potential and current producers in Delaware and Maryland conducted by Bacon et al. (1993) showed that catfish followed by hybrid striped bass, trout, crawfish, and tilapia were the preferred species for culture by current and potential producers. Thus, awareness and acceptance of hybrid striped bass by consumers is going to be essential to the successful development of this industry. 12.5.2 Marketing Implications It has been optimistically projected that per capita consumption of seafood products will continue to increase in the future. Several reasons have been offered to support this assertion. First, the aging of the American population will contribute to increased seafood consumption given health and nutrition concerns. Thus, the trend away from red meat to seafood and poultry as sources of low fat animal protein is expected to continue. Second, the minority population in the U.S., particularly Asians and Hispanics, are the fastest growing groups of the U.S. population. These minority groups generally rely heavily on seafood products for their daily diet. Third, a working population depends more on fast food products. Seafood has been identified as a natural fast food and is served readily in fast food restaurants or for dinner at home. Finally, continued improvements in the distribution of food products in general should have beneficial effects in the provision of consistent supply and good quality seafood products across the nation. These factors all point to a continued growth in the demand for seafood products. In addition, the nation's growing trade deficit has already been identified as another major reason for the expansion of the aquaculture industry due to the current huge U.S. seafood imports. It has been estimated that the U.S. may depend on imports for as much as 80% of its seafood consumption in the year 2000 unless domestic aquaculture expands rapidly (Egan, 1990). What do all these trends mean for hybrid striped bass? One can surmise that it offers a good outlook for the growth of the hybrid striped bass industry. However, there are barriers that need to be surmounted by the hybrid striped bass industry. As shown in past marketing studies dealing with hybrid striped bass, there are at least three major problems that need immediate attention. The first problem deals with familiarity. Consumers are not familiar with the species. Hybrid striped bass producers have to implement effective marketing or advertising strategies in order to promote hybrid striped bass. One might argue that all fish are the same similar to the idea that chicken products are generally homogeneous. But it is also possible to follow what Perdue Farms has done in advertising their chicken products as better with their flesh, yellow appearance. A similar product differentiation strategy can be adopted by hybrid striped bass producers in order to position the species as "different" from other seafood products.

326 The second problem identified in previous marketing studies is consistent supply and quality. This is a very critical element in any successful marketing strategy. Unless producers are able to supply good quality hybrid striped bass on a consistent basis, it would be difficult for restaurants, wholesalers, and retailers to promote the product vigorously. Finally, a third problem in the marketing area for hybrid striped bass is high price. Due to rapid changes in required production technology and continued innovation in the development of an efficient and environmentally-sound system of production, hybrid striped bass production costs are relatively higher compared to other traditional seafood, poultry, and red meat products. The American consumer is generally price sensitive particularly for products that are not traditionally served on a frequent basis. With a high price, consumers are not given the chance to "experience" the product so that positive "perceptions" on hybrid striped bass can be developed. It would seem that these problems are difficult to solve. However, statistics 'show that hybrid striped bass production has risen rapidly in the Northeast region (Bush and Anderson, 1993). This increasing production trend will allow consumers to "experience" hybrid striped bass and perhaps result in the willingness of consumers to try it again. This was shown in the Fuller et al. (1990) study wherein 86% of the consumers served hybrid striped bass were willing to try the fish again. With a high consumption repeat rate for first time consumers, the hybrid striped bass industry may have the potential to succeed in the future.

327

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