Econometric Analysis of Innovation, Productivity, Growth and Efficiency: Applications for the Norwegian Salmon Farming Industry

Abstract

Although salmon farming in Norway has a relatively short history, it has developed into an important export industry for the national economy. The industry has experienced large growth in production volume; production has increased from a few thousand tons in 1980 to over 1.3 million tons in 2014. An important driver for this development has been extensive technological improvements and strong productivity growth leading to reduced production costs and improved competitiveness. A key feature for cost reduction has been better and cheaper inputs. After feed, smolt is the most important input factor in salmon farming. Smolt production has experienced rapid technological progress since the industry first stated in the 1980`s. Most of the cost savings due to productivity increase in juvenile production has been passed on to the grow-out farms in the form of lower smolt prices. This has made Norwegian salmon more competitive relative to other food producers. Hence, salmon farming is an example of an industry where technological improvements have led to productivity growth and increased competitiveness. Norwegian salmon aquaculture provides a highly relevant case in the study of innovation and economic growth.

The purpose of this thesis is to highlight the relevance of innovations in salmon production by measuring their economic effects. This is addressed by focusing on economic drivers in the industry using econometric productivity and efficiency analysis. I have used several measures to investigate and compare the performance among firms and regions over time. Among these are productivity growth, technological change, efficiency and economies of scale. The econometric analyzes uses translog production and cost functions to investigate the production technology. My thesis indicate that the substantial productivity growth in smolt production has contributed significantly to improved competitiveness of the salmon industry. However, the results shows that productivity growth in juvenile production has slowed down, and actually become negative some years. Furthermore, the econometric analysis indicate that not all firms in the industry are operating on the technically efficient frontier. In this respect, the geographic region for smolt production matters, since some regions tend to have higher production costs than others. In addition, the analysis finds econometric support for the existence of a learning-by-doing effect in juvenile production, suggesting that older firms perform slightly better than new ones with respect to technical efficiency. Finally, an analysis of salmon farming globally shows that the degree of concentration has increased in all the five leading producing countries. The large firms have become bigger over time. This thesis falls in line with a large collection of economic research on the Norwegian salmon industry. The literature on productivity growth in the grow-out phase of salmon has got substantial attention. However, so far there has been paid less attention to productivity growth among the suppliers. Since juvenile freshwater production is crucial for further sustainable growth, it is my hope that the insights and results from this thesis will be of interest. Although the results apply specifically to salmon aquaculture, most aquaculture producers are exposed to similar types of regional differences and biological shocks. Therefore, the results of the analysis should be relevant to other aquaculture species as well.