SOME ECONOMIC ASPECTS OF INTEGRATED LIVESTOCK-FISH FARMING IN SRI LANKA

Oscar Amarasinghe
University of Ruhuna,
Matara, Sri Lanka.

ABSTRACT

In terms of the fixed costs associated with animal and fish farming components of an integrated livestock-fish farming system, Sri Lanka, in early 1980's, was able to maintain low production costs by heavily subsidizing them. However, along with the withdrawal of state sponsorship to inland fisheries, cost of production increased, thereby making these farming systems less attractive and less profitable. One way of circumventing this problem is the formation of Inland Fisheries Cooperatives in the country which can not only remedy those problems arising withdrawal by the state, but can also lead to increased profits from both livestock and fish enterprises, through their large scale operations.

INTRODUCTION

It has now been well demonstrated that integrated livestock-fish farming is one strategy that can be adopted by small farmers in many developing countries to increase farm returns from per unit area of land. Moreover, integrated farming is a way by which a farmer insures himself against the risk of falling into crises of subsistence since he is able to spread the risk of production over several activities. Because animal and fish production activities are not usually charaterized by co-variant risks, the farmer is able to stabilize intertemporal flow of total daily incomes. It is also well known that integrated farming facilitates productive use and recycling of wastes.

Integrated livestock-fish farming is not widespread in Sri Lanka, but early 1980's saw the gradual spread of this farming system in the country, although the absolute number of such farms remained quite low. Several loan schemes were established by the state to help farmers to take up animal farming, and under many foreign-funded projects animals were issued to farmers even at a zero charge. For raising of fish in ponds, a pond subsidy was granted by the state and fingerlings were sold to farmers at a nominal price by the state fisheries research stations located in various parts of the country. However, this wave of expension was broken off in 1990, when the government announced that it was withdrawing its sponsorship to inland fisheries. This move by the government was stemmed from the pressure exerted by the Buddhist clergy in the country, who during the past two decades, had frequently objected to the rearing of fish for consumption. Following this move, the pond subsidy was withdrawn and the state-sponsored inland fisheries research stations ceased to function.

The immediate consequences of the withdrawal of state help to the inland fisheries sectors are the increase in the cost of pond construction and the non-availability of fish fry for culture purposes.

In this paper, it is intended to show how the present problems could be surmounted, assuming that recent changes in the state policy did not follow from a change in the attitudes of the Sri Lankan people towards inland fisheries or livestock-fish integrated systems. In order to achieve the objective, first the various costs and returns associated with integrated farming are enumerated and those items that need attention in the context are emphasized. In the second part of the paper, the model of a cooperative of inland fishermen as a means of circumventing some of the problems that emerged following state withdrawal is described.

COSTS AND RETURNS IN LIVESTOCK-FISH INTEGRATED FARMING SYSTEMS

Since profitability of a particular enterprise depends on various costs and returns associated with it, it is necessary to identify the various cost and returns associated with integrated livestock-fish farming systems in order to find out the various forces that influence them and to subsequently find out means of increasing the profitability of the system.

The profit function of an integrated livestock-fish system can be written, in a very general form, as follow:

π = (P₁. Y₁ + P₂. Y₂) - (C₁ + C₂)....................(1)

(π = profits; P₁ & P₂ = unit price of animal produce and fish respectively; Y₁ & Y₂ = animal and fish output respectively; C₁ & C₂ = cost of production of animal and fish respectively).

The levels of Y₁ and Y₂ in equation (1) depend on various biological and technical factors such as stocking rate, growth rate, nutrition, management, technological developments, etc. P₁, P₂, C₁ and C₂ are economic variables, whose magnitudes depend on various economic factors. If the object of farming is profit maximization, then obviously one has to maximize the difference between the revenues (P₁. Y₁ + P₂ . Y₂) and costs (C₁ + C₂). Leaving the ways and means of increasing Y₁ and Y₂ to the biologist, agriculturist, fisheries scientist and animal scientist, I, as an economist, would like to concentrate on prices of products (P₁ and P₂) and cost of production (C₁ and C₂).

Prices

Due to the increasing demand for animal proteins, together with the slow growth in the supply of animal products, the prices of animal products have remained quite attractive to the Sri Lankan farmer. However, this statement is not true in the case of inland fisheris because of the low prices received for freshwater fish as against marine fish (Chandrasoma, 1988). Price of freshwater fish has remained low mainly due to two reasons, firstly, poor marketing system and, secondly, low market demand.

Almost all freshwater fish produced are sold within the producing areas and they rarely find their way to urban markets. This is mainly due to the highly perishable nature of freshwater fish on one hand, and the lack of a proper marketing system on the other. The marketing system for marine fish is well organized since the merchants who purchase marine fish from the ‘producer’ are confronted with less price uncertainties and face low physical risk of quality deterioration than those engaged in the marketing of freshwater fish. Moreover, fish buying activities can be better organized in marine fishies since all marine fishing villages are concentrated along the coastal belt of the country. The freshwater fishermen, in contrast, are dispersed all over the country and fish assembling is therefore difficult. When fish merchants are reluctant to invest in the marketing of freshwater fish, the producers are forced to make their own arrangements for marketing. Since they are not specialized agents, marketing is usually done within the producing area where the supply is high and the demand low. Therefore, the price received for freshwater fish is low.

It is also true that the urban consumer prefers marine fish to freshwater fish and usually the price he is willing to pay for a unit of freshwater fish is approximately half that which he is willing to offer for marine fish. This is partly due to tradition and partly to the urban value system. One way of circumveting this problem is by popularizing freshwater fish among Sri Lanka urban consumers through consumption promotion campaigns. On the other hand, as is elucidated later, a cooperative arrangement may prove very useful in increasing the efficiency of the present marketing system.

Cost of production

A breakdown of all major cost items included in the cost of production of animal produce and fish in an integrated livestock-fish farming system is given in. Table 1.

Fixed costs:-

Fixed costs in the animal rearing component of a livestock-fish integrated system consist of those costs incurred from the construction of animal houses and purchase of equipment, the former being the largest cost item. This is especially true if the animal enterprise in the system is either rearing of cattle (under zero grazing) or pig keeping, which require strong sheds. However, this cost is lower if the animal enterprise is poultry and if low-cost locally available building material is used. Low capital cost may be one reason for the adoption of poultry-cum-fish integrated farming system in Sri Lanka, which is the only type of integrated system present in the country.

Table 1. Cost of production of an Integrated Livestock-Fish Farming System

N.B. Only the major cost items have been considered.
Assumptions: No supplementary feeding of fish is practiced

It is important that further research be carried out towards the designing of low-cost animal houses which may boost the development of animal farming in Sri Lanka, especially in small-scale farming where the cultivators have limited access to capital markets.

The other capital cost item in animal farming is the cost of equipment. This is not a major cost item in small sale production since here small equipments rather than heavy machineries are of concern.

The fish farming component of an integrated system requires the construction of a pond which is the most important fixed cost in fish culture. The State's active encouragement of the development of inland fisheries since 1979, along with the granting of pond-construction subsidies and a 90 % subsidy on the purchase of fishing gear to fishermen can be considered as the major factor responsible for the growth of pond culture (and inland fisheries) in the country in early 1980's. It is thus apparent that fixed costs was not a barrier to the development of pond culture although their magnitude may have limited the rate of adoption of animal enterprises. However, if one assumes that integrated livestock-fish systems are means by which farmers can combine their already existing animal enterprises with fish cultures in order to put animal wastes into productive uses and to increase net farm returns, then one could say that the fishery-support services existing in the country in the 1980's were quite conductive to the successful adoption of livestock-fish integrated systems, in terms of the fixed costs involved.

Variable costs:-

Variable costs in the livestock enterprise in an integrated system are those costs incurred from the purchase of animals and feed, and from labour payments. An array of state and private farms, and special animal projects in the country have been responsible for the provision of the animals to needy farmers and the Ceylon Oils and Fats Corporation supplies most of the animal feed to the producer. Many private individuals too are involved in the feed mixing business. Despite this, the cost of animal feed has been on the rise throughout the past two decades and this has posed an obstacle for the development of animal farming in Sri Lanka, especially in the case of the small farmer who finds it uneconomical to prepare his own ration.

Many small-scale farmers employ only family labour for production activities and therefore, cost of labour does not form an important variable cost.

Transport costs is another variable cost which can be quite high if the producer lives far away from the input suppliers and the market where his product could be sold.

Variable costs in pond culture include those incurred from the purchase of fish fry, labour payments and transport cost (assuming that water is freely available). Fingerlings were supplied to farmers at a subsidized price by the state-sponsored fisheries research stations and they were delivered to the farmer. Therefore, farmers did not have to incur high costs on the transport of fingerlings, although the price of fingerlings would have contained an implicit transport charge. Fish fry of export varieties were also supplied by private hatcheries.

In an integrated farming system, the farmer is able to allocate labour among the varying demands more efficiently. Assuming that family labour forms the major category of labour employed by the small farmer, it is not incorrect to say that labour cost does not form a major cost component in the variable costs.

As it is well evident from equation (1), costs (C₁ + C₂) should be minimized if the object of production is profit maximization. Of course, low-cost animal houses and low-cost fish ponds as a result of state subsidies have helped to minimize the fixed costs. Moreover, supply of fish fry at a nominal rate by state fisheries research institutes have kept the variable costs in pond culture component to a minimum. While feed may form a major variable cost item in pond culture alone, we assume that in an integrated system, no supplementary feeding of fish is practised.

FORMATION OF INLAND FISHERIES COOPERATIVES

In this section an attempt is made to show the importance of the organization of ‘producers’ into cooperatives in order to develop protein production systems such as livestock-fish integrated systems.

The term ‘cooperative’ is open to many different interpretations ranging from the simplest ‘group of people who have agreed voluntarily to work together towards achieving a specific objective through a variety of increasingly more formalized structures’ to one which is largely constituted to the cooperative laws of the country (COPAC, 1984). While the basic objectives of forming cooperatives in general have been given as, (i) to increase the income; (ii) to increase the living standards of producer-members, and (iii) to increase the supply of animal proteins to the country's population, the functions of a particular cooperative represent attempts made at satisfying certain needs that have been identified as barriers to the development of the particular sector (Amarasinghe, 1988).

In the present context, one may emphasize the formation of inland fisheries cooperatives because it is in that sphere of activity that problems are encountered by producer, and not in animal farming.

The modern cooperative movement in Sri Lanka had its beginnings after 1912 with the emergence of rural credit societies. History of Fisheries Cooperative proper in Sri Lanka dated back to 1940's, but the emphasis has always been on marine fisheries subsector. The advantages of promoting cooperation among fish farmers are many folds but the major benefits accured from Inland Fisheries Cooperatives are elucidated below.

Scale Economies

Formation of a cooperative enables fishermen to realise economies of scale which they cannot otherwise enjoy under individual management of their farming enterprises. Scale economies are particularly associated with transport costs. In fact, C₁ and C₂ in equation (1) are a function of Y (Y₁ and Y₂), where average and marginal costs are decreasing over the relevant range due to economies of scale. Scale economies in transport arise from indivisibilities of the capacity of transport equipment. Therefore, by handling a large amount of produce and inputs, a cooperative is able to bring down cost of transport per unit of produce handled, which amounts to bringing down C₁ and C₂.

Marketing Organisation:

Organized marketing of produce can be undertaken by a cooperative, whereby the produce of the members could be sent to distant urban markets, especially those located interiorly, away from marine fish landing centers (in insulated fish vans), where the demand is relatively high. The bargaining power of the fishermen vis-a-vis the merchants could be increased by group bargaining. These measures amount to increasing P₁ and P₂ in equation (1).

Labour in Cooperation

High cost of labour in pond construction can be reduced by adopting methods such as ‘labour in cooperation’ or ‘labour in kind’, similar to what is being observed in paddy transplanting and harvesting. In this case, the member of a cooperative will be helping each other in the construction of fish ponds. In a context of high pond construction costs, such practices may help the producer to maintain low fixed costs.

Provision of credit

Cooperatives can be also promote savings among producer-members and such savings can be channelled back to producers as loans. These loans are of paramount importance to the small-scale producer, given that his access to capital market is limited. Moreover, members of a cooperative can offer group guarantees as collaterals in obtaining loans from other lending institutions. Cooperatives can even offer consumption loans to the needy members which can be considered as a form of ‘crises insurance’.

Input Supply

Accumulated profits of a cooperative can be reinvested to enlarge the sphere of activity and cooperatives can expand so as to be able to maintain breeding stocks of animals and even hatcheries for the production of fish fry. These measures will have a positive influence on profits since they amount to lowering the cost of production and minimizing production risks.

Cooperatives, with their large scale operations, can contribute to the development of livestock-fish integrated system by undertaking feed mixing at village level. A small feed mixing plant operated by a cooperative can undertake the responsibility of providing the members with the required quantities of feed at considerably low prices than the open market and this will greatly reduce variable costs of production. Possibilities also exist for the cooperatives to take up processing of produce and supplying processed products to the urban consumer thereby earning additional profits. Provision of extension services by non-government bodies and universities is also easier when farmers have organized themselves into groups.

The idea of Inland Fisheries Cooperative theoretically seems encouraging and easy to establish but as has often been proved may be difficult to implement in practice. Experience with marine fishery cooperatives have shown that they failed to attain their objectives due to high political interference and bad management. In fact, they became state controlled cooperatives rather than fishermen organizations. But, since the state will no longer extend support to inland fisheries, and since a need has emerged to remedy problems stemming from state withdrawal, the time has arrived for the promotion of group arrangements among fishermen. In this regard, nongovernmental organizations and universities have an important role to play to bring the fishermen together to form village level institutions such as cooperatives.

REFERENCES

Amarasinghe O. (1988) Impact of Market Penetration, Technological Change and State Intervention on Production Relations in Maritime Fishermen Communities: A Case Study of Southern Sri Lanka (Unpublished Ph. D. thesis, Facultes Universitaires N-D De La Paix, Namur, Belgium).

Chandrasoma J. (1988) ‘Observations on Marketing of fish produced in seasonal tanks’, J. Inland Fish. Sri Lanka 4, 63–67.

COPAC (1984) Small-scale Fisheries Cooperatives -some lessons for the future (COPAC occasional paper No. 2, FAO, Rome).