The biological production process of farmed salmon is highly vulnerable due to biophysical shocks, including sea temperature changes, fish diseases (especially sea lice infection), and toxic algae. Meanwhile, environmental externalities of salmon farming trigger stringent regulations, influencing production costs and profitability. This study first reviews studies on the impact of biophysical factors on the profitability of salmon farming companies. Then we evaluate the impact of biophysical factors and environmental regulations on sustainable earnings using the industry benchmark. In particular, we explore the differences in sustainable earnings for small and large firms.
We estimate the deviation from sustainable earnings (DSE ) against biophysical factors and firm size (Model 1 in Table 1) and interaction terms between them (Model A2-A5 in Table 1). Our empirical results indicate that diseases and capacity utilization under output restrictions-based regulations influence sustainable earnings but with differing impacts on small and large firms. While capacity utilization causes a positive deviation of large firms’ gross profit from the industry norm, its impact is ignorable for small firms.
From the empirical results, we formulate managerial and policy-relevant recommendations for the salmon farming industry to improve profitability and, meanwhile, pursue sustainable development.