Marine aquaculture production in open cage systems benefits from inflow of large quantities of sea water, but the open cage technology also means that it is simultaneously a potential source of fish diseases and environmental pollution. Aquaculture companies operating in a common ocean pool thus have potential negative external effects on each other, as well as other stakeholders. In principle, externalities can be regulated by government through taxes or quotas on environmental emissions. However, for fish health externalities such instruments may be less effective. This paper analyses government mandated partnerships as an alternative tool for achieving socially efficient or desirable outcomes. The case we analyze is offshore salmon aquaculture which, as illustrated by the figure below, is structurally different from conventional inshore aquaculture with respect to several important characteristics. We argue that the combination of externalities, large-scale investments and risks provide a rationale for mandated partnerships in offshore aquaculture.
Several market failures and other factors can influence the rationale and design of partnership agreement in an offshore aquaculture area: Externalities (e.g. fish diseases and sea lice), common infrastructure (e.g. vessels and marine surveillance), large-scale value chain investments, risk aversion and financial risks, and access to financing. Rationale of mandatory as opposed to voluntary partnerships is (1) asymmetric information between firms and (2) transaction costs in designing ankd enforcing a contract.
By utilizing lessons from offshore petroleum extraction and knowledge about the specific characteristics of offshore aquaculture we discuss design and propose parameters for a partnership agreement. This includes roles, responsibilities, and share of costs and revenues among the partners in a license. The agreement covers several critical aspects, which we discuss in greater detail: (a) Scope of agreement wrt. assets, investment activities, operational activities, incidents, (b) cost and revenue sharing, (c) operational roles and responsibilities of operator and partners, (d) decision-making processes and procedures, (e) compliance with license obligations (e.g. environmental and safety regulations, and reporting requirements), and (f) conflict resolution mechanisms between the partners.