Effects of COVID-19 on U.S. Aquaculture Farms

1 INTRODUCTION

On January 20, 2020, the United States of America (U.S.) reported its first confirmed case of the novel coronavirus disease 2019n-CoV (COVID-19) (Holshue et al., 2020). The declaration of a national emergency on March 13 by the U.S. government triggered a cascade of actions and measures that spread across the nation, as citizens and governments responded to protect public health (CDC, 2020; Office of the Federal Register, 2020). A critical element of this response was the closure of non-essential business and the implementation of social distancing policies to prevent the further spread of COVID-19 (Prem et al., 2020). Agriculture and food production, including aquaculture, were formally defined as essential services by the Department of Homeland Security (DHS), and the operation of farms could continue (DHS, 2020). Reports have begun to emerge on the effects of COVID-19 on various sectors of agriculture, including various grain crops, forestry and wood products, and the meat processing industry, among others (Lusk et al., 2020). Most of these reports have relied on analyses of ongoing data series compiled by USDA and other agencies. There are no equivalent data reporting systems in place for U.S. aquaculture. Moreover, aquaculture is unique because it produces aquatic animals that must be handled and treated differently during production, transportation, and sales. Despite the continuation of operations, the U.S. aquaculture industry has suffered economic hardships because of the COVID-19 pandemic, primarily from the loss of major market channels and the interruption of other related economic sectors. In response to troubling communications from industry members, a formal investigation was launched to document and assess the effects and impacts of COVID-19 on the U.S. aquaculture and aquaponics industry. This paper summarizes the effects reported by U.S. aquaculture producers through a national survey and discusses the implications of these effects on the industry. This study will continue to collect data from producers quarterly throughout 2020; the results summarized and discussed here are from the first quarter survey, covering the period from January 1 to March 23, 2020 (van Senten et al., 2020a, 2020b, 2020c).

Globally about half of all seafood is produced by aquaculture, estimated to be 114.5 million metric tons live weight and $263.3 billion in farm gate value in 2018 (FAO, 2020). In 2017 the U.S. was ranked 17^th among global aquaculture producing countries, having produced 284 thousand metric tons of marine and freshwater products (NMFS, 2020). U.S. aquaculture production had an estimated value of $1.46 billion in 2017, accounting for 21% of total U.S. seafood production value (NMFS, 2020). Although considered to be only a minor producer, the U.S. was the largest importer of seafood products in 2017, with approximately 90% of all seafood consumed, by weight, imported from abroad (NOAA, 2020). The U.S. aquaculture industry is highly diverse, encompassing the production of aquatic animals (and plants) for human consumption, recreation, conservation, ornamental purposes, and research. Aquaculture also supports the U.S. commercial fishing industry, with approximately 40% of all salmon caught in Alaska and 80–90% of Pacific Northwest salmon originating from hatcheries (NOAA, 2020). The primary segments of U.S. freshwater aquaculture are catfish, crawfish, and trout; whereas mollusks (oysters, clams, mussels) account for the largest segment of marine aquaculture production. Notably, the majority of U.S. aquaculture consists of family owned and operated farms that are classified as small business entities. One factor responsible for much of the economic hardship experienced by producers because of COVID-19 is that the majority of seafood (68%) in the U.S. is consumed outside of the home (NMFS, 2018). According to the 2018 USDA Census of Aquaculture, most segments of U.S aquaculture demonstrated low percentages of product sold directly to consumers; as was the case for foodfish (2%), sportfish (3%), and mollusks (4%) (USDA, 2019). Therefore, the closure of restaurants and food service establishments has had severe consequences for the U.S. aquaculture industry. The structure of market channels for aquaculture is an area that warrants further investigation to identify specific vulnerabilities and opportunities for improved resiliency and risk reduction in light of the COVID-19 pandemic.

2 METHODS

University-imposed restrictions on travel and research activities with the public, meant that the only viable option for disseminating a national survey in an accelerated time frame was to use an online distribution method. The survey instrument was developed in Qualtrics® (Seattle, Washington) and distributed via e-mail in collaboration with national, regional, and species-specific aquaculture industry associations and Extension agents. Respondents self-selected for participation, and there was no probabilistic sampling method used due to time constraints and challenges with establishing contact lists of producers nationwide. The survey instrument underwent a development and review process to ensure that it was “respondent friendly,” contained a welcome screen with instructions for respondents, presented questions in a conventional format, limited the length of questions, provided specific instructions on how to answer each question, and adhered to other guidelines as set forth by Dillman et al. (1998). Although on an accelerated timeline, the survey instrument did undergo a process of expert review, pretesting and revision, and IRB review (IRB#20–294). The survey instrument did not capture any personally identifiable information, and all individual responses were treated as confidential. The Quarter 1 survey covered the period from January 1 to March 23, 2020; the day the survey instrument was launched. Dissemination of the survey took place primarily via e-mail. The study was also advertised on social media platforms (including LinkedIn, Facebook, and Twitter). Following the initial announcement of the survey, two reminder notices were disseminated using the same distribution channels; the first reminder about halfway through the data collection period, the final reminder 2 days before termination of the survey on April 10. Survey responses were exported from Qualtrics® to Microsoft Excel® for further analysis and manipulation. Responses were screened, coded, and summarized using Microsoft Excel®.

The United States Department of Agriculture (USDA) announced the Coronavirus Food Assistance Program (CFAP) on April 17, 2020, following the closure of the survey. Given that no industry average price indexes are available for U.S. aquaculture, USDA published a request for “information in order to evaluate whether additional commodities suffered losses that should result in eligibility for CFAP” in the Federal Register on May 22, 2020 (Federal Register Notice 85 FR 31062–31,065). Aquaculture was included in this request for additional information. Industry stakeholders, led by the National Aquaculture Association, contacted the research team to see if survey responses could be used to estimate losses on aquaculture farms. Quarter 1 survey respondents had reported both lost sales due to the business closures during the shutdown and average total annual sales. To estimate the loss in value to aquaculture producers from COVID-19, the total lost sales reported by each individual observation in each species group category were divided by the total annual sales reported by that respondent. Given that the survey question requested ranges of values for both lost sales and total annual sales, the midpoint value for each range was used in the calculations. The percent losses in sales were then averaged across all observations within that species group. Because the USDA CFAP program was announced after the Quarter 1 survey had closed, respondents had no reason to believe their responses would influence policy or government payments.

3 RESULTS

3.2 Disruption of traditional marketing channels

Eighty-four percent of respondents reported having experienced lost sales as a result of the COVID-19 pandemic during the first quarter of 2020 (Figure 1). Respondents reported lost sales to domestic markets, cancellations of private contracts, cancellations of government contracts, and lost sales to international export markets in varying degrees across the segments of U.S. aquaculture. In a few instances, individual respondents reported lost sales to be greater than $1 million for the first quarter of 2020 (Figure 2). Eighty-six percent of respondents indicated that they expect to experience further lost sales due to the COVID-19 pandemic in 2020. Other impacts of the lost sales include social effects related to the cultural importance of the supply of live fish products (such as hybrid striped bass, largemouth bass foodfish, red drum, carp, and tilapia sold as foodfish) to various ethnic groups.

A cross tabulation of respondent primary marketing channels and their reported impacts to marketing channels (lost sales and canceled contracts) is reported in Table 2. Greater percentages of respondents who sold to distributors and restaurants reported being impacted by COVID-19 than those who sold to other market channels. In addition, those who sold to distributors and restaurants also reported greater lost domestic sales and more canceled private contracts. Most foodfish supply chains involve sales from farms to processing plants that then sell to distributors and food service companies, who then sell to either retail grocery stores/supermarkets or to restaurants. Few respondents sold to grocery stores/supermarkets as a first point of sale. Lost sales very quickly rippled down from processors to farms who then reported high rates of lost sales. Interestingly, although there have been general reports of increased sales in grocery stores/supermarkets, these survey results showed that aquaculture respondents who sold directly to grocery stores/supermarket were also impacted strongly by the shutdowns (83% were impacted by COVID-19), although the percentage of those reported being impacted was greater for those respondents who sold primarily to other channels (99% to distributors, 96% to restaurants, and 86% to processors). Of these impacts, a smaller percentage of those who sold to grocery stores/supermarkets reported losses of domestic sales (67% as compared to 74% to 100% of respondents who sold to other categories) and also losses in terms of canceled private contracts (80% as compared to 83% to 94%). Respondents reported difficulties in pivoting to retail grocery/supermarket sales in the form of existing contractual obligations, trucking quotas, packaging and inspection requirements, and other constraints to increasing or pivoting sales to retail groceries/supermarkets.

TABLE 2. Primary marketing channel and marketing channel impacts reported by respondents in quarter 1, 2020 due to COVID-19

Marketing channel	Impacted by COVID-19	Lost domestic sales	Lost international sales	Canceled private contracts	Canceled government contracts
Direct to consumer	81%	79%	17%	75%	15%
Processor	86%	79%	19%	72%	7%
Distributor	99%	100%	31%	94%	7%
Restaurants	96%	96%	11%	83%	4%
Grocery stores/ supermarkets	83%	67%	38%	80%	10%
To other producers	91%	74%	48%	88%	13%
Other	90%	58%	28%	67%	7%

Lost sales were tabulated as a percent of total annual sales by aquaculture segment. Based on these estimates, tilapia suffered the greatest lost sales as a percent of total annual sales (38%), followed by crustaceans (29%), ornamentals (24%), finfish sold as live foodfish (21%), trout sold for foodfish (19%), trout sold for recreational fishing (13%), and sportfish (13%). For many sectors of U.S. aquaculture, such as mollusks, trout, sportfish, and baitfish, spring is the peak marketing period when many producers obtain the best prices for their products. The months leading up to Lent (Quarter 1) are some of the most important sales months of the year. Thus, the sales lost in Quarter 1 due to the pandemic constitute a proportionately greater percentage of total annual sales than if the losses had occurred at a different time of the year.

Hatcheries/seedstock suppliers were also impacted by the economic shutdowns, particularly through disruption of supply chain logistics such as air freight and other transportation sector limitations. Hatchery/seedstock suppliers in the aquaculture industry sell eggs, fingerlings, and other seedstock without which foodfish producers would not be able to supply customers. Disruptions to these businesses will have consequences for the future supply of seedstock to growout farms.

Respondents were also asked how long their business could survive without sales before suffering longer term cash flow effects. Forty-three percent of survey respondents indicated that they could survive a period of no sales for 1 to 3 months before suffering long term cash flow effects; but, there was variability across the responding segments of aquaculture (Figure 3).

4 CONCLUSION

The critical need to obtain information on how aquaculture was being affected by COVID-19 necessitated an online, self-selection process for survey administration. Although every effort was made to distribute the survey widely across U.S. aquaculture, it is possible that the findings of this study are skewed toward farms and businesses that have been affected more negatively by COVID-19; results should be interpreted accordingly. However, there were a few respondents (3%) who had not been affected by the COVID-19 pandemic. Given the high dependence of aquaculture products generally on restaurant and other in-dining establishments, it is plausible that non-respondents experienced similar impacts, in terms of the disruption of traditional marketing channels; challenges with farm labor; and challenges with inputs, goods, services, and management of increased inventories of unsold market-ready product.

Similar to effects described on other sectors of agriculture, lost sales and canceled contracts experienced by the U.S. aquaculture industry were primarily the result of disrupted traditional marketing channels due to closures of restaurants and food service establishments. Disruptions at seafood processors, due to fears of COVID-19 outbreaks, likely also played a role in reduced farm sales. With the majority of U.S. seafood consumption occurring outside the home (NMFS, 2018), the magnitude of the reported lost sales during the peak sales period of the year is not surprising. Moreover, the cascading effects of market channel disruptions and the resulting loss of revenues during Quarter 1 of 2020 are therefore likely to present the U.S. aquaculture industry with continued challenges for the duration of 2020. Continued Extension and outreach communications with aquaculture producers during the second quarter have revealed that several farms and businesses are in the process of establishing new direct-to-consumer marketing channels. Future iterations of the survey instrument will inquire about adaptations and the implementation of new marketing channels.

Farm labor impacts were driven primarily by the resulting loss of revenue from marketing channel disruptions. In addition to terminations and temporary loss of employees, respondents also reported salary cuts for owners and management positions. Several respondents raised concerns about the loss of specialized and skilled labor, describing an inability to manage production or processing activities because of a reduced labor force. Survey respondents also expressed concern about the health and well-being of their employees, noting efforts to implement revised protocols to allow for social distancing and purchasing additional COVID-19 related personal protective equipment. Unless revenue generation at the farm level improves, it is unlikely that the employment outlook for U.S. aquaculture will improve. Survey respondents (26%) have already indicated potential additional terminations, and the effects of reduced employment are likely to cause additional operation and management challenges for production and marketing.

Beyond the challenges already experienced by U.S. aquaculture producers, 47% of respondents also indicated that they expected to experience further production-related challenges in 2020 due to COVID-19. In comments provided by survey respondents, farms noted that holding inventory of market-ready products will interfere with their ability to start production of future crops. This would suggest that the disruptions caused by the COVID-19 pandemic may result in reduced product availability of U.S. aquaculture products beyond 2020, as some crops take multiple years to reach market size. Due to the high degree of variability in the U.S. aquaculture industry, the specific challenges faced by respondents vary across the different segments of aquaculture and marketing channels. However, it is evident that the closures of other businesses (deemed non-essential) have and will continue to have an impact on U.S. aquaculture producers.

This survey was conducted before the CARES Act and other relief programs were implemented. At the time this paper was written, the extent of the benefits deriving from the CARES Act were unknown. The Quarter 2 follow-up survey will elicit information on the extent to which U.S. aquaculture producers were able to participate in relief programs and to what extent they were helpful.

The highly diverse nature of the U.S. aquaculture industry results in a large variety of specific challenges and impacts resulting from the COVID-19 pandemic and the related response measures implemented to protect public health. These impacts and effects can be summarized into the four categories discussed in this paper: (1) the disruption of traditional marketing channels and resulting losses in revenue; (2) effects on farm labor; (3) challenges with inputs, goods, and services provided by other sectors of the U.S. economy; and (4) management challenges from holding market-ready aquaculture products on farm. Thirteen percent of Quarter 1 survey respondents indicated that their farm or business would not survive 3 months without external intervention, increasing to 32% when the term was increased to 6 months without external intervention. The findings of the Quarter 1 survey have confirmed the need to carry forward this assessment for the duration of 2020. Although this study was initiated with the intent to assess the short and medium-term implications for U.S. aquaculture, these data may also be of value in assessing vulnerabilities and opportunities for adaptation to reduce risk and improve the resiliency of U.S. aquaculture. Given what we have learned about the impacts of COVID-19 in Quarter 1 of 2020, it is safe to conclude that there will be longer term economic effects for the U.S aquaculture industry.