On the impact of biological risk in aquaculture valuation and decision making

We explore the impact of stochastic mortality, health, and parasites on animal-based commodities risk management, with a specific emphasis on salmon aquaculture. Our investigation delves into the stochastic nature of mortality, fish lice infestation, and treatment plans based on comprehensive historical data from Norway. Given that salmon lice pose a significant challenge to salmon aquaculture, with associated treatment costs estimated to be comparable to feeding expenses, lice removal is imperative to ensure the survival of the salmon and comply with the Norwegian government's stipulation of maintaining an upper threshold of 0.5 lice per fish. We propose a new model that considers the relationship between hosts and parasites and determines the number of treatments required as well as the overall cost of these treatments. An important aspect of our model is its incorporation of stochastic effectiveness for each removal. After calibrating the model to our dataset, our study examines the impact of the host-parasite relationship and the required interventions on the optimal harvesting decision and draws a comparison to models that make an assumption of deterministic mortality. Our results indicate that a gain of 1.5 % in farm value (per rotation) can be obtained by employing an optimal harvesting rule based on the stochastic host-parasite model. • Explore the impact of fish health and parasites on aquaculture risk management • Combine host-parasite dynamics with a real options based decision analytics • Impose the Norwegian directorate of 0.5 female fish lice threshold • Use comprehensive data on fish health from Norway to calibrate the model • Observe about 1.5 % gain in lease value by accounting for host-parasite feature