ECONOMICS OF SHRIMP FARMING

Transcription

1 ECONOMICS OF SHRIMP FARMING 6 Contents 6.1 Cost of Production 6.2 Revenue 6.3 Profit Shrimp culture is an export oriented agri-business, which gained momentum in the country over a period of last thirty years. The expansion of the industry is encouraged by a set of favourable economic, technological and policy related factors. Increased flow of investment from private entrepreneurs to reap the high profit potential of shrimp farming actually led to a horizontal and vertical expansion of the industry in the country as well as in the state. The development of the industry has conferred many benefits at national, regional and household level in terms of increased flow of foreign exchange earnings, stimulation of backward and forward linked sectors, creation of job opportunities, income generation etc. At micro level the main beneficiary of shrimp culture is the diverse group of people who control the production process, which include rural land owners, urban entrepreneurs, government officials, bankers and other socio-political elite. They were fairly rewarded for their decision to respond to the opportunities and constraints with enterprise and risk taking (Neiland, A.E., et al., 2001). Historically shrimp farming in the state was a business guided by market forces which offered very good returns for the shrimp contractors 211

2 Chapter-6 who undertook shrimp filtration as an occupation. The recent transition from traditional shrimp filtration into commercial shrimp culture under the modified extensive system enhanced the flow of income from shrimp farming, benefiting the capitalist entrepreneurs and workers in the form of enlarged profits and income. The present chapter is devoted to a detailed discussion of the economic viability, measured in terms of profitability, of shrimp culture under traditional and modified extensive systems in the state. A comparative analysis of profitability of shrimp farming systems in the state requires a detailed examination of cost of production of shrimp and revenue earned from the sale of produce under different systems. 6.1 Cost of Production The technological requirements of the modified extensive system infuse more capital, labour and exogenous inputs into the production process in order to increase productivity of land under shrimp farming. As a result, the cost of production under the modified extensive system is much higher than the cost of production under the traditional system of shrimp filtration. As in the case of any productive activity, in shrimp farming also various items of costs can be grouped into fixed cost and variable cost Fixed Cost Fixed cost in shrimp farming consists of all expenditures on factors of production the quantity of which used in the production process remains fixed over the period of a crop. They do not vary with the level of output. Fixed cost in shrimp culture include lease amount paid for land hired, depreciation cost of machinery and loose equipments used in shrimp 212

3 farming, wages paid to the staff for pond management, who are employed as permanent workers or for the whole period of a crop and interest on fund borrowed to finance capital requirements. As traditional shrimp filtration is a seasonal operation carried out in paddy fields leased out by shrimp contractors from paddy field owners, lease paid for land is a very important component of the fixed cost of production. Shrimp culture under traditional method is practiced over very extensive areas and shrimp farmers have to spent huge amounts on the payment of lease. The lease rate depends on the productivity of land, which in turn depends on the closeness of the paddy field to the bar mouth and wild brackish water bodies. In the auction of land for shrimp farmers bid, taking into account the yield from paddy fields in previous seasons. Shrimp contractors have to pay the entire lease amount in advance, before the commencement of shrimp culture operations in the paddy field. But in modified system grow-out ponds are of smaller size and are very often owned by the farmers. In the sample covered by the study only 9.3 per cent of area under culture in the modified system was on lease, while the proportion of area leased for culture under the traditional method was per cent. As such the lease amount paid under modified system constitutes only a less significant component of the cost of production. Wages paid for labourers employed for pond management is also treated as part of the fixed cost of shrimp farming. In perennial farms, where two crops are raised, these workers are employed permanently. In addition to wages they are given bonus and other benefits. In seasonal farms these workers are employed for the lease period of five months, on 213

4 Chapter-6 monthly wage basis. The cost of paying wages for these workers is also fixed over the period of the crop. The main components of fixed capital subjected to depreciation in shrimp farming are the sluice gate and its accessories, pump sets, aerators, country boats, farm-houses, boxes and loose equipments like check trays, plastic boxes, lamps, torches etc. Depreciation of these assets is calculated on the basis of the formula: D = (C S) / L, where D is depreciation, C is the purchase price of the asset, S is the scrap value of the asset and L is the normal life term of the asset. Since all these assets usually get used up in the farm itself, without a second-hand market, it is assumed that the scrap value of these assets is nil. Distribution of traditional and modified farms on the basis of fixed cost/ha/crop of shrimp culture is given in the following table. Table 6.1: Distribution of Shrimp farms on the basis of Fixed Cost /ha/crop No of Farms Fixed Cost/ha/crop Modified Extensive (Rs) Farms 0-10, ,000-20, ,000-30, ,000-40, ,000-50, Above 50, Total

5 Most of the farms (88.9 per cent) in the traditional sector have a fixed cost/ha/crop of less than Rs 20,000, while majority modified extensive farms (53.3%) have a fixed cost greater than Rs 20,000 /ha/crop. This is mainly because of the differences in the employment of labour for pond management and investment in fixed capital. Modified farms are more labour and capital intensive than the traditional farms ( and 4.2.2). In the Modified extensive system, expenditure on wage payment for pond management is 2.54 times and depreciation of fixed capital is 12.2 times greater than that under the traditional system (Table 6.2). The weighted average 1 of fixed cost /ha/crop of shrimp culture under the traditional system is Rs and Rs under modified extensive farming. Fixed cost /ha/crop under the modified system is nearly 1.5 times the size of what it is under the traditional farming. Table 6.2 and Fig 6.1 give details of the composition of the fixed cost of shrimp farms under the two systems. Category of Cost Table 6.2: Composition of Fixed Cost/ha/crop Modified Farms Amount (Rs) Per cent Amount(Rs) Per cent Lease Wage for Pond Management Depreciation of Fixed Assets Interest on Fund Borrowed Total Weight used for averaging values related to per hectare of shrimp culture is the proportion of area of the farm to the total area of all farms in the respective category. 215

6 Chapter Fig 6.1: Composition of Fixed Cost/ha/crop Land (paddy fields) and the natural environment there on being the crucial component of the production base in the traditional system, lease paid for land constitute the most important element of fixed cost in the system. Lease on land accounted for per cent of the total fixed cost in traditional shrimp culture. Next important component of fixed cost of traditional shrimp culture is wages paid for regular workers employed for pond management (42.03 per cent). As very little fixed capital is used, depreciation of capital assets accounts for only 1.54 per cent of the fixed cost. Traditional shrimp farming being a seasonal operation, conducted in leased out land, farmers usually do not get finance from institutional sources for farming operations. Financial requirements are met from surplus funds from other sources of income or advances provided by shrimp peeling shed operators or agents of exporters. As such the interest component of fixed cost under the system is nil. Change in the production system and culture practices are reflected in the composition of fixed cost of production under the modified system. Wage for pond management accounts for three-fourth of the total fixed cost under the modified system. The increase in the relative share of wage for pond

7 management in fixed cost indicated the extra attention paid to the pond and stock management aspect of shrimp culture under the modified system ( ). As a result of increase in the use of capital assets per hectare of shrimp culture, the relative share of depreciation in fixed cost has increased from just 1.54 per cent under the traditional system to per cent under the modified system. As the dependence on institutional credit for financing shrimp culture operations is more common under the modified system, interest on borrowed funds accounted for 4.77 per cent of the fixed cost. The share of lease on land declined to just 5.59 per cent of fixed cost of modified farms due to the fact that most of these farms operate on own land. Estimate of fixed cost per unit of shrimp/fish produced is also greater under the modified system than under the traditional shrimp farming. Table 6.3 gives the distribution of shrimp farms on the basis of average fixed cost (Rs/Kg) of production. Table 6.3: Distribution of Shrimp Farms on the basis of Average Fixed Cost (Rs / Kg) of production No of Farms Fixed Cost/Kg (Rs) Modified Extensive Farms Total All the farms in the traditional sector have an average fixed cost less than Rs 40/Kg. But only twenty three out of 45 (51.11 %) of the farms in 217

8 Chapter-6 the modified sector falls in this category and the rest have higher average fixed cost. The weighted average of fixed cost per kilogram 2 of shrimp/fish is Rs under traditional system, while the corresponding estimate for modified extensive farms is Rs Variable Cost Variable cost of shrimp farming consist of expenditures on wage for casual labourers employed in various phases of production and intermediate goods used in shrimp culture. These expenditures vary in relation to the volume of production in a crop. Items of expenditure classified as variable cost in shrimp culture are wage paid to casual workers in pond preparation, harvesting and marketing, cost of seed, cost of feed, cost of other material inputs like fertilizers, materials for eradication of predators and pests, probiotics and consumables like nets, coir baskets etc used in the production process. Classification of shrimp farms on the basis of variable cost per hectare of shrimp culture under traditional and modified systems is given in Table 6.4. Table 6.4: Classification of Shrimp farms on the basis of Variable Cost//ha/crop Variable Cost//ha/crop (Rs) No of Farms Modified Extensive Farms 0-50, , , , , , , Total Weight used for averaging values related to per kilogram of shrimp/fish is the proportion of yield of the farm to the total yield of all farms in the respective category. 218

9 As modified extensive shrimp culture use more labour and material inputs the variable cost per hectare of shrimp culture is much greater under the modified system than under the traditional farming. While all traditional farms incur a variable cost of less than Rs 50,000/ha, only two (4.4%) of the forty five farms under the modified system have variable cost limited to that level. All other farms incurred higher levels of variable cost, soaring up to Rs 2,00,000/ha/crop. The weighted average of variable cost for traditional farms is Rs /ha/crop and that of modified farms is Rs /ha/crop; more than four times than that of the former. The increase in variable cost is due to the more intensive nature of shrimp farming under the modified system, using more labour and exogenous inputs per hectare of culture. This is evident from the differences in the absolute value as well as relative share of different components of the variable cost under the two systems. Table 6.5 and Fig 6.2 give details of the composition of variable cost under the two systems. The table shows that in absolute terms, expenditure on all items, except on wage for casual workers, under the modified system is much larger than that under the traditional system. Wage for casual workers account for the major part (58.13 per cent) of the variable cost under the traditional system, while wages for casual workers account for only a very small proportion (9.64 per cent) of the variable cost under the modified system. This is due mainly to the more labour intensive nature of harvesting under the former than under the latter system (5.1.3). As farmers under the traditional system also resort to supplementary stocking as an improved practice to enhance productivity, cost of seed purchased from hatcheries has become the second largest component of variable cost under 219

10 Chapter-6 traditional shrimp culture. Feed and other inputs accounted for only about 10 per cent of the variable cost of traditional shrimp farms. Table 6.5: Composition of Variable Cost /ha/crop of Shrimp Culture Item Modified Farms Amount (Rs) Per cent Amount(Rs) Per cent Wage for Casual Workers Cost of Seed Cost of Feed Other Inputs Miscellaneous Total Fig. 6.2: Composition of Variable Cost/ha/crop However, under the modified system, cost of feed is the largest component of the variable cost, accounting for half of the total variable cost. This is because of the fact that production process under scientific aquaculture is feed intensive (Asche, Frank., Fahmida, Khatun., 2006). Cost of other inputs and consumables is the next major item of variable cost under modified system, the relative share of which is nearly two 220

11 times the share of the item under traditional system. This can be attributed to the adoption of scientific culture practices at various stages of the production process in modified farming. Though the relative share of cost of seed /ha/crop in modified system is much less than that under traditional system, in absolute terms the expenditure is more than three times greater than that under the latter, indicating selective stocking of desired species of shrimps at much higher densities in the former system. It follows that the average variable cost per unit (Kg) of production is higher under the modified shrimp farming than under the traditional farming. Table 6.6 gives distribution of shrimp farms on the basis of average variable cost of production. Table 6.6: Distribution of Shrimp Farms on the basis of Average Variable Cost (Rs/Kg) Variable Cost/Kg (Rs) No of Farms Modified Extensive Farms Above Total While all farms under the traditional system incurred an average variable cost of less than Rs 50/ kg, all farms in the modified system 221

12 Chapter-6 incurred higher average variable cost. Nearly 3/4 th of farms in the modified system have an average variable cost in the range Rs The weighted average variable cost is Rs / Kg in traditional shrimp culture and Rs / Kg in modified farming. The average variable cost in the modified farming is five times greater than that under traditional farming and it reflects the higher input intake necessitated by the introduction of scientific culture practices under the modified system Total Cost Total cost is the sum of total fixed cost and total variable cost. Table 6.7 gives the classification of shrimp farms on the basis of total cost/ha/crop of shrimp culture. Table 6.7: Classification of Shrimp Farms on the basis of Total Cost /ha/crop Total Cost/ha/crop (Rs) No of Farms Modified Extensive Farms 0-50, , , , , , , , , Total Total cost per hectare is comparatively low in traditional shrimp farms. Nearly ninety five per cent (17/18) of farms in the traditional group have total cost less than Rs 50,000/ha/crop, but in the modified group, more than ninety per cent of farms (42/45) have a total cost in the range Rs 50, ,000/ha/crop. The weighted average cost /ha/crop under the 222

13 traditional system is only Rs and it is Rs under the modified system. The cost of shrimp farming under the modified system is nearly three times greater than that under the traditional system of shrimp culture. The two systems of shrimp culture differ with respect to the relative share of fixed cost and variable cost in total cost. Table 6.8 and Fig 6.3 present the composition of total cost/ha/crop of shrimp culture under traditional and modified systems of shrimp farming. Table 6.8: Composition of Total Cost /ha/crop of Shrimp Culture Category of Cost Modified Farms Amount (Rs) Per cent Amount(Rs) Per cent Fixed Cost/ha/crop Variable Cost/ha/crop Total In the traditional system fixed cost /ha/crop and variable cost /ha/crop are more or less of equal proportion in total cost per hectare; per cent and per cent respectively. But in the modified system, variable cost per hectare accounted for three fourth (76.22%) of total cost /ha/crop of shrimp culture and the proportion of fixed cost is only per cent in total cost /ha/crop. Higher absolute values for fixed and variable cost /ha/crop of shrimp culture under the modified system than under traditional sector shows that the former is more factor (capital and labour) intensive as well as input intensive system of production than the latter. 223

14 Chapter-6 Fig. 6.3: Composition of Total Cost/ha/crop The average cot of production (Rs/Kg) too is higher under the modified system than under the traditional system. Distribution of farms on the basis of average cost (Rs / Kg) is given in Table 6.9. Table 6.9: Distribution of Shrimp Farms on the basis of Average Cost (Rs / Kg) No of Farms Average Cost(Rs/Kg) Modified Extensive Farms Total While all farms in the traditional sector have an average cost of production of less than Rs 100/Kg, most of the farms in the modified sector (84.4 %) are clustered in the two groups with average cost in the range Rs and Rs /Kg. The weighted average cost in the traditional sector is Rs 52.39/Kg and Rs /Kg under the modern 224

15 sector. The average cost of production in the latter system is more than three times the average cost in the former. 6.2 Revenue Shrimp farmers receive revenue from the sale of shrimp/fish produced. Total production from traditional farms consists of different species of shrimp, fish, crabs etc. But the modified shrimp farms raise a mono crop of the selected shrimp species and the content of other species of shrimp and fish in the produce from modified farms is negligible. Good quality shrimps like tiger and white shrimps enjoy foreign markets and are exported. Other species of shrimp and fishes are sold in local/regional markets. In addition to receipts from the sale of produce, shrimp farmers have another source of income; subsidies from the fisheries department of the state. Fisheries Department of the State provides subsidies for pond development, infrastructure and capital equipments, feed, seed etc under various schemes. While all farmers covered by the study received shrimp seed free of cost from the Department during the study period, under the MatsyaKeralam project, only 27 of them received subsidy for feed. ADAK provided the subsidy for feed and seed. Fourteen farmers received financial assistance for works related to development of pond at the time of commencement of shrimp farming from agencies like MPEDA, BFFDA and ADAK. Even though subsidies represent a reduction in cost of production, as a common accounting practice, they are treated as a part of total revenue of shrimp farms Total Revenue / Hectare Table 6.10 gives the distribution of traditional and modified farms in terms of total revenue /ha/crop of shrimp culture. 225

16 Chapter-6 Table 6.10: Distribution of Shrimp Farms on the basis of Total Revenue/ ha/crop Total Revenue/ha/crop (Rs) No of Farms Modified Extensive Farms 0-50, , , , , , , , , Above Total Total revenue /ha/crop of shrimp culture is very low in traditional farms compared to the total revenue under the modified system. Three of the traditional farms (16.7 per cent) received total revenue of less than Rs 50,000/ha/crop, while others received in between Rs 50,000 and 1, 00,000. All farms in the modified extensive sector received total revenue greater than Rs 50,000 from each hectare and each crop of shrimp. Weighted average of total revenue /ha/crop is Rs under the traditional system, while total revenue under modified shrimp farming is Rs /ha/crop 3 ; more than 2.6 times greater than the total revenue per hectare under the traditional system Average Revenue The average revenue realized is also different under the two systems. Table 6.11 gives the distribution of shrimp farms on the basis of average 3 Difference in the estimation of weighted average value of yield per hectare under traditional and modified systems (in a & b respectively) and weighted average of total revenue per hectare under the two systems (in 6.1.2) is due to the inclusion of subsidies as part of total revenue in the latter. 226

17 revenue (Rs/Kg). While all farms in the traditional sector have average revenue of less than Rs 200 /Kg, more than four-fifth (86.7%) of farms in modified sector earned average revenue in between Rs The weighted average of average revenue is Rs 90.73/Kg in the traditional system, while it is Rs /Kg under the modified system. The estimate of average revenue gives a measure of average price realization at farm level in the case of modified farms, because most of these farms produce a single species of shrimp only. The average revenue estimated for traditional shrimp farms cannot give an idea about price realization at farm level because their produce consisted of diversified variety of shrimps and fish, with highly variable prices. Table 6.11: Distribution of Shrimp Farms on the basis of Average Revenue (Rs/Kg) Average Revenue (Rs / Kg) No of Farms Modified Extensive Farms Total Profit Profit is the residue of the total revenue after meeting the cost of production. The profit so calculated is the reward mainly for organizing production and undertaking risks associated with shrimp farming. However, the profit from shrimp farming is not totally an income from entrepreneurship, but contains elements of property income like rent on land owned by shrimp farmers, interest on own-funds used for financing investment etc. 227

18 Chapter-6 Shrimp farming is an activity, profitability of which depends on many technological, biological, environmental economic and social factors. In spite of the technological advancements in the field of shrimp farming and adoption of scientific culture practices, biological and environmental factors that influence production of shrimps are highly variable and uncertain with respect to time and space. Yield from shrimp farming is highly vulnerable to changes in environmental conditions like water quality and climate and biological factors that determine the growth and health/pathological conditions of shrimp. This makes profit from shrimp farming highly variable and shrimp farming a high-risk enterprise, in spite of the favourable economic conditions that prevail in national and international markets. Degree of variability in profit from shrimp culture indicates the level of risk ness involved in the business. In order to assess the profitability of shrimp farming, profit from /ha/crop of shrimp culture and profit per unit (Kg) of production is analyzed for both traditional farms and modified extensive farms Total Profit / Hectare Table 6.12 shows distribution of shrimp farms on the basis of profit /ha/crop of shrimp culture. Table 6.12: Distribution of Farms on the Basis of Profit /ha/crop Profit/ha/crop (Rs) Traditional Farms Modified Extensive Farms Less than , ,000 60, ,000 90, ,000 1,20, Total

19 While all traditional farms made positive profit during the period of study, three of the forty five modified farms in the sample incurred loss. However, the profit per hectare of shrimp culture is lower in traditional farms than under the modified system. Eleven out of eighteen traditional farms (61.1 %) earned a profit /ha/crop of less than Rs 30,000 and the rest earned profit in between Rs 30,000 and 60,000 /ha/crop. Majority of modified farms (53.3 per cent) earned profit greater than Rs 60,000 /ha/crop of shrimp culture. The weighted averages of profit /ha/crop of shrimp culture under traditional and modified systems are Rs and Rs respectively. Profit /ha/crop under the modified shrimp farming is 2.4 times greater than that under the traditional system Average Profit Similarly profit per unit (Kg) of production is also higher under the modified system than under the traditional system. Table 6.13 gives the distribution of shrimp farms under the two systems on the basis of profit per unit of production. Table 6.13: Distribution of Shrimp Farms on the Basis of Profit per Unit (Kg) of Production Profit (Rs/Kg) Modified Extensive Farms Less than Total

20 Chapter-6 As in the case of profit per hectare, three farms in the modified extensive sector incurred loss in the case of per unit of production also. While all farms in the traditional sector realized a profit of less than Rs 80/-per unit of production, more than two-third of farms in the modified system earned profit higher than Rs 80/- per kilogram of shrimp produced. The weighted average of profit is Rs /Kg in the traditional system and RS /Kg in modified shrimp farming. Average profit under the modified farms is more than three times that in traditional system. From the analysis in the above sections, it is clear that shrimp farming under the modified system is much more profitable than the traditional system of farming. This is because of the better productivity (yield per hectare) and higher unit value (price) realization owing to superior quality of the produce under the modified system. In order to assess the relative influence of these factors in the determination of profitability, correlation coefficients (r) (tested significant at 5 per cent level) are worked out 4. It is observed that in the case of traditional farms yield per hectare was observed to bear stronger correlation with profit per hectare than average unit price. The correlation coefficient (r) between profit per hectare and yield per hectare was 0.57, while the correlation between profit per hectare and average unit price (average revenue) was In the case modified farms, price of tiger shrimp 5 was observed to have stronger correlation, than yield per hectare, with profit /ha/crop. The estimated value of correlation coefficient (r) between profit per hectare and 4 The analysis is based on estimation of product moment correlation coefficient (r) and t test 5 Most of the modified farms raise a mono crop of tiger shrimp and hence price of tiger shrimp represents the unit price in the case of modified farms. 230

21 price of tiger shrimp was 0.7. On the other hand the correlation coefficient (r) between profit /ha/crop and yield per hectare was only In traditional system of shrimp farming profitability tended to vary more with productivity of land (measured by yield per hectare) than with average unit price. But under the modified extensive system, price exerted a stronger influence on profitability than yield /ha/crop. This can be explained in terms of the composition yield per hectare under traditional farming. Since major components of the produce in traditional farming are low priced other shrimps and fish (which together accounted for more than 65% of total production), profit from traditional shrimp farming tended to vary more with the quantity of production /ha/crop than with the average unit price. But the production in modified system consisted, in most cases, of only tiger shrimp. In shrimp farms tiger shrimp is priced according to the count, i.e., the number of shrimps that weigh one kilogram. Larger sized shrimps that weigh fewer per kilogram used to attract much higher prices than shrimp that count more. Therefore, in modified farms profit per hectare used to vary more with unit price realized than with yield per hectare. It follows that the higher profitability of modified system of shrimp farming is more closely related to market demand for shrimp and the consequent high price than to factors that determine productivity of the system. It indicates the higher degree of integration between the modified system of shrimp farming with market for shrimp and the vulnerability of the system to changes in market conditions Share of Profit in Total Revenue Discussion in previous sections revealed that profit per hectare is much higher under the modified system than under the traditional system. 231

22 Chapter-6 However, the relative share of profit in total revenue is smaller in the former system than under the latter. Comparative distribution of shrimp farms under the two systems is given in table 6.14 Table 6.14: Distribution of Shrimp Farms on the basis of Relative Share of Profit in Total Revenue Relative Share (Per cent) Modified Extensive Farms Number Per cent Number Per cent Less than Total More than 83 percent of traditional farms have their profit in between per cent of total revenue; only 62 per cent of modified farms belong to that group. In the case of traditional farms 11 per cent have higher relative share of profits and only 6 per cent have lower relative share. But in the case of modified farms, 13 per cent have higher relative share in profit and 24 per cent, more than four times than that of traditional farms, have lower relative share of profits. On an average the relative share of profit of traditional farms in total revenue is per cent and for modified farms the average share is per cent. Even though the absolute level of profit per hectare of culture is higher under the modified system, the relative share of profit is marginally 232

23 smaller in the system. This is because of the disproportionate increase in the total cost of production under the modified extensive system, primarily due to higher capital, labour and input intensive nature of the production process. References [1] Asche, Frank., and Fahmida, Khatun. (2006). Aquaculture: Issues and Opportunities for Sustainable Production and Trade. Issue Paper No.5, International Centre for Trade and Sustainable Development, Geneva, Switzerland. [2] Neiland, A.E., et al. (2001). Shrimp Culture: Economic Perspectives for Policy Development. Marine Policy, 25(2001) , 233