Assessing the Viability of the Inland Shrimp Farming as a Viable Enterprise in Alabama

Final Report for GS04-036

Project Type: Graduate Student
Funds awarded in 2004: $9,901.00
Projected End Date: 12/31/2006
Grant Recipient: Tuskegee University
Region: Southern
State: Alabama
Graduate Student:
Major Professor:
Ntam Baharanyi
Tuskegee University
Major Professor:
Barrett Temple-Vaughan
Tuskegee University
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Project Information

Summary:

Assessing the viability of inland shrimp farming revealed that profitability seemed more likely for the small-scale (5-acre) enterprise when it was an alternative aquaculture enterprise versus a sole enterprise. The fifty-acre enterprise budget appeared to be lucrative if the market is established and is capable of being profitable with or without an alternative enterprise. Although the results suggested that South Central Alabama seems to be a suitable place for culturing saltwater shrimp, there is still a lack of knowledge and experience about inland shrimp farming in the region as well as a lack of well-established markets for farmers’ products.

Introduction

The first attempts at commercial shrimp farming in the U.S. occurred in the late 1960s and early 1970s. The initial U.S. industry used native species of white, brown, and pink shrimp. U.S. researchers found that non-native shrimp from the Pacific coast of Central and South America were easier to culture and more productive in ponds. Gradually, commercial producers in the U.S. concentrated on non-native species such as Pacific White Shrimp (Litopenaeus vannamei), now the most popular species cultured in the Western Hemisphere (Whetstone et al. 2002).

Texas produces more farm-raised shrimp than any other state—approximately 8 million pounds or 3.63 million kg of heads-on shrimp in 2001. Inland culture of Penaeid shrimp in low salinity well water was first documented in the United States by Smith and Lawrence (1990) in Willacy County of Southern Texas (Saoud et al. 2002). The culturing of marine shrimp primarily occurs in near-coastal areas using water of estuarine and oceanic origin. Due to a variety of social, economic and environment issues with coastal farms, the inland culture of marine shrimp has been expanding in a number of countries. In the United States, farmers in Alabama, Arizona, Florida, Illinois, Indiana, Michigan, Mississippi, South Carolina, and Texas have harvested Pacific White Shrimp raised in low salinity well water (Davis et al. 2002). Inland culture of Penaeid shrimp in low salinity well water is a growing business in many areas of the world, including the southern regions of the U.S. Large portions of the U.S. are underlain with saline waters, an underutilized resource that could be used for nontraditional agricultural purposes such as the culture of marine shrimp (Saoud et al. 2002).

Pond-raised saltwater shrimp account for approximately 40 percent of world shrimp production. The production of farm (pond-raised) shrimp between 1976 and 1995 increased from 50,000 to nearly 740,000 tons per year. Most farm production of shrimp comes from countries near the equator where a long growing season allows for more than one crop of shrimp to be grown in a year. Shrimp farming in the U.S. in 1996 was concentrated in the South Texas and in South Carolina. These farms produced about 1,000 tons of shrimp per year compared to world farm production of 712,000 tons per year. Honduras is the major producer of farm-raised shrimp in the Central American region with 12,000 metric tons (live weight) produced on 14,000 ha of shrimp farms in 1998 (Valderrama and Engle 2000). Wild-caught shrimp contributed another 1.9 million tons to the world supply. As a result of worldwide production and global marketing, events in Thailand, Chile, or China can have even a greater effect on shrimp prices than local circumstances because these foreign markets tend to dominate the world market. In 1998, the world’s shrimp farmers produced 737, 000 tons of shrimp, worth an estimated US $6 billion. Thailand has been the world’s largest exporter of cultured shrimp since 1991, and reported export revenues from shrimp of over US $1.6 billion in 1998 (Flaherty et al. 2000).
The demand for seafood in the U. S. far surpasses the amount produced by U.S. commercial fishermen and aquaculture producers. As reported in World Shrimp Farming 2001, farmed shrimp represent 40 percent of world production with an estimated 10 percent of that total being grown in the Western Hemisphere, principally in Central and South America. The volume of shrimp imported into the U.S. rose from 600 million pounds in 1995 to approximately 1.2 billion pounds in 2004. The price per pound of shrimp dropped from around 5.00 per pound in 2000 to around 3.25 per pound in 2004. The U. S. consumption of shrimp has doubled over the past 10 years to over a billion pounds a year. The U.S. per capita consumption of shrimp increased between 1990 and 1998 from 2.2 pounds to 2.8 pounds. Consequently, shrimp are one of the most popular seafood items in the U. S.

Generally, inland saltwater shrimp ponds are located close to a good quality brackish water source with a salinity of 5-30 ppt. The site should have soil with a high-clay content (at least 25 percent), and should not have bedrock or hard layers or a water table within three feet of the surface. Inland shrimp farming by means of low salinity aquifers is providing a substitute to traditional coastal aquaculture where land costs and user conflicts can hinder commercial development as well as a diversification of agriculture (McGraw et al. 2002). Low salinity aquifers scattered throughout West Alabama were unfit for drinking water, but were used to produce catfish. In the midst of a decline in the catfish market in the South Central Alabama, a series of tests were initiated to assess the suitability of the saline groundwater for saltwater shrimp farming. Currently, marine shrimp are being farmed in Alabama, Arizona, Arkansas, California, Florida, Georgia, Kentucky, Hawaii, Michigan, North Carolina, South Carolina, and Texas.

There are about 2,000 species of shrimp in the marine and freshwaters of the world. Alabama waters contain 15 to 22 species of shrimp. Of these, only three – the brown shrimp (Penaeus aztecus), the Atlantic White Shrimp (P. setiferus), and the pink shrimp (P. duorarum) – are eaten and found in commercial quantities in the Gulf of Mexico. The brown shrimp is by far the most abundant and the pink shrimp the least abundant. Approximately 20.5 million pounds of the three species of shrimp were caught in Alabama in 1995, with an estimated dockside value of $45 million. Several times this quantity was processed at Alabama’s coastal packing plants. In 2004, saltwater shrimp was produced in ponds in Greene, Lowndes, and Tuscaloosa counties. South Central Alabama counties are presented as Appendix A. Brackish water aquifers about 600 – 1300 feet below ground served as a water supply for these ponds. Several aquifers like these are scattered throughout West Alabama, with 2– 8 ppt salinity.

Project Objectives:

The purpose of this study was to assess the viability of inland saltwater shrimp farming in South Central Alabama. Specific objectives were to (1) describe the production of farm-raised saltwater shrimp as an alternative agricultural enterprise, (2) identify the constraints and risks associated with the inland shrimp farming industry, and (3) compare the cost efficiencies of farms via scales of production.

Cooperators

Click linked name(s) to expand
  • Anthoney Deanes

Research

Materials and methods:

The case study approach was used for the study. A case study refers to the collection and presentation of detailed information about a particular participant or a small group, frequently including the accounts of the subjects themselves, and drawing conclusions in a specific context. It does not focus on the discovery of a universal, generalized truth, nor does it typically look for cause-effect relationships; instead, emphasis is placed on exploration and description (Stake 1995). The cases are bounded by time and activity, and researchers collect detailed information using a variety of data collection procedures over a sustained period of time (Creswell 2002). One purpose of the case study design is to describe and analyze a situation, event, or process (McMillian and Schumacher 1997). Yin (1994) described the case study as the preferred method of research in social science when ‘how’ or ‘why’ questions are raised, when the investigator has little control over events, and when the focus is on a contemporary phenomenon within some real-life context. Case study research is appropriate when the researcher is starting to investigate a new area in which there is little information available and few subjects exist. The subjects used in this case study consisted of inland shrimp producers in South Central Alabama. The industry was approximately six years old in the State.

Research results and discussion:

The five most expensive inputs in the production of inland saltwater shrimp are feed, PLs, electricity, processing, and aeration. The three major constraints reported were marketing, PL availability, and local infrastructure. The total cost to operate a five-acre inland saltwater shrimp farm fluctuates between $2,300 and $11,000 per acre according to local farmers. Total costs per acre as generated in the five- and fifty-acre enterprise budgets were $22,842 and $14,929, for the five- and fifty-acre systems, respectively. There is great disparity in the amount of production labor, harvest labor and aeration used from farm to farm. Although production activities suggest that South Central Alabama seems to be a suitable place for culturing saltwater shrimp, there is still a lack of knowledge and experience about inland shrimp farming in the region and lack of a well established market for the farmers’ product.

Two of the six farmers are currently recycling the low salinity water. Otherwise, no water treatment systems are in place. The findings suggest that feed and pond management, equipment cost, marketing and local infrastructure (PL availability, feed, processing and cold storage) play key roles in determining whether or not an enterprise is economically viable or sustainable in the short run and possibly over the long-term. Initial enterprise budgets for inland shrimp farming were established for the 5- and 50- acre farm.

Enterprise Budgeting

Several key assumptions were used to develop the enterprise budgets. The stocking rate used is 130,680 PLs per acre. The cost per 1,000 PLs is $8.00 based on 2004 prices for Alabama farmers from GSMB, PL supplier in Florida. The expected sale price is $7.00 per pound of shrimp tails, which is typical for South Central Alabama based on previous years. The cost per acre of construction is $10,000 apart from land. Bauer, Sandifer, Smith, and Jenkins (1983) reported that if enterprises can utilize existing pond facilities that were already discounted into the value of land or were constructed during a period of lower investment costs; cost could be lowered overall making prawn production a more attractive source of supplemental income. Land cost is $1,500 per acre. The expected feed conversion rate is 2 pounds of feed for every 1 pound of shrimp produced. The expected survival rate is 80 percent. Shrimp loss in pond bottoms during harvest is estimated to be approximately 5 percent. Shrimp heads typically account for 40 percent of the total weight of a shrimp at the end of the grow-out system.

Five-acre Enterprise Budget

The five-acre enterprise budget is shown as Table 1. Income is $91,700. The total variable cost is $53,810. Income above variable cost is $37,890. The total fixed cost is $60,400, and the total cost is $114,210. The estimated return is a loss of $22,510 and the In many instances, smaller-scale farmers fail to account for all of the costs of their prospective enterprises. Inland shrimp farming is no exception. According to Hishamunda, Jolly and Engle (1998) an enterprise budget for various farm activities showed positive income above variable costs when family labor is not taken into account. However, unless extreme adjustments can be made to the budget to reduce the variable costs, the enterprise will not survive in the long run. The total cost per acre is $22,842. The total variable and fixed costs were 47.1 and 52.9 percent of the total costs. A starting point for reducing total costs would be the variable costs. Hishamunda, Jolly and Engle (1998) also found that small-scaled aquaculture was the most expensive way of producing protein after cassava in Rwanda.

Fifty-acre Enterprise Budget

The fifty-acre enterprise budget is shown as Table 2. Income is $917,000. The total variable costs are $427,962. Income above variable cost is $489,038. The total fixed costs are $318,500 and the total costs are $746,462. Estimated returns are $170,538 and break-even price is $5.70/lb. Cost of production per pound as reported by Shang, Leung, and Ling (1998) for the semi-intensive system were China with the lowest production cost (US$1.03), followed by Vietnam (US$1.52), Indonesia (US$1.72), Philippines (US$1.82), Sri Lanka (US$2.07), Malaysia (US$1.50), India (US$2.71), and Bangladesh (US$5.47). Costs of production in most parts of the world that produce farmed shrimp are lower than that of the United States. The income above variable costs is positive, thus the enterprise can operate in the short run. In aquaculture, the variable costs are usually greater than the fixed costs; therefore since the income above variable costs is higher than the variable costs, the enterprise looks promising at this production level. The income exceeds the total cost resulting in a profit. The total cost of $14,929 per acre is essentially half of that of the five-acre enterprise. Robert and Bauer (1978) made a comparison of economic results for three freshwater prawn studies for 1.2-acre ponds. Revenues per acre were $1,170, $6,836, and $7,032. Revenues per acre in this study were approximately $3,411 in 2.5 acre ponds.
The results of this study show that inland saltwater shrimp farming is far more cost-effective as a sole enterprise on the fifty-acre scale than on a five-acre scale. Consequently, the larger-scale model seems to be viable as a sole enterprise while the smaller-scale model is not. Similarly, Kouka and Olowaolayemo (1993) found that large-scale fish farms have been shown to be more successful at generating profits than small farms.

Profitability seemed more likely for the small-scale (5-acre) enterprise when it was an alternative aquaculture enterprise versus a sole enterprise. This is true because when a producer is splitting the cost of inputs between two or more enterprises, the total cost per acre is reduced. If the total cost is reduced with the same revenue the net returns increase. The five-acre enterprise budget suggested that as a sole enterprise, the farmer could survive in the short run but in the long run it would not be profitable at that scale. The fifty-acre enterprise budget appeared to be lucrative if the market is established. The fifty-acre enterprise is capable of being profitable with or without an alternative enterprise.

Participation Summary

Educational & Outreach Activities

Participation Summary

Education/outreach description:

A completed thesis, entitled “Assessing the Viability of Inland Shrimp Farming in South Central Alabama” emerged from this project. Excerpts from the project were presented on different occasions. Below I have listed the presentations:

• Anthoney S. Deanes. “Comparing the Technical and Economic Aspects of Inland Shrimp Farming in the Alabama Black-Belt” was presented at the 2004 National Technical Association (NTA) Conference, November 8 – 10, 2004, Tuskegee University, Tuskegee, AL. (2nd Place)
• Anthoney S. Deanes. “Assessing the Viability of Inland Shrimp Farming as a Viable Enterprise in Alabama” was presented at the 62nd session of the Professional Agricultural Workers Conference (PAWC), December 5-7, 2004, Tuskegee University, Tuskegee, AL (1st Place)
• Anthoney S. Deanes. “Assessing the Viability of Inland Shrimp Farming in South Central Alabama” was presented at the 32nd Annual Student Research Symposium of Sigma Xi, April 1-2, 2005, Tuskegee University, Tuskegee, AL (2nd Place)
• Anthoney S. Deanes. “Assessing the Viability of Inland Shrimp Farming in South Central Alabama” was presented at the 14th Biennial Research Symposium, April 1 – 5, 2006, Atlanta, GA (2nd Place)
• Anthoney S. Deanes. “Assessing the Viability of the Inland Shrimp Farming as a Viable Enterprise in Alabama” was presented at 102th Annual Meeting of Southern Association of Agricultural Scientists (SAAS), Little Rock, AR, February 5-9, 2005.

Project Outcomes

Project outcomes:

A case profile on each farm that was included in this study was compiled. Each case profile covers background information about the farmer, farm operations, production information (acclimation, stocking, grow-out and harvesting), economics, challenges, constraints, risks, and sustainability, etc. The collection of profiles will help to compare farming practices of each producer. The results reveal that there is a great disparity in areas such as feeding practices, pond management, harvesting, cost per acre, and marketing practices. The farm profiles and development of an enterprise budget that focuses on producers in South Central Alabama has helped to identify constraints and an analysis of the costs of inland saltwater shrimp farming in the region of study. Consequently, best management practices can be recommended to each producer.

Economic Analysis

Break-even Analysis

Table 3 presents the results of the break-even analysis for the five-acres of saltwater shrimp production at selling prices of 6, 7, and 8 dollars per pound. At a selling price of 6 dollars per pound, 4,044 pounds would be required to cover the total cost of production. Even though this production level is possible, not all farmers in South Central Alabama consistently produced at this level. In addition, to produce at this level, the farmers would have to stock more densely than is common for the semi-intensive farming strategy, which increases the risk for the producer. At a selling price of 7 dollars per pound, the farmer would need to average 3,225 pounds per acre to cover the total cost of production. This production level is much more realistic for the farmers in the state but all farmers have not consistently produced at this level. Even at a 7 dollar per pound selling price the stocking rate is still on the high side for the semi-intensive approach, which also poses a higher risk and cost for the producers. At a selling price of 8 dollars per pound, only 2,611 pounds per acre would be required to cover the total cost of production. This level of production seems to be the most optimum amongst the scenarios considered in this study. Farmers in the region are consistently than the other break-even levels of production. In addition, the stocking rate required at this production level is steadier with semi-intensive farming than that of the other production levels. Nevertheless the return per acre is only $113 per acre or a total return of $565 annually. With this type of return the farmer has to consider the opportunity costs and alternative type enterprises.

The five-acre enterprise budget does not appear to be economically viable as a single enterprise. In the short run, the break-even price to cover variable expenses is greater than the market price; consequently the farmer can continue production in the short run. Five-acres of production will lose money but losses can be minimized by continuing production. All of the variable costs will be covered in the short-run. Approximately half of the fixed costs would be covered in the short run. The farmer would have to sell his product for $8.72 per pound to cover all of the production costs, instead of selling his product for the market price of $7.00 per pound of shrimp tails. The expected production level is 2,625 pounds per acre; however, the break-even production level is 3,050 pounds per acre. Unless cost can be reduced by the next production season, the five-acre system will not be viable. Samocha and others (2002) concluded that the high construction and operating costs made the financial viability of inland shrimp production questionable.

Table 4 presents the results of the break-even analysis for the fifty-acres of saltwater shrimp production at selling prices of 6, 7, and 8 dollars per pound. Theoretically all levels of production are profitable for the fifty-acre production model with the exception of stocking at a rate of 87,120 PLs per acre. At a selling price of 6 dollars per pound, 2,223 pounds would be required to cover the total cost of production.

This production level is probably most optimum and all farmers in South Central Alabama should be able to consistently produce at this level. At a selling price of 7 dollars per pound, the farmer would need to average 1,905 pounds per acre to cover the total cost of production. This production level would be conservative for the farmers in the state and all farmers are capable of consistently producing at this level. At a selling price of 8 dollars per pound, only 1,667 pounds per acre would be required to cover the total cost of production. Farmers in the region are more likely to achieve this level consistently than the other break-even levels of production. In addition, the stocking rate required at this production level is steadier with semi-intensive farming than that of the other production levels.

The fifty-acre enterprise budget appeared to be lucrative if the market is established. The fifty-acre enterprise is capable of being profitable with or without an alternative enterprise. In the short-run, the break-even price to cover all expenses is less than the market price; which signifies that the shrimp operations are profitable or that the farmers will break-even. Fifty-acres of production will generate an economic profit. The farmer would only have to sell his product for $5.70 per pound to cover all of the production costs, instead of selling his product for the market price of $7.00 per pound. The expected production level is 2,625 pounds per acre; however, the break-even production level to cover all expenses is only 1,534 pounds per acre. The fifty-acre farm system is economically viable in the short run. In spite of a fifty-acre farm system being economically viable in South Central Alabama, similar farms in Honduras are even more lucrative. Valderrama and Engle (2002) computed fixed costs for a 180 acre farm to be approximately $625 per acre, while a fifty-acre farm in the study area has fixed costs of $3,582 per acre. Honduras’ fixed costs are nearly six times lower than those of South Central Alabama, making it difficult for Alabama farmers to compete with them in the market place.

Short-run Costs

Short-run costs for five- and fifty acres of inland shrimp production are presented in Table 10. It compares the cost per acre for five-acres to that of fifty-acres. Across the board, the TFC, TVC and TC are in the order of two times more expensive to culture shrimp in a five-acre production system than that of a fifty-acre system. Similarly, the average costs for fifty-acres of production are more or less half the cost of five-acres. In South-Central Alabama, the market price for shrimp tails is $7.00 per pound. Thus, for the five-acre system the selling price is less than the ATC, which results in a loss. For the fifty-acre system the selling price is greater than the ATC, which results in a profit. According to Kouka and Olowolayemo (1993), fish farming is capital intensive, and large-scale fish farms have been shown to generate more profit than small farms. The results of this study are consistent with those of South Central Alabama in that large-scale aquacultural enterprises are more profitable than small-scale farms.

Farmer Adoption

The report results are being shared with each of the farmers included in this study. Implementation of report findings were not included as part of this effort.

Recommendations:

Areas needing additional study

First, there were a limited number of cases for the study. A similar study should be conducted on inland saltwater shrimp farmers nationwide to get a better profile on what is going on in the United States. This study primarily profiles South-central Alabama. Second, the objective of this study does not look at inland shrimp farming as an alternative enterprise but only as a sole enterprise. A different prospective and outcome is likely to be gained if this industry is looked at for small-scaled producers. Third, there was insufficient data available on the potential environmental impacts by saltwater shrimp farming in the South Central Alabama. An independent study that focuses on the potential environmental impacts of inland saltwater shrimp farming will perhaps offers ways to make this industry more sustainable as the industry grows. Fourth, marketing was a key issue that was not an objective of this study. Producers in South-central Alabama identifying niche markets and executing targeted market would likely enhance the profitability of this industry.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.