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             FINANCIAL VIABILITY OF PENAEUS SETIFERUS VERSUS
                    PENAEUS VANNAMEI WITH CONTINUOUS LIVE
                        HARVESTING AND ONE FINAL HARVEST
                             STRATEGIES IN SOUTH CAROLINA











                                 S. Sureshwaran, C. Greene, R.J. Rhodes
                                     Craig L. Browdy and Al Stokes






                                          Marine Resources Division
                                         Technical Report Number 84
                                              December, 1994


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                                                South Carolina
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                         1990 HOBSON AVE.
  '6                    CHAS. SC 2.9408-2623









                 FINANCIAL VIABILITY OF PENAEUS SETIFERUS VERSUS PENAEUS VAAW"V
                         WITH CONTINUOUS LIVE HARVESTING AND ONE FINAL HARVEST
                                                STRATEGIES IN SOUTH CAROLINA



                                                                          by


                                                             S. Sureshwaran'
                                                               Carol Greene'


                                                                         and


                                                           Raymond J. Rhodes'
                                                              Craig L. Browdy'
                                                                   Al Stok&

                                                          Technical Report Number 84
                                                                 December, 1994

                                                  'Department of Agribusiness and Economics
                                                         South Carolina State University
                                                         Campus Post Office Box 7282
                                                             Orangeburg, SC 29117

                                                                         and

                                             'Economic Analysis and Seafood Marketing Program
                                                         Office of Fisheries Management
                                                          Division of Marine Resources
                                                     S. C. Department of Natural Resources
                                                              Post Office Box 12559
                                                           Charleston, SC 29422-2559


                                                                         and

                                           3Waddell Mariculture Research and Development Center
                                                      Marine Resources Research Institute
                                                          Division of Marine Resources
                                                     S.C. Department of Natural Resources
                                                               Post Office Box 809
                                                               Bluffton, SC 29910




                 This work was partially funded by the U.S. Department of Agriculture as administered by the Oceanic Institute/Gulf
                 Coast Research Laboratory Consortium. The views expressed in this report do not necessarily reflect those of the
                 U.S. Department of Agriculture, Oceanic Institute, S.C. Department of Natural Resources, or S.C. State University.
                 Any commercial product or trade name mentioned herein is not to be construed as an endorsement.











                                                   Table of Contents



                                                                                                          Page



               List of Tables   ....................................................                      iv


               List of Figures  ...................................................                       iv

               Summary      .......................................................                        I

               Introduction   .....................................................                        I


               Literature Review    .................................................                      2


               Methods and Data    .........................             ........................          3


                      Facility Design and Equipment      ...................................               3
                      Production Assumptions     ........................................                  5
                      Major Financial and Operating    Assumptions    ..........................           5
                      Production Scenarios     ..........................................                  5


               Results   .........................................................                         6


                      Base Scenarios     ..............................................                    6
                      Alternative Scenarios    .........................................                  10


               Discussion    .....................................................                        10


               Literature Cited   ..................................................                      12


               Appendix 1: Shrimp Harvest Weight Model          .............................             13













                                                   List of Tables




              Table                                                                                 Page



                  1   Summary of Facility and Equipment Costs for a Hypothetical Shrimp
                      Farm in South Carolina, 1993   ...................................              7
                                 6

                  2   Projected Annual Income Statement for Operating Years Three
                      Through Ten, and Discounted Cash Flow Analysis in the Base   Scenario
                      for a Hypothetical Penaeus vannamei Shrimp Farm in South Carolina     ........  8

                  3   Projected Annual Income Statement for Operating Years Three
                      Through Ten and Discounted Cash Flow Analysis in the Base Scenario
                      for a Hypothetical Penaeus setiferus Shrimp Farm in South Carolina   .........  9

                  4   Discounted Cash Flow Analysis for the Alternative Scenarios for
                      Hypothetical Penaeus setiferus and Penaeus vannamei Shrimp Farm in South
                      Carolina, 1993  ..............................................                 11

                  5.  Regression Coefficients for the Harvest Weight Model   ..................      15


                                                   List of Figures

                Figure

                  I   Hypothetical Shrimp Farm Design     .................................           4















                                                           iv









                                     SUNMARY                                         The ten-year (after tax) internal rate of
                                                                                return (IRR) for P. vannamei is 15.1 %. The
                      It is anticipated that prospective aquacult-              projected IRR is greater than the assumed
                  urists, investors, and perhaps lending insti-                 base-scenario after-tax discount rate of 10%
                  tutions and policy makers will desire informa-                for P.vannamei. However, the projected IRR
                  tion on the financial feasibility of producing                for P. setiferus, -4.9 %. This is less than the
                  indigenous Penaeus setiferus versus specific                  base-scenario discount rate. Net present value
                  pathogen free Penaeus vannamei. This report                   (NPV) in ten years for P. vannamei is
                  was undertaken to provide an accurate and                     $232,000 and for P. setiferus is a negative
                  objective picture of the profit or loss from                  $568,000. The negative NPV indicates that at
                  farming these species. In addition, an evalua-                current prices, technology, and the assumed
                  tion is made of the effects of a continuous                   discount rate, P. setiferus is n-ot profitable.
                  live harvesting strategy versus a single final
                  harvest strategy on the profitability of the two                   The IRR and NPV are highly sensitive to
                  species.                                                      the assumed stocking densities, survival rates
                                                                                and expected prices at harvest. Given a dis-
                      The hypothetical shrimp farm described in                 count rate of 10%, small changes in stocking
                  this report includes 24 ponds, each I hectare                 densities, survival rates and prices can result in
                  in size, located on 31 hectares of land that is               large losses even for a P. vannamei shrimp
                  leased near a saltwater source. The base sce-                 farm. However, continuous live harvesting
                  nario assumes one final harvest strategy, stoc-               has positive effects on net cash flows.
                  king density of 80 postlarvae/meter', an ag-                  Because of the limited market for live shrimps,
                  gregate survival rate of 70%, and a price of                  producers should remain alert for over-supply
                  $4.95/kg for P. vannamei and $4.73/kg for P.                  conditions that can have a negative impact on
                  setiferus. The effects of alternative stocking                prices. With continuous live harvesting, IRR
                  densities, survival rates, prices, and live har-              increases to 16.4% for P. vannamei and to
                  vesting are investigated in 7 other scenarios.                2.2 % for P. setiferus. Even with continuous
                  All the 8 scenarios assume a feed conversion                  live harvesting, P. setiferus remains an un-
                  rate of 2: 1, and the length of the grow-out                  profitable enterprise.
                  cycle as 5 months.
                                                                                     Commercial shrimp farms utilizing
                       Initial investment in facility and equip-                specific pathogen free P, vannamei postlarvae
                  ment is approximately $1 million. Because of                  (PL) can be profitable in South Carolina.
                  differences in growth rates and resulting feed                Farms can have larger profits by practicing
                  costs, total initial investment for both constru-             continuous live harvesting strategies.
                  cting and operating the facility depends on                   However, the indigenous P. setiferus is not
                  species produced. In the base scenario, total                 profitable. Therefore, regulatory actions that
                  initial investment including operating costs,                 hinder the import of specific pathogen free P.
                  for P. vannamei is $1.38 million and for P.                   vannamei PL from out-of-state hatcheries
                  setiferus is $1.35 million'. After the third                  could have adverse impacts on the South Caro-
                  year, when the farm produces at full capacity,                lina commercial shrimp farms.
                  net cash flow after estimated taxes for P.
                  vannamei is $250,000 and for P. setiferus is                                  MRODUCTION
                  $103,000.
                                                                                     In 1993, 26 farms in South Carolina,
                                                                                Hawaii and Texas produced a record crop of
                                                                                farm-raised shrimp, approximately 2,500
                                                                                metric tons, 25 % more than the estimated
                  'This assumes operating at 50% of full capacity in            2,000 tons in 1992 (Rosenberry, 1993).
                  year 1.                                                       However, the United States remained a rela-
                                                                                tively small producer of farm-raised shrimp,
                                                                                accounting for less than 2 % of the production








                                                                        2
                  in the Western Hemisphere. In 1993, South                  of aquaculture projects, including discounted
                  Carolina with 14 fanns and about 100 hectares              cash-flow technique, is discussed in Rhodes
                  (ha) in commercial production, accounted for               (1991).
                  approximately 20% of the nation's cultured
                  shrimp output (unpublished data, S.C. Depart-                         LITERATURE REVIEW
                  ment of Natural Resources, 1994).
                                                                                 Sandifer, et al. (1993) conducted pond
                      The profitability of South Carolina's (SC)             experiments at Waddell Mariculture Center to
                  shrimp mariculture industry is dependent on                compare production characteristics of the
                  many factors including the availability of                 native P. setiferus and Pacific P. vannamei
                  viable postlarvae (PL) at a competitive price.             white shrimp in South Carolina. The produc-
                  The SC farms have been generally dependent                 tion levels achieved in 1989 are thought to be
                  on out-of-state suppliers for PL of the species            among the highest achieved with P. setiferus in
                  of choice, P. vannamei, a non-indigenous                   pond culture. Their results suggest that P.
                  marine shrimp (Rhodes, et al. 1992). Howev-                setiferus may be a viable alternative to P.
                  er, farmers have become apprehensive about                 vannamei for intensive cultivation in the con-
                  future supply and quality of imported PL. In               tinental U.S. when P. vannamei are unavail-
                  1989, many farms had to reduce planned                     able. They suggest that further evaluation of
                  stocking densities and/or not stock all their              this potential is needed.
                  ponds due to an apparent shortage of quality
                  PL's (McGovem-Hopkins et al. 1991). In                         Griffin, et al. (1984) used a conceptual
                  addition, environmental concerns have incre-               model that included production, engineering,
                  ased in recent years regarding the perceived               marketing, environment and profit as sub-
                  impacts of farming non-indigenous shrimp in                models and a bioeconomic factors simulation
                  the United States. Industry awareness has also             model to evaluate a projected penaeid shrimp
                  increased relative to possible negative impacts            maricultural operation on the Texas coast.
                  of shrimp diseases carried by PL from out-of-              The results showed that the operation would
                  state hatcheries. Consequently, as concerns                prove marginally economically feasible based
                  have increased, research has been conducted to             on assumptions of the study. A 2 % chance of
                  evaluate the financial feasibility of producing            loss and a 4.5 % annual return on investment
                  commercial quantities of indigenous P. setif-              were predicted by using baseline simulations.
                  erus versus specific pathogen-free P. vannamei
                  in South Carolina. In addition, the effects of                 Adams, et al. (1980) developed a bio-
                  continuous live harvesting versus one final                economic engineering model for shrimp mari-
                  harvest on the profitability of the two species            culture systems for a hypothetical grow-out
                  is evaluated. The information in this report               operation in Brazoria County on the northern
                  should be of use to prospective aquaculturists,            Texas coast. A budget simulation was devel-
                  investors, and perhaps lending institutions and            oped to examine economies of size. Budgeting
                  policy makers.                                             and cash-flow statements were used to examine
                                                                             penaeid shrimp mariculture systems. Their
                      Capital budgeting decisions, i.e., all ac-             results suggest that the size of the individual
                  tions relating to the planning and financing of            pond which captures most economies of size is
                  capital outlays for the purpose of purchasing              2.5 acres and the number of ponds which
                  equipment and facilities, are a key factor in the          achieves most of the economies of size for the
                  long-term profitability of the shrimp farm. In             firm is 24. For this operation, IRR to total
                  this study, discounted cash flow analysis, one             investment is 17%.
                  of the financial tools that is used to aid an
                  investor in making wise capital budgeting                      Hollin and Griffin (1985) examined the
                  decisions, is used to compare the profitability            economies of: (1) growing one crop of large
                  of P. setiferus versus P. vannamei and contin-             shrimp per year versus two crops of medium
                  uous live versus one final harvesting strategies.          size shrimp, and (2) small, intensive ponds
                  The application of financial feasibility analysis          versus large, sen-ii-intensive ponds. The after-







                                                                        3
                  tax internal rate of return (IRR) in the base               of total facilities and pond size generally in-
                  scenario for the 500 acre system was 14.61 %                crease IRR. For example, a 40 ha facility
                  and for the 40 acre system was 9.1 %. When                  with 4 ha ponds had a mean after-tax IRR of
                  the production strategy was changed from one                0.75 %, while a 400 ha facility with 20 ha
                  crop to two crops, the IRR on the 500 acre                  pond sizes had a mean IRR of 13.31
                  system increased to 22.8 %. The most signifi-
                  cant change in the IRR was brought about by                            MIETHODS AND DATA
                  increasing the survival rates. When the sur-
                  vival rate was increased from 50 to 70%, IRR                    The hypothetical farm described in this
                  increased from 14.6 to 25%.                                 paper is based on recommended best manage-
                                                                              ment practices. Production and cost estimates
                      Pardy, et al. (1983) estimated density                  are predicated upon experience at Waddell
                  dependent growth equations for two species of               Mariculture Center (WMC), South Carolina
                  penaeid shrimps, P. stylirostris and P. van-                commercial shrimp farms and vendors of
                  namei. Based on these equations, a simulation               supplies and services to the aquaculture indus-
                  model was developed to examine the effects of               try. Other agencies, such as USDA-Soil Con-
                  alternative stocking densities and cropping                 servation Service, U.S. Army Corps of Engi-
                  schemes on various variables including gross                neers, and S.C. Department of Health and
                  revenue and revenue above total selected costs.             Environmental Control, provided data on pond
                  They found that the one harvest production                  construction costs, licenses, permits, etc.
                  strategy resulted in the greatest gross revenue,
                  no matter what stocking densities were chosen.                      Facilfty Desigg and Eatdpment
                  The one crop system generally results in larger
                  shrimp and thus, greater market price and                       The hypothetical facility analyzed in this
                  higher revenue above selected costs.                        report consists of 24 ponds each of I hectare
                                                                              in size constructed on a 31 hectare farm that is
                      Griffin and Lambregts (1993) evaluated                  leased near a saltwater source. The average
                  the effects of pond design (pond size, pond                 pond depth is 1.3 m. A 3-m levee (wide
                  shape, levee crown size and canal bank slope)               enough for service vehicles) separates each
                  on the after-tax IRR of a 40 ha shrimp farm.                pond. It is assumed that the use of the land
                  Regression analysis was used to examine the                 was to grow row crops and consequently there
                  relationship between pond design variables and              are few stands of trees.
                  the IRR. Results suggest that pond shape, fol-                  Water exchange is made available to im-
                  lowed by pond size, were the most influential               prove water quality (such as dissolved oxygen
                  variables. An increase in pond size from 2 to               and water temperature). A minimum water
                  10 ha increased IRR from 17.2 to 21.3%.                     exchange rate of 5 % is used in this study.
                  The results are specific to the design, size of             However, the farm has the capacity to
                  the farm and soil type and therefore, can not               exchange a maximum of 20% of the water in
                  be extrapolated outside the analyzed designs.               any one pond. Therefore, the farm has six
                  The authors also addressed the possibility of               pumps with flow ratings of 9.1 in' of water
                  increasing operating risks associated with large            per minute and 25 horsepower motors. A 12
                  ponds.                                                      in levee separates each pond from the fill and
                                                                              the discharge canals (Figure 1). The fill canal
                      Hanson, et al. (1985) analyzed the effects              water will be gravity fed into each pond via an
                  of 12 different facility sizes on the profitability         intake riser and released through a discharge
                  of producing a single species of shrimp, P.                 riser into the discharge canal (Figure 1).
                  stylirostris. Stochastic processing of the model            These risers regulate water flow with a system
                  permitted random fluctuations in prices, pro-               of boards. Two 10-horsepower paddle-wheel
                  duction, weather and survival rates within their            aerators will be placed in each pond. All
                  probability density functions. However, risks               electrical wiring for pumps and aerators will
                  associated with larger pond sizes are not exam-             be 3 phase.
                  ined. The results suggest that increased sizes








                                                         4

                            Discharge                   P     S.,,,...,pettling Basin
                            Structure-,,
                                                                            Intake Structure







                                                            - ------ ------ Intake Canal






                                                                             Discharge Canal




                 Arrows indicate direc-
                 tion of water flow.






















                                                       SCALE
                                                 0.5 inch = 110 yds.
               Legend

                                                                              12M (39ft.) Levee
                         Acres (1 HA)                                        3 M (1 Oft.) Levee
                 F       Each pond is approx. 2.5

        Figure 1 -          Hypothetical Shrimp Farm Design
                            (Gravity Feed Water System)







                                                                        5
                      Other facilities and equipment include: (1)             third year onwards production is at 100 % of
                  an office trailer, (2) a 1,000 square feet lab/sh-          capacity; and (7) the actual operating time is a
                  op, (3) a 2,000 square feet warehouse, (4)                  six month season. The straight-line deprecia-
                  three medium sized silos each holding 50,000                tion method is used. A business manager, a
                  pounds of feed, (5) one longbed pickup truck                technical manager, a clerk/typist/receptionist
                  and one flatbed truck, (6) one 23 horsepower                and two pond management and maintenance
                  tractor for light work and towing feeder and                crew work full time. Part time employees are
                  one 52 horsepower tractor for canal and pond                a security officer, and harvest and other sea-
                  maintenance, (7) one feed blower, (8) one ice               sonal labor. It is also assumed that this hypo-
                  machine, (9) harvest, office, lab equipment,                thetical facility is not funded by debt capital,
                  and (10) pre-start up project and survey re-                i.e., no loans. The annual financial projec-
                  ports.                                                      tions for this facility are generated using a
                                                                              Lotus 1-2-3 spreadsheet template prepared by
                             Production AssumRti
                                                    :ons                      Applied Analysis, Inc. (AAI), (Leung and
                                                                              Rowland, 1989). The model does not account
                      Specific pathogen free (SPF) P. vannamei                for natural disasters such as droughts, hurri-
                  is used in this study. SPF P. vannamei be-                  canes, etc.
                  came available for distribution to the United
                  States in 1989 (Wyban, et al. 1993). It has                              Production Scenaxios
                  been found that use of SPF P. vannamei has
                  increased survival rate, feed efficiency, pro-                  In the base scenarios, Scenario S and S2A,
                  duction and profitability for the shrimp indus-             ponds are stocked at 80 PL/ml in late April.
                  try (Wyban, et al. 1992).                                   An aggregate survival rate of 70% is assumed.
                                                                              Based on the growth model, harvest weights
                      The length of grow-out cycle is 5.0                     for P. vannamei and P. setiferus were estimat-
                  months. Risks associated with growing shrimp                ed. In addition, it is assumed that all shrimps
                  include natural disasters nutritional and envi-             are produced for normal market sales, i.e., no
                  ronmental factors, such as low quality feed,                live shrimp sales. These shrimps are sold
                  poor water quality, pollution, and associated               head-on to individuals, restaurant distributors,
                  low dissolved oxygen events. The risks of                   and wholesalers. Prices are those that pre-
                  growing shrimp are not examined in this                     vailed in South Carolina in 1993 for the esti-
                  study. A feed conversion rate of 2.0:1 is used              mated harvest weights.
                  in this study. The harvest weight is estimated
                  using a density dependent growth model (see                     The following 7 scenarios for the two
                  Appendix 1). This growth model was estimat-                 species are developed to evaluate the effects of
                  ed using data collected at Waddell Mariculture              alternative stocking densities, survival rates,
                  Center and adjusted for commercial grow-out                 and prices' (see Table 4):
                  experience.
                                                                                  Scenario S: Stocking density of 80
                         Major Fmmcial and ORtratima                              PL/m, aggregate survival rate of
                                    Assppjgfions                                  70%, price of $4.95/kg for P. vanna-
                                                                                  mei and $4.73/kg for P. setiferus
                      The major financial and operating assum-
                  ptions are the following: (1) the price of PL                   Scenario SIA: Stocking density of 60
                  including transportation is $10.00 per 1,000;                   PL/m@, aggregate survival rate of
                  (2) cost of feed (F.O.B., farm site) is $0.55                   70%, price of $4.95/kg for P. vanna-
                  per kilogram (kg); (3) electricity cost is                      mei and $4.73/kg for P. setiferus
                  $0.07/kilowatt-hour(kwh); (4) discount rate is
                  10%; (5) planning horizon is 10 years; (6)
                  initial investment starts in year 0, first year             11994 prices reported by SC shrimp producers were
                  output is 50% of maximum capacity, second                   significantly higher than 1993 prices.
                  year output is 75% of maximuirn capacity, and








                                                                        6
                       Scenario S1B: Stocking density of                      species produced. For P. vannamei, operating
                       100 PL/ml, aggregate survival rate of                  cost in year 1 is $0.38 million. Therefore, P.
                       70%, price of $4.95/kg for P. vanna-                   vannamei requires a total initial investment of
                       mei and $4.73/kg for P. setiferus                      $1.36 million before any revenue from sales is
                                                                              received. For P. setiferus, projected operating
                       Scenario S2A: Stocking density of 80                   cost in year 1 is $0.35 million with a total
                       PL/ml, aggregate survival rate of                      initial investment of $1.33 million.
                       70%, price of $4.73/kg.
                                                                                  A simple, pro forma annual income state-
                       Scenario S2B: Stocking density of 80                   ment for operating years three through ten was
                       PL/m@, aggregate survival rate of                      generated for the hypothetical P. vannamei
                       70%, price of $5.28/kg.                                shrimp farm (Table 2). Projected annual sales
                                                                              are $ 1. 11 million at full capacity and total cash
                       Scenario S3A: Stocking density of 80                   operating cost is $0.77 million. Feed and PL
                       PL/ne, aggregate survival rate of                      accounted for the largest percentage of operat-
                       65%, price of $4.95/kg.                                ing cost, 3 3 % and 25 %, respectively. Energy
                                                                              accounted for 10% of the operating cost.
                       Scenario S3B: Stocking density of 80                   Total annual cash outflow is $0.86 million.
                       PL/rre, aggregate survival rate of                     Net cash flow after taxes is $0.25 million.
                       75 %, price of S4.95/kg.
                                                                                  The ten-year (after estimated income tax-
                       Another scenario, Scenario S4 (see Table               es) internal rate of return (IRR) and net pres-
                  4), evaluates the effects of live harvesting on             ent value are projected. The ten-year IRR is
                  IRR and NPV. The marketing experience of                    15. 1 % (Table 2), which is greater than the
                  S.C. shrimp growers have shown that these                   base-scenario after-tax discount rate of 10%.
                  buyers are seafood distributors or "live haul-              Net present value (NPV) in ten years is pro-
                  ers" selling to Oriental restaurants in the                 jected to be $232,000.
                  Northeastern United States (Rhodes, et al.
                  1994). The projected aggregate demand for                       The pro forma annual income statement
                  live marine shrimp by restaurants in the conti-             for operating years three through ten for a
                  nental U.S. is quite small, approximately 30%               hypothetical P. setiferus shrimp farm in South
                  of the 1993 U.S. farmed shrimp production.                  Carolina was generated (Table 3). Projected
                  Therefore, in Scenario S4, only 5 % of produc-              annual sales are $0.81 million. Total cash
                  tion is assumed as live marketed. VvIen har-                operating cost is $0.71 million. Feed and PL
                  vesting shrimp for live shrimp buyers, it is                accounted for the largest percentage of pro-
                  assumed that labor costs $200 for a 250 kg                  jected operating cost, 27%. Energy accounted
                  shipment. In this analysis, no other changes in             for 12% of the operating cost. Total annual
                  operating costs are associated with live shrimp             cash outflow is $0.71 million. Net cash flow
                  marketing.                                                  after taxes is $0. 10 million.

                                      RESLTLTS                                    The ten-year IRR is negative 4.9% and
                                                                              NPV is negative $568,000. The negative NPV
                                   Base Scenarios                             for P. setiferus indicates that this operation
                                                                              will not generate a positive return on equity if
                       Initial investment in facilities and equip-            all shrimp are used for normal market sales.
                  ment is $998,000 (Table 1). Equipment costs                 Unless prices rise above $5.48 per kg, an
                  were approximately 49% of this cost. Land                   increase of approximately 16% above levels
                  clearing and construction costs account for                 for 1993, producing P. setifents will not be
                  approximately 48 %.                                         profitable based upon this analysis. In con-
                                                                              trast, the positive NPV for P. vannamei shows
                       Due to differences in growth rates and                 the potential profitability of culturing this
                  resulting feed costs, operating costs depend on             species. Prices in 1993 are approximately







                                                                    7


                Table 1.         Summary of Facility and Equipment Costs for a Hypothetical Shrimp Farm in South
                                 Carolina, 1993.



                Item                                                 Cost               Percent'        Useful Years



                DEVELOPMENT COST
                Project Report 10,000                                                        20
                Project Manager                                   20,000
                                 Subtotal                     $   30,000                     3.0



                LAND CLEARING AND FACILITIES
                Land Clearing 85,800                                                         20
                Pond Construction                                 180,000                                     10
                Discharge and Intake System                       96,000                                      10
                Buildings                                         44,000                                      20
                Other                                             71,955
                                 Subtotal                     $ 477,755                     47.9



                EQUIPMENT
                Harvest Equipment                                 15,000                                      10
                Feed Storage Bins                                 36,000                                      10
                Paddlewheels                                     240,000                                        5
                Trucks/Tractors                                   50,000                                        5
                Feeding System                                    40,500                                        5
                Power Equipment                                   11,000                                      10
                Pumps                                             82,800                                        5
                Other                                             15,000
                                 Subtotal                     $ 490,300                     49.1



                TOTAL COSTS                                      998,055                   100.0



















                      Percent of total cost








                                                                   8
                 Table 2.       Projected Annual Income Statement for Operating Years Three Through Ten, and
                                Discounted Cash Flow Analysis in      the Base Scenario for a Hypothetical Penaeus
                                vannamei Shrimp Farm in South Carolina.

                 Item                                                   Value or Cost                   Percent'
                                                                        (In Thousands)



                 Proiected Annual Sales                                 $ 1,108
                 (223,910 kilograms at $4.95/kg)

                 Projected Annual Expenses
                 Juveniles                                                   192                          25
                 Feed                                                        252                          33
                 Energy                                                       80                          10
                 Lease Rent                                                   60                            8
                 Labor                                                        59                            8
                 Salaried Personnel                                           83                          11
                 Contingency                                                    8                           1
                 Other                                                        33                            4


                 TOTAL OPERATING COST                                    $   767                         100

                 Projected Depreciation                                      129
                 Total Operating Costs with Depreciation                     897

                 Projected Taxable Income                                    212
                 (Sales Minus Total Operating Costs)

                 Taxes (Federal. and Local)                                   79

                 Income After Taxes                                          132
                 (Taxable Income Minus Taxes)

                 Total Annual Cash Outflow                                   847
                 (Total Operating Costs plus Taxes)

                 Net Cash Flow                                               262
                 (Sales Minus Annual Cash Outflow)


                 Discounted Cash Flow Analysis
                                                                          10 years
                 Net Present Value (dollars 000's) at 10%                    232

                 Internal Rate of Return (percent)                        15.09%



                 'Percentage of total operating cost.







                                                                      9
                 Table 3.         Projected Annual Income Statement for Operating Years Three Through Ten, and
                                  Discounted Cash Flow Analysis in the Base Scenario for a Hypothetical Penaeus
                                  setiferus Shrimp Farm in South Carolina.

                 Item                                                      Value or Cost                    Percent'
                                                                           (in Thousands)


                 Proiected Annual Sales                                     $ 810
                 (171,226 kilograms at $4.73/kg)

                 Proiected Annual ExRenses

                 Juveniles                                                      192                           27
                 Feed                                                           192                           27
                 Energy                                                          80                           12
                 Lease Rent                                                      60                             8
                 Labor                                                           59                             8
                 Salaried Personnel                                              83                           12
                 Contingency                                                       7                            1
                 Other                                                           33                             5


                 TOTAL OPERATING COST                                          $706                           100


                 Projected Depreciation                                         129
                 Total Operating Costs with Depreciation                        837

                 Projected Taxable Income                                       -28
                 (Sales Minus Total Operating Costs)

                 Taxes (Federal and Local)                                       -6

                 Income After Taxes                                             -22
                 (Taxable Income Minus Taxes)

                 Total Annual Cash Outflow                                      702
                 (Total Operating Costs plus Taxes)

                 Net Cash Flow                                                  107
                 (Sales Minus Annual Cash Outflow)



                 Discounted Cash Flow An@ftsis
                                                                            10 years
                 Net Present Value (dollars 000's) at 10%                       -568

                 Internal rate of return (percent)                           -4.93%




                 'Percentage of total operating cost








                                                                       10
                  18 % greater than the break even price. That               farnis of similar sizes. The estimated IRR's
                  is, prices of P. vannamei can drop approxi-                range from 0. 75 % by Hanson, et al. (1985)
                  mately 18% and the producers will continue to              for a 40 ha facility to 4.5 % by Griffin, et al.
                  make a positive NPV.                                       (1984). The IRR of 9.06% estimated by
                                                                             Hollin and Griffin (1985) is with a survival
                                                                             rate of 50 %, less than that assumed in this
                                                                             study.
                               Alternative Scenarios
                                                                                 The estimated IRR for P. setiferus is less
                      P. setiferus is unprofitable (i.e. a negative          than the assumed discount rate for the base
                  NPV) in all the alternative scenarios consid-              scenario. Therefore, this operation fails to
                  ered in this analysis (Table 4). The profitabili-          generate a positive return on equity. The
                  ty of P. vannamei is sensitive to changes in               negative NPV may be improved if better
                  prices, stocking densities and survival rates.             growth can be achieved and/or by developing a
                                                                             specialty market for P. setiferus. Relatively
                      In scenario S4, 5 % of the shrimp are live             high growth rates have been recorded for this
                  marketed. Discounted cash flow analysis for                species in the wild or at relatively low densi-
                  P. vannamei and P. setiferus with 5 % of                   ties in ponds (Sandifer, et al. 1993 and WMC
                  production for live market sales and the re-               unpublished data). Achievement of these
                  maining 95 % of production for final market                growth rates in intensive pond culture will
                  sales were generated (Table 4). For P. vanna-              depend on improved diets and/or rearing
                  mei, the ten-year IRR is 16.9%, which is                   procedures for P. setiferus. Live shrimp
                  greater than the base scenario after-tax dis-              market segments for fishing bait are limited to
                  count rate of 10%. NPV in ten years is                     native species. Although wholesale bait
                  $321,000. The higher IRR and NPV in Sce-                   shrimp prices may be somewhat higher, there
                  nario S4, as compared to the base scenario                 is a potential risk of "flooding" this relatively
                  where 100% of the shrimp are for normal                    limited market. In addition, the lack of cost
                  market sales, indicates the potential higher               effective storage facilities may hinder entrance
                  profitability of selling shrimp to "live-haulers".         to these markets.
                  For P. setifew, IRR is 2.2 %, but the NPV is
                  still a negative -$320,000. Relative to the base               The projected IRR for P. vannamei,
                  scenario, live harvesting does improve the                 15. 1 %, is greater than the assumed base sce-
                  financial viability of a P. setiferus shrimp               nario discount rate of 10%. The positive NPV
                  farm. However, the negative NPV still indi-                for P. vannamei indicates that commercial
                  cates that this operation would not generate a             shrimp farm in S.C. could have a positive
                  positive return on equity even if 5 % of the               return to equity assuming specific pathogen
                  shrimps are used for live market sales.                    free PL are used. Hollin and Griffin (1985)
                                                                             estimated an IRR of 22.5 % for a 40 acre farm
                                   DISCUSSION                                with an 80% survival rate, a survival rate 10%
                                                                             points higher than used in the base scenario in
                      Sandifer, et al. (1993) evaluated produc-              this analysis. The NPV for both species may
                  tion data from Waddell Mariculture Center                  be improved by operating larger facilities,
                  (WMC) and concluded that P. setiferus may be               integrating a nursery "headstart" operation
                  a viable alternative to P. vannamei for inten-             with the farm or if price increases.
                  sive cultivation in the continental U.S. when
                  P. vannamei are unavailable. They recom-                       The profitability of Pacific white shrimp,
                  mended further evaluation of this potential.               P. vannamei and the negative NPV of indige-
                  The preliminary financial analysis presented in            nous P. setifenis have implications on regula-
                  this report suggests that a P. setifenis commer-           tions that might affect the import of PL from
                  cial shrimp farm operation would only gener-               out-of-state. Regulations that exclude P.
                  ate a negative IRR. This is less than the range            vannamei as the target species could severely
                  of IRR estimated by other researchers for







                                                                       11
                Table 4.          Discounted Cash Flow Analysis for the Alternative Scenarios for Hypothetical Penaeus
                                  setiferus and Penaeus vannamei Shrimp Farm in South Carolina, 1993.


                Scenarios                            P. setiferus                                  P. vannamei
                                              NPV                   IRR (0/,)                    NPV              IRR


                Scenario S                 -$416,000                  -0.40%                $232,000*             15.09%*

                Scenario SIA               -$843,000                 -14.92%                -$275,000               3.40%
                Scenario   SIB             -$166,000                  6.11%                  $516,000             20.84%

                Scenario   S2A             -$568,000*                4.93%*                   $87,000             11-95%
                Scenario   S2B             -$201,000                  5.26%                  $438,000             19-31%

                Scenario   S3A             -$600,000                  -5.96%                  $55,000             11-25%
                Scenario   S3B             -$236,000                  4.40%                  $402,000             18-60%

                Scenario   S4              -$320,000                  2.22%                  $321,000             16.94%


                *BASE SCENARIO

                Scenario S        Stocking density of 80 PL/meter', aggregate survival rate of 70%, price of $4.95 / kg.

                Scenario SIA      Stocking density of 60 PL/meter, aggregate survival rate of 70%, price of $4.95 / kg for
                                  P. vannamei and $4.73 / kg for P. setiferus

                Scenario SIB      Stocking density of 100 PL/meter, aggregate survival rate of 70%, price of $4.95 / kg
                                  for P. vannamei and $4.73 / kg for P. setiferus

                Scenario S2A Stocking       density of 80 PL/meter, aggregate survival rate of 70%, price of $4.73 / kg.

                Scenario S2B      Stocking  density of 80 PL/meter2, aggregate survival rate of 70%, price of $5.28 / kg.

                Scenario S3A      Stocking  density of 80 PL/meter2, aggregate survival rate of 65%, price of $4.95 / kg.

                Scenario S2B      Stocking density of 80 PL/meter, aggregate survival rate of 75%, price of $4.95 / kg.

                Scenario S4       Stocking density of 80 PL/meter, aggregate survival rate of 70%, continuous live market
                                  sales of 5% and "normal" market sales of 95%.


                NPV = Net present value after taxes.
                IRR = Internal rate of return after taxes.
                After-tax discount rate is 10%.








                                                                        12
                  constrain the profitability of shrimp farming               Griffin, W.L., W.E. Grant, R.W. Brick, and
                  using the techniques outlined in this analysis.                     J.S. Hanson. 1984. A bio-econornic
                                                                                      model of shrimp maricultaral systems
                       Continuous live market sales have positive                     in the U.S.A. Ecological Modelling,
                  effects on net cash flows for P. setiferus and                      25(2):47-68.
                  P. vannamei. A 1993 survey conducted by
                  Rhodes, et al. (1994) suggests that opportuni-              Griffin, W.L., and J.A.D. Lambregts. 1993.
                  ties for selling live shrimp probably exist                         The impact of aquaculture pond
                  throughout the major metropolitan areas of                          engineering design on the returns to
                  continental U.S., especially in the Northeastern                    shrimp farms. Journal of the World
                  states, but the lack of cost effective storage                      Aquaculture Society 24(l):23-30.
                  facilities may hinder entrance to these markets.
                  In addition, the live shrimp market for S.C.                Hanson, J.S., W.L. Griffin, J.W. Richardson
                  producers seems relatively small. Unless addi-                      and C.J. Nixon. 1985. Economic
                  tional markets are identified, live harvesting of                   feasibility of shrimp farming in Texas:
                  large quantities of shrimps can have a negative                     An investment analysis for semi-inten-
                  impact on prices. Therefore, because the live                       sive pond grow-out. Journal of the
                  shrimp market is relatively small, it is irnpor-                    World Mariculture Society. 16:129-
                  tant that producers remain alert for potential                      150.
                  "oversupply" conditions that might signal a
                  major reduction in prices, particularly for live            Hollin, D. and W.L. Griffin. 1985. Prelimi-
                  market sales.                                                       nary economics of shrimp mariculture
                                                                                      in Texas. Presented at Texas Shrimp
                       This study confirms the findings in                            Farming Workshop, Corpus Christi,
                  Rhodes, et al. (1987) that the profitability of                     Texas.
                  S.C. marine shrimp operations is strongly
                  influenced by survival rates, stocking densities,           Leung, P.S. and L.W. Rowland. 1989. Finan-
                  etc. The effects of these variables on the                          cial analysis of shrimp production: An
                  financial viability of producing P. setiferus and                   electronic spreadsheet model. Com-
                  P. vannamei were examined by developing                             puters and Electronics in Agriculture
                  alternative scenarios. The models used in this                      3:287-304.
                  study are based on several simplifying assump-
                  tions, e.g., the land is leased. Nevertheless,              McGovern-Hopkins, K., C.L. Browdy, J.D.
                  in general, the model did demonstrate potential                     Holloway and J.S. Hopkins. 1991.
                  species effects on the direction of changes in                      Penaeid shrimp hatchery system de-
                  profits, and to a lesser extent, the magnitude                      velopment for South Carolina. (Ab-
                  of such profits. Therefore, it may be fruitful                      stract) World Aquaculture Society
                  for prospective shrimp aquaculturists, inves-                       22nd Annual Conf. & Expo., San
                  tors, and perhaps lending institutions and                          Juan, Puerto Rico, June 16-20, 1991.
                  policy makers to be aware of these findings.
                                                                              Pardy, C.R., W. L. Griffin, M.A. Johns, and
                                                                                      A.L. Lawrence. 1983. A preliminary
                              LITERATURE CITED                                        economic analysis of stocking strate-
                                                                                      gies for penaeid shrimp culture.
                  Adams, C. M., W.L. Griffin, J.P. Nichols                            Journal of the World Mariculture
                           and R.E. Brick. 1980. Application of a                     Society, 14:49-63.
                           bio-economic-engineering model for
                           shrimp mariculture systems. Southern
                           Journal of Agricultural Economics,
                           12(l):135-142.







                                                                       13
                 Rhodes, R.J., P.A. Sandifer and J.M. Whet-                  Wyban, James A., J. S. Swingle, J. N.
                         stone. 1987. A preliminary financial                        Sweeny, and G. D. Pruder. 1992.
                         analysis of semi-intensive penaeid                          Development and commercial perfor-
                         shrimp farming in South Carolina.                           mance of high health shrimp using
                         S.C. Marine Res. Ctr., Tech. Rpt. No.                       specific pathogen free (SPF) brood-
                         64.                                                         stock Penaeus vannamei. In: J.A.
                                                                                     Wyban (Editor), Proceedings of the
                 Rhodes, R.J. 1991. Economics of Aqua-                               Special Session on Shrimp Farming,
                         culture production: Financial Feasibil-                     World Aquaculture Society, Baton
                         ity. In: J.A. Hargreaves and D.A.                           Rouge, LA.
                         Alston (Editors), Status and Potential
                         of Aquaculture in the Caribbean.                    Wyban, James A., J. S. Swingle, J.N.
                         World Aquaculture Society, Baton                            Sweeney, and G. D. Pruder. 1993.
                         Rouge, LA.                                                  Specific pathogen free Penaeus vanna-
                                                                                     mei. World Aquaculture 24(l):39-45.
                 Rhodes, R.J., K. McGovern-Hopkins, and
                         C.L. Browdy. 1992. Preliminary
                         financial feasibility analysis of an inde-                           APPENDIX 1
                         pendent marine shrimp hatchery locat-
                         ed in South Carolina. S.C. Marine                      SHRIMP HARVEST WEIGHT MODEL
                         Res. Ctr., Tech. Rpt. No. 80.
                                                                             The empirical specification of the model is:
                 Rhodes, R.J., A. Johnson, C.L. Browdy, P.A.
                         Sandifer. 1994. Analyzing Live                      LWeight = bo + b, 4Age + b2 LDensity +
                         Seafood Marketing Opportunities in the              b3 Species + b4 Disease + b. Year 87 + b6
                         United States: The South Carolina                   Year88 + b7 Year89 + b8 Year9O + bg
                         Experience with Live Shrimp. (Poster)               Year9l blo Year92 + e .
                         Annual meetings of the World Aqua-
                         culture Society, New Orleans, LA,                   Where, LWeight = Log of average harvest
                         January 1994.                                       weight in grams per week, LAge =Log of the
                                                                             number of growout days in weeks; Disease
                 Rosenberry, B. 1993.    (Editor) World Shrimp               binary variable, equal to I if signs of viral
                         Farming: Special Report, Shrimp Far-                infection were observed during the growout
                         ming In The United States. Aqua-                    cycle (0 otherwise); Species = binary variable,
                         culture Digest, San Diego, CA 92131.                equal to one if species is P. vamamei (0 other-
                                                                             wise); and LDensity = Log of stocking
                 Sandifer, P.A., J.S. Hopkins, A.D. Stokes                   density, number stocked/m@ Year87,...,Year92
                         and C.L. Browdy. 1993. Preliminary                  = binary variable, equal to one for that year,
                         comparisons of the native P. setiferus              (0 otherwise).
                         and pacific P. vannamei white shrimp
                         for pond culture in South Carolina,                         There were a total of 100 observations
                         USA. Journal of the World Aqua-                     (ponds) in the data collected at Waddell Maric-
                         culture Society, 24(3):295-303.                     ulture Center during shrimp culture experi-
                                                                             ments conducted from 1984 to 1992. Each
                                                                             observation had 18 variables (Pond, year,
                                                                             stock date, harvest date, crop length, stock
                                                                             weight, harvest weight, growth rate, pond
                                                                             size, species, stock source, disease status,
                                                                             stocking density, number stocked, number
                                                                             harvested, estimated survival rate, production,
                                                                             and experimental comparison). The biweekly
                                                                             sampling data were excluded from the








                                                                       14
                  analysis. Among the 100 observations 45                            Binary variables, one for each year
                  ponds satisfied the criteria similar to the best           from 1987 to 1992 were included as a proxy
                  management practices recommended for S.C.                  for water temperature. To avoid problems
                  commercial shrimp farms.                                   with multicollinearity, the year 1986 is omitted
                                                                             and its effects are captured by the intercept.
                          The selected criteria are: a) survival             All the YEAR variables shift the intercept by
                  rate greater than 60%; b) density between 20               the amount of the estimated coefficient.
                  and 100 per square meter; c) ponds were
                  stocked before June 1; d) ponds were harvest-
                  ed late September or October; e) all aeration
                  rates were included; f) all exchange rates were
                  included; g) ponds in which shellfish were cul-
                  tured with shrimps were included.

                          The estimated regression coefficients
                  are presented in Table 5. Significance of the
                  estimated coefficients were tested at 0.05 and
                  0. 1 levels. Three criterion were used to ex-
                  amine the overall "goodness" of fit of the
                  regression models. The high F-value rejects
                  the null hypothesis that all the regression
                  coefficients for the explanatory variables are
                  simultaneously equal to zero. The W and the
                  adjusted RI indicate that a large percentage of
                  the variation in the dependent variable are
                  explained by the independent variables includ-
                  ed in the model - The adjusted W takes into
                  account the number of explanatory variables in
                  relation to the number of observations. There-
                  fore, in a multiple regression model, the ad-
                  justed W is preferred to R.

                          As expected, age and species have a
                  positive effect on the final harvest weight of
                  shrimps. A 1 % increase in age will increase
                  the harvest weight by 0.52 %. Species, a
                  binary variable, with a value of 1 for P. vann-
                  amei and 0 otherwise, increases the intercept
                  for the regression model for P. vannamei.

                          Density and disease have a negative
                  regression coefficient. That is, as expected, at
                  higher densities the average harvest weight
                  would be smaller. The results show that a 1 %
                  increase in density will decrease the harvest
                  weight by 0. 16 % Disease, a binary variable,
                  with a value of 1 for post larvae with disease
                  and 0 otherwise, will reduce the intercept for
                  the model P. vannamei with disease by the
                  estimated coefficient.







                                                                15





                    Table 5.        Regression Coefficients for the Harvest Weight Model','



                                                 Variable           Coefficients
                                                   Name

                                              Intercept                  0.62*
                                              Age                        0.52*
                                              Density                   -0. 16*
                                              Species                    0.13*
                                              Disease                    -0.07**

                                              Year87                     -0.05

                                              Year88                     0.07

                                              Year89                     0.18

                                              Year9O                     0. 15*

                                              Year9l                     0. 12*

                                              Year92                     0.01

                                                Variables significant at 0.05 level
                                                Variables significant at 0.10 level






           'Harvest weight model adjusted for commercial grow-out experience in Penaeus vannamei:
           Lweight = 0. 85 + 0.52 LAge - 0. 16 L Density.
           bPenaeus setiferus: Lweight    0. 75 + 0.52 LAge - 0. 16 L Density.




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