Economic and financial implications of shrimp farming in West Texas

Abstract

A research and demonstration shrimp producing facility was established at Imperial, Texas in 1991. The results showed technical feasibility. Using data collected from the facility in West Texas and commercial operations on the Southern coast of Texas economic feasibility of shrimp farming in far West Texas was evaluated. A commercial shrimp production facility utilizing 24 surface hectares of ponds and implementing a two crops per year production strategy was assumed. The analysis involved application of a spreadsheet simulation model and included static and stochastic analyses. Investment in this analysis was less than one million dollars. Investors were assumed to carry 100% of this investment. The majority of the fixed costs was the amortization of the investment. The remaining fixed costs were managerial salaries, fees, and insurance payments. Variable costs were high. The greatest cost to the shrimp farming operation was processing the shrimp. The cost of purchasing feed was the next highest operational expense. Together, these two expenses consisted of 57% of the total variable costs. A static analysis where all factors and parameters were fixed and known with certainty suggests an internal rate of return (IRR) of 6.3% based on annual production of 3,412 kgs/ha of shrimp sized 15.71 g. When stochastics (risk) were introduced, the IRR dropped dramatically to 1.8%. The standard deviation of the IRR was also 1.8% which implies that a negative IRR occurs 16% of the time. This suggests that shrimp farming at this time is relatively risky with a limited return on investment in West Texas. Risk was included for survival, growth rate, and price. A final risk analysis incorporated catastrophic events whereby there was a 5% percent probability of losing 100'-. of the shrimp in all of the ponds during the production of a single crop. With catastrophic events, the shrimp farm was projected to have negative net returns 80% of the time.