A System Dynamics Analysis of Boom and Bust in The Shrimp Aquaculture Industry
A System Dynamics Analysis of Boom and Bust in The Shrimp Aquaculture Industry
A System Dynamics Analysis of Boom and Bust in The Shrimp Aquaculture Industry
a
Centre for Marine Studies, University of Queensland, Brisbane, QLD 4072, Australia. E-mail: [email protected]
b
Sun Yat-sen University, Guandong, China.
* Correspondence to: Steve Arquitt.
System Dynamics Review Vol. 21, No. 4, (Winter 2005): 305–324 Received January 2005
Published online in Wiley InterScience Accepted June 2005
(www.interscience.wiley.com). DOI: 10.1002/sdr.313
Copyright © 2005 John Wiley & Sons, Ltd.
305
306 System Dynamics Review Volume 21 Number 4 Winter 2005
research on coral reefs, Despite the apparently bright picture of growth and export earnings at the
seagrass beds, and global scale, the shrimp farming industry has exhibited an extremely unstable
mangroves. Professor
Johnstone is also
pattern of development strongly associated with ecological damage and nat-
working to develop ural resource depletion. Examination of Figure 1 reveals patterns of boom and
appropriate tools and bust at national scales. In the early 1980s the industry grew rapidly in Taiwan,
approaches for better China and The Philippines only to suffer dramatic production crashes within
integration of a few years. Boom and busts have been observed both at national scales
environmental science
into decision making
and within countries. In Thailand, for example, the national production
processes for coastal figures have remained high but mask a series of boom and busts in which the
zone management. industry has developed rapidly in one region only to crash and migrate to
another (Huitric et al. 2002). The production crashes have left extensive areas
of abandoned shrimp ponds and depleted natural resources, in particular
coastal mangrove forests, and have caused social damage through loss of
employment in shrimp farming and related side industries.
This paper describes a system dynamics model developed to examine the
underlying causes of boom and bust in the shrimp aquaculture industry and
to aid in policy design for improved sustainability. The development of the
model was guided by a case study of shrimp aquaculture in Thailand. Thailand
is one of the world’s leading producers and exporters of farmed shrimp, and its
shrimp aquaculture industry has been the subject of much study and debate.
The model builds on earlier work modeling the shrimp commodity system
Fig. 1. Shrimp
aquaculture
production in main
producing countries
(Source: FAO, Kautsky
et al. 2000)
S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 307
(Arquitt 1995; Arquitt et al. 2003) and was informed by the shrimp commodity
modeling project undertaken by the Sustainability Institute (Johnston et al.
2002). The model is based on recognized commodity modeling principles
(Meadows 1970; Sterman 2000) and is general enough to be applicable to
shrimp aquaculture in other countries. It is hoped that this study will contrib-
ute to the ongoing debate on policy for environmental sustainability of the
shrimp farming industry and other aquacultural commodity systems.
the area of adjoining intact mangrove required to assimilate farm waste and
sustain production for a unit area of shrimp pond, the size of the footprint
being directly related to the farming intensity.4 An indication of an area’s
carrying capacity for shrimp farming can be obtained by dividing the man-
grove area by the average footprint. If the carrying capacity is exceeded,
organic waste from shrimp farms accumulates and yields fall due to pollution
and, in particular, to increased incidence of infectious shrimp diseases that
occur under polluted conditions.
Model structure
General structure
The bulk of shrimp aquaculture production is traded on international markets;
in the case of Thailand over 90% of production is exported. We have therefore
modeled Thai shrimp aquaculture within the context of an international com-
modity system. To accomplish this, inventory, production, and ecological
sectors specific to Thailand were developed. Rest of world (ROW) inventory
and production sectors model shrimp supply from all other countries. We
have not included an ROW ecological sector on the assumption that world-
wide shrimp farming and capture industries are able to maintain production
by moving into unexploited areas over the time horizon considered in this
study. Thai shrimp production is disaggregated into two sectors representing
production undertaken within mangrove zones and production in coastal
inland areas adjacent to mangroves. This makes it possible to model policy
that shifts advantage from mangrove based to more sustainable near-shore
inland production. The model does not consider shrimp production in far
interior regions discussed in the previous section. Figure 2 shows principal
feedback loops operating between sectors.
The demand, inventory, and production sectors are based on the generic com-
modity model developed by Meadows (1970) and refined by Sterman (2000).
Balancing feedback loops between the demand, inventory, and production
310 System Dynamics Review Volume 21 Number 4 Winter 2005
Fig. 2. Organization
of shrimp commodity
model showing
feedback loops
between the sectors
sectors (loops B1, B2, B3, B4, B5) seek to equilibrate supply and demand by
adjusting prices to maintain inventory coverage at desired levels. Balancing
loops between the Thai production sectors and the ecological sector mimic
environmental limits on shrimp production. When production rises through
farming intensification (loops B6, B7) and expansion (loops B8, B9), the
industry ecological footprint increases and yields begin to fall as the footprint
outstrips the mangrove area. Expansion of mangrove shrimp farms directly
consumes the mangrove resource base and ultimately results in a production
crash (loop B10). Note that all feedback loops between sectors are balancing.
Reinforcing loops causing growth of Thai production are contained within the
Thai production sectors.
Fig. 3. Simplified stock and flow structure of Mangrove Shrimp Farm Production sector. Variables outside the large rectangle
are developed in other model sectors
Production is the product of farm area and yield with a delay to account for
the time lag between seeding the crop and harvest. Yield is a function of
farming intensity and ecological effect. Intensity adjusts after a delay to a level
indicated by the expected mark-up ratio, formulated as the ratio of expected
revenue to expected variable costs. The model does not explicitly distinguish
between the three modes of farming intensity described earlier, but treats
intensity as a smooth continuum.
Initial investment is modeled as an exogenous one-time pulse. Farm area
expands or contracts in response to expected profitability, which is formulated
as expected long-run profit divided by expected revenue. Expected profit-
ability for new entry farms is based on yield expectations uninfluenced by
ecological feedback. This is because new farms are typically initiated in rela-
tively unspoiled areas. Expected profitability for existing farms is based on
yields that are influenced by the environment. This means that new farms are
initiated as existing farms are abandoned, mimicking the sequential exploita-
tion of mangroves described by Huitric et al. (2002). A supply chain captures
delays and momentum associated with planning and construction. Mangroves
are modeled as a partially renewable resource. We assume that some mangrove
is cleared for other purposes at a constant fractional rate. Also, a fraction of
abandoned mangrove shrimp farm land is converted to other purposes. We
assume that the remaining abandoned area eventually regenerates back to
mangrove. A stock representing mangrove seedlings captures inertia asso-
ciated with regeneration.
312 System Dynamics Review Volume 21 Number 4 Winter 2005
The Thai Coastal Inland Shrimp Production Sector models shrimp farming
in the coastal inland adjoining the mangrove zone. The decision-making and
stock and flow structure is similar to the Thai Mangrove Shrimp Production
Sector. The only notable difference is that mangroves are not cleared by farm
expansion and abandoned farm land returns directly to a stock of coastal
inland available for farming.
The Ecological Sector models environmental influence on yields of mangrove
and coastal inland shrimp farms. The sector structure is shown in Figure 4.
Base simulation
The simulation time horizon is 50 years. Euler integration was used with DT
set to 0.125.
The base simulation shown in Figure 5 shows a decided overshoot and
collapse pattern of production similar to cases observed in Thailand, Taiwan,
China, The Philippines and other countries. The variables shown are (1) Man-
grove Area, (2) Total Thai Production, (3) Thai Mangrove Farm Production,
and (4) Thai Coastal Inland Farm Production.
1. Pre-investment phase, year 1970 to 1975. From year 1970 the mangrove
area decays gradually at a fixed fractional rate representing exploitation for
timber and conversion to other land uses. Shrimp farm area and production
are zero.
2. Exponential growth phase, year 1975 to approximately 1991. In 1975 shrimp
farms are initiated in mangrove and coastal inland areas and production
begins to grow exponentially in response to attractive expected profit-
ability. Mangrove farm production increases faster than inland because
land acquisition cost is lower.
3. Decelerating growth phase, approximately 1991 to 1997. At approximately
year 1991 the growth of production begins to slow due to declining yields
caused by environmental feedback as the ecological footprint begins to
exceed the mangrove area, and as the mangrove resource base is consumed.
314 System Dynamics Review Volume 21 Number 4 Winter 2005
4. Collapse phase, year 1997 to year 2007. After reaching a peak around year
1997 production drops rapidly as unprofitable farms are abandoned or
converted to other uses and the rate of new entries declines.
5. Post collapse phase, beginning approximately year 2007. With mass closure
of shrimp farms the ecological footprint is reduced and environmental
pressure on yields relaxes. Mangroves are not entirely depleted because
appropriation cost has risen with increasing scarcity of mangroves. A level
of coastal inland production much lower than the production peak in 1997
is now sustained by the remaining mangrove stock. Mangrove shrimp farm
production declines gradually toward zero because of greater fixed cost
associated with mangrove scarcity.
Fig. 6. Comparison
of simulated and
historical data for total
production in coastal
zones of Thailand.
Estimated production
figures for interior
shrimp farming are
not included in the
historical data shown
on the diagram
Policy analyses
Our policy objectives are twofold: (i) a sustainable shrimp farming industry that
can provide sizeable benefits of foreign exchange earnings and employment;
and (ii) conservation of mangrove resources that are essential to the sustainability
of the shrimp farming industry, capture fisheries, rural incomes and biodiversity.
The policy debate on shrimp aquaculture is bipolar. At one extreme are pro-
ponents of high-cost technological solutions to reduce and eventually eliminate
the dependence of shrimp farming on ecological services. On the other are
advocates for sustainable shrimp farming based on conservation of natural
capital and recognition of ecological carrying capacity (Kautsky et al. 2000).
Technology
Technological improvements include water treatment and recirculation systems
to reduce dependence on the environment, and species selection and breeding
programs to improve disease resistance. The benefits of these technologies can
be construed as a reduction in the shrimp farm ecological footprint. To test the
impact of gradual adoption of improved technology we conducted a simula-
tion with exogenous 2.5% per year reduction in the industry’s ecological
footprint. By the year 2020 the average footprint is approximately one third of
the value in 1975. The results are shown in Figure 7.
Production reaches a higher maximum than in the base simulation but a
pronounced boom and bust pattern is still present. The simulation implies that
farmers will be unable to internalize benefits from technological improve-
ments if the shrimp farm population is allowed to overcrowd and consume the
ecological carrying capacity.
Eco-taxes
A variety of eco-tax schemes have been proposed to promote sustainable
shrimp aquaculture by discouraging over-exploitation of natural capital. These
include a start-up tax on new shrimp farms to slow excessive growth of the
industry (Parks and Boniface 1994), a tax on variable inputs such as feeds to
encourage farmers to reduce farming intensity (Bailly and Willmann 2001),
and taxes on farms located on lands unsuitable for sustainable farming (Miller
1999). However, the enforceability of taxes assessed directly on farmers ap-
pears impracticable for the same reasons that enforcement of regulations on
effluents and land use has proven ineffective (Miller 1999, Bailly and Willmann
316 System Dynamics Review Volume 21 Number 4 Winter 2005
Fig. 7. Simulation
with exogenous
improvement in
technology
Fig. 9. (a)Sensitivity
of Total Thai
Production to export
tax and rebate policy.
(b) Sensitivity of
Mangrove Shrimp
Farms Production to
export tax and rebate
policy. (c) Sensitivity
of Inland Shrimp Farm
Production to export
tax and rebate policy.
(d) Sensitivity of
Mangrove Area to
export tax and rebate
policy
Fig. 9. (Continued)
countries where shrimp farming industries are being planned or are in early
stages of development. Figure 9 shows impacts on total production, mangrove
farm production, coastal inland production, and the mangrove stock when the
tax and rebate policy is implemented in 1975, the year of industry initiation.
Time path 1 represents the base simulation with the unit export tax set to 0.
Time paths 2, 3 and 4 represent cases with the export set to U.S. $1, 2, and 3 per
kilogram, respectively.
320 System Dynamics Review Volume 21 Number 4 Winter 2005
When the export tax is set to U.S. $1 the impact on the system is negligible.
When set to $2 the overshoot and collapse pattern of total production is
reduced; however, mangrove deforestation from the expansion of mangrove
shrimp farms is still significant. When set to $3 the overshoot pattern is greatly
reduced and mangrove destruction by shrimp farm expansion is negligible.
Production still declines gradually because the mangrove resource base is
being continuously eroded by conversion to other uses. The simulations shown
in Figure 9 indicate that the export tax rate is a behaviorally influential para-
meter for the tax and rebate policy. To achieve the policy goals the tax must be
set high enough to discourage the entry or continuance of unlicensed farming
operations by reducing expected profitability.
Part of the tax receipts under the tax and rebate policy could be allocated to
supplement research and education programs encouraging farmers to adopt
improved technology or management practices. Figure 10 shows simulation
results when a U.S. $3 tax and rebate policy is implemented with a continuous
2.5% reduction in environmental footprint associated with adoption of im-
proved technology and management.
In this case production climbs to a higher level than with the U.S. $3 export
tax and rebate program alone and is sustained even as the mangrove resource
base gradually erodes due to exogenous factors. As improved technology and
management become more widely adopted, the average ecological footprint of
farms decreases, causing the environmental carrying capacity for the industry
to increase. After a recognition delay the licensing limitation is raised to the
recognized carrying capacity.
S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 321
Discussion
The export tax and rebate policy proposed in this paper attempts to limit the
industry to the ecological carrying capacity and conserve the natural capital
base by placing a prohibitively high indirect tax on the production of unli-
censed producers, thus obviating the expenses and conflicts associated with
command and control policies. Simulation experiments suggest that the tax
and rebate policy can lead to a more sustainable production system. Is the tax
and rebate policy realistic in terms of implementation? A number of key
assumptions must hold for the policy to be successful. Among these are the
following:
A limitation of the tax and rebate policy is that it focuses on mangrove protec-
tion but does not directly address restoration of degraded mangroves. The
policy, however, could support reforestation efforts by restricting encroach-
ment on replanted areas.
There is potential for the tax and rebate policy to work in concert with other
policies for sustainable shrimp production. We have discussed how a tax and
rebate policy could allow farmers to capture benefits of technological innova-
tion and expand production sustainably. Eco-certification and labeling for
sustainable aquaculture is another policy now being promoted by a number of
international agencies and industry organizations.6 There is evidence that
seafood consumers are becoming concerned about the environmental conse-
quences of their purchases, and may be willing to pay a premium for seafoods
that are harvested or produced sustainably (for a review of certification and
eco-labeling for fisheries see Wessells et al. 2001). Price premiums for eco-
certifed shrimp produced under a tax and rebate policy could help cover the
cost of implementing the policy. Arquitt and Cornwell (2005) apply system
dynamics to examine the influence of eco-certification and labeling on shrimp
aquaculture.
The Thai case study helped us develop a hypothesis of shrimp aquacul-
ture boom and bust and provided a structure with which to perform policy
experiments. The policy experiments, however, must be viewed as learning in
retrospect. At the time of this writing Thailand’s mangrove resources have
been depleted to the point where a mangrove-based shrimp farming industry
cannot attain the high production levels shown in the tax and rebate policy
experiments. It is possible, however, that a tax and rebate policy could help
protect remaining mangroves in Thailand and help enforce zoning require-
ments for shrimp farms. There is now concern that shrimp aquaculture may
expand into unexploited mangrove regions in Asia, Africa, and Latin America
and continue the boom and bust patterns. The model primarily applies to these
unexploited regions where we hope it may contribute to preemptive policy
design for sustainable shrimp production.
Notes
Acknowledgements
The authors wish to thank the four anonymous referees for their valuable comments.
We also thank Professor Andy Ford for his suggestions for improving the model.
Finally, a special word of thanks is due to Professor Saeed, who supervised this
research in its earliest stages at the Asian Institute of Technology.
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