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A precautionary approach to aquaculture: the incorporation of risk and incertainty in the feasibility analysis of shrimp hatchery in Mexico

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  • Sustainable aquaculture can be achieved when risk and uncertainly are incorporated in the analysis of the activity. This paper presents a precautionary approach to the feasibility analysis of a project for a commercial hatchery, applying decision theory. Two production scenarios were assessed, continuous and periodic, the later a combination of 3-production cycles per each dry-out period (45:15). At the same time, 4 financing schemes evaluated the effects of financing scenarios on the project results. The dynamic output of a bio-economic model representing the production system was used for estimating the net present value of alternative states of nature and investment decisions. The MAXIMAX, MAXIMIN and MINIMAX REGRET criteria were used to incorporate risk and uncertainly in the analysis. In the absence of mathematical probabilities, results demonstrated that the risk-aversion preference of investors is a key factor in the procedure of decision-making. A continuous production project, which was the preferred choice when risk and uncertainty were not considered, is selected only by risk-neutral investors. Risk-aversive or risk-seeker investors would tend to select periodic production projects. The costs for being wrong is large for the risk-neutral, so he may decide sacrifice net revenues in order not to pay for a higher risk. The periodic scheme, based on sanitary procedures which could reduce diseases, is selected by risk-aversive and risk-seeker investors. Given the uncertainty present in aquaculture, a precautionary approach to this activity is highly desirable for the evaluation of alternative projects. In this work, the incorporation of the uncertainty inherent to the production system combined with the risk preferences of investors gives a set of options feasible for investment. The precautionary approach tends to avoid culture practices not convenient for sustainable aquaculture, and this paper demonstrates how decision theory can help to achieve this goal. In practice, risk assessment must be incorporated in aquaculture operations at all possible steps, with the Final goal to assist in risk management processes. In these days the shrimp culture industry in Mexico is suffering of severe sanitary problems, and the economically sensible thing should be to protect the new investments by the incorporation of sanitary states of nature (and its consequences) in the feasibility analysis of projects. This is to include the most current most important source of risk and uncertainty. On the other hand, from the governmental point of view, the difference between individual risk and the entire sector risk must be always kept in mind when defining aquacultural policies. To promote only realistic, feasible projects will allow sustaining aquaculture enterprises in the long term, and in Mexico now is the right time to implement controls for a long-term activity.
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  • Martinez-Cordero, F.J., J.C. Seijo, L. M. Juarez. 1996. A precautionary approach to aquaculture: the incorporation of risk and incertainty in the feasibility analysis of shrimp hatchery in Mexico. Peer Review: No. In: Proceedings of the Eighth International Conference of the International Institute of Fisheries Economics and Trade, July 1-4, 1996, Marrakech, Morocco. Compiled by Ann L. Shriver. International Institute of Fisheries Economics & Trade, Corvallis, Oregon, USA, 2002. CD ROM.
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