Is economies of scale driving the development in shrimp farming from Penaeus monodon to Litopenaeus vannamei? The case of Indonesia

Abstract

Globally shrimp farming have grown substantially over the last 2 decades. The growth in farmed shrimp is driven by increasing worldwide demand due to population and income growth, while wild supply is stagnating. The growth mainly seems to appear within the species Litopenaeus vannamei, while Penaeus monodon production is stagnating. The development in Indonesia mirrors the global development, were L. vannamei has surpassed the volume of P. monodon several times in 2020. Interviews with 96 L. vannamei and 87 P. monodon farmers are conducted to collect farm level economic data. Using data envelopment analysis, technical efficiency is estimated and production possibility frontiers are compared. Furthermore, a new permutation test is used for identifying returns to scale characteristics, and increasing returns to scale is identified. The production possibility frontiers are found significantly different for the two species without one being nested inside the other. For large farms with high production volume, L. vannamei is superior, whereas P. monodon has the advantages in smaller farms. Hence, one farm size does not fit all. The implication is that L. vannamei farms can take advantage of economies of scale and expand, while small P. monodon farms coexist by supplying larger shrimp to an international high-quality markets.