Abstract
A stochastic simulation model was developed to examine the impact of risky economic variables on the profitability of a small-scale shrimp farm. Sources of risk included input and output prices, random-kill events, and hurricane damages. Success was measured using the probability distribution of the net present value (NPV). A baseline model that assumed capital costs of $493,993, a stocking density of 100 shrimp per m2, a harvest survival of 80%, and a discount rate of 8% failed to generate a positive NPV. Subsequently adding a $0.66 price premium also failed to establish a positive NPV. Further reducing initial capital costs by 50% resulted in a 2% probability of a positive NPV. Incrementally reducing the discount rate generated increasingly positive NPV probabilities ranging from a 9% probability of success (7% discount rate) to a 94% probability of success (3% discount rate). Additional analyses suggested that probabilities of financial success were also sensitive to random-kill and hurricane events.
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