Aquaculture 159 Ž1998.

317–331

A multiperiod programming evaluation of

brackishwater shrimp aquaculture development in
Indonesia 1989r1990–1998r1999
Tridoyo Kusumastanto, Curtis M. Jolly ) , Conner Bailey
Agricultural Economics and Rural Sociology, Auburn UniÕersity, 202 Comer Hall, Auburn, AL 36849, USA
Accepted 17 July 1997

Abstract

Brackishwater shrimp aquaculture was economically evaluated to determine the best mix of
aquaculture enterprises in Indonesia. Data were compiled for three categories of brackishwater
shrimp aquaculture systems: Extensive, semi-intensive, and intensive, as well as for different farm
sizes, small-scale Ž2 ha., medium-scale Ž5 ha., large-scale Ž10 ha. and extra large-scale Ž30 ha..
These data were used to simulate the enterprise combination for the shrimp-producing regions in
Indonesia. Model results showed that small-scale and medium-scale semi-intensive systems were
the best strategies for shrimp aquaculture development in Indonesia. Extensive systems entered in
solution only if there were skilled labor constraints. Risk analysis revealed risk-expected net
present income trade-offs and declining risk with declining expected net present income for all
regions. q 1998 Elsevier Science B.V.

Keywords: Brackishwater; Shrimp; Production; Investment; Strategies

1. Introduction

Indonesia, like many other developing economies, is heavily dependent on fisheries

exports for economic stability and growth. It also faces a major problem with decreasing
fish yields due to over exploitation. Aquaculture development, especially for brackish-
water shrimp, is an alternative for increasing export revenues and employment. During
the 1970s, most shrimp exports from Indonesia came from trawlers operating in waters
off the north coast of Java and along the Malacca Straits ŽMuluk and Bailey, 1996.. In

)
Corresponding author.

0044-8486r98r$19.00 q 1998 Elsevier Science B.V. All rights reserved.

PII S 0 0 4 4 - 8 4 8 6 Ž 9 7 . 0 0 1 9 1 - 9
318 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

1990, the net area devoted to aquaculture in Indonesia was 381,342 ha. Of these,
230,885 ha Ž60.5%. were brackishwater ponds Žtambak. and the rest were freshwater
ponds, cages, and paddy fields. Since 1988, the brackishwater industry has played an
increasingly important role in export earnings. For example in 1993, the industry
produced approximately 20.1 % of the world’s farm-raised shrimp ŽAquaculture Digest,
1993.. Between 1979 and 1990, the value of shrimp exports increased from US$199.2
million to US$671.5 million ŽAquaculture Digest, 1993.. Because of the importance of
the industry as a source of export earnings, the Indonesian government has adopted
policies to promote the expansion and intensification of production to increase shrimp
exports.
Expansion usually entails the conversion of mangrove resources to tambak. Intensifi-
cation involves the application of large amounts of capital for pond construction, vastly
increased stocking densities, and greatly increased feeding rates ŽKusumastanto et al.,
1996.. The high construction costs associated with intensive systems largely reflect
problems associated with maintaining adequate water quality and controlling disease
problems. Water quality is a particular concern with intensive systems due to high
organic loading associated with feeds and the metabolic processes of large numbers of
shrimp Ž250,000 to 500,000 or more. per acre.
Capital intensive systems tend to utilize all available technologies and operate at
greater financial risk. The investment and variable costs of intensive systems are much
larger than those of current systems, but shrimp yields also are much higher. Extensive
systems tend to employ fewer laborers per hectare, but they produce high-quality shrimp
and operate at less risk ŽKusumastanto, 1994.. Indonesian investment policies are often
criticized for encouraging intensive production systems with investment requirements
beyond the financial and technical capabilities of all, but the wealthiest of producers.
Therefore, it is important to determine the mix of strategies Žsystems and scales of
operation. which will help Indonesia attain its objectives of increasing unskilled labor
employment and shrimp exports, while generating the largest net benefits. This paper
evaluates a number of production and investment strategies for brackishwater shrimp to
determine the best enterprise combination in Indonesia.

2. Method

Brackishwater shrimp aquaculture in Indonesia involves a variety of farming systems,

influenced by variables such as location, tides, water supply, cost and availability of
farm inputs, capital, and infrastructure. The production techniques Žproduction strate-
gies. vary by pond size, stocking density, feeding levels, aeration levels, crops per year,
and water exchange rates. Regional differences in farming systems and production
techniques also exist in this large archipelagic nation. Pond production of shrimp in
Indonesia is concentrated in five out of 33 provinces ŽD.I. Acheh, South Sulawesi, West
Java, East Java, and Central Java. on three different islands. In 1990, these five
provinces accounted for 86% of all tambak in production, 84% of all Indonesian
households engaged in tambak production, and 85% of all penaeid shrimp production
DGF, 1992.
 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331 319

Table 1
Investment strategies and key production parameters for brackishwater shrimp aquaculture in Indonesia
Investment strategies Net pond area Stocking density Survival rate Shrimp production
Žha. ŽPLrha. % Žkgryr.
1. Small-scale extensive ŽSE. 2 11,800 52 438
2. Medium-scale extensive ŽME. 5 11,800 52 1,095
3. Large-scale extensive ŽLE. 10 11,800 52 2,191
4. Extra large-scale extensive ŽEE. 30 11,800 52 6,574
5. Small-scale semi-intensive ŽSSI. 2 62,500 58 4,833
6. Medium-scale semi-intensive ŽMSI. 5 62,500 58 12,083
7. Large-scale semi-intensive ŽLSI. 10 62,500 58 24,166
8. Extra large-scale semi-intensive ŽESI. 30 62,500 58 72,500
9. Small-scale intensive ŽSI. 2 265,000 60 18,171
10. Medium-scale intensive ŽMI. 5 265,000 60 45,428
11. Large-scale intensive ŽLI. 10 265,000 60 90,857
12. Extra large-scale intensive ŽEI. 30 265,000 60 272,571

Source: Bogor Agricultural Institute, 1990, Chamberlain, 1991, Muluk, 1994.

Production strategies for existing brackishwater shrimp aquaculture in Indonesia were

classified as extensive, semi-intensive, and intensive systems. Shrimp farming was
modeled as small-scale Ž2 ha., medium-scale Ž5 ha., large-scale Ž10 ha., and extra
large-scale Ž30 ha.. Combining systems with size and scales yields 12 shrimp production
investment strategies. Investment strategies with key production parameters are seen in
Table 1.
Shrimp farms were analyzed based on total investment, annual operating cost, Net
present value ŽNPV., net benefit–cost ratio ŽNBCR., and internal rates of return ŽIRR..
The discount rate of 23% represented the opportunity cost of capital, which was the rate
of return to equity capital in its best alternate use ŽUnited Nations Statistical Year Book,
1995.. It was assumed that the farms were in operation from April 1, 1989, to March 31,
1998, a period covering the two most recent five year development plans.
Farm budget and cashflow analyses were conducted on a pre-income tax basis.
Equipment was depreciated based on its useful life, using straight line method with zero
salvage value. All prices were constant 1988 Rupiahs ŽUS$1s 1442Rp.. Yield reduc-
tions were considered in year 1, 2, and 3, to reflect toxic metabolite build-up and
reduction of natural productivity from ponds after they are established. The incremental
net benefit derived from improved production practices, ‘with project’, was obtained by
subtracting the net benefit from traditional extensive production, ‘without project’, in
mangrove forest areas. The benefits ‘with project’ was compared to benefits from
‘without project’. We identified alternative values for mangrove forest based on
economic returns from producing raw materials for the pulp industry, Rp 93,633 per ha
per year ŽAnwar et al., 1986.. We recognize that mangrove forests serve market and
non-market functions in controlling coastal erosion, serving as nursery grounds for
commercially important marine species, and a wide variety of subsistence uses ŽBailey,
1988..
The analytic approach adopted uses a multiperiod programming model with an
objective function that maximizes NPV, and allows investment selections that maximize
 320
T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331
Table 2
Regional development targets for gross pond area and labor employment in the development of brackishwater shrimp aquaculture industry in Indonesia 1989
Provinces First five year plan
Gross pond area Labor Average production No. of fish farmers Labor use
Žha. Žtonrhectare. Žpersons. per hectare
Skilled Unskilled
Žpersons. Žman days. Shrimp Total 35y

D.I. Acheh 37,972 42,537 1379 0.71 1.51 28,140 0.69

West Java 51,312 51,457 8841 0.20 0.92 33,444 0.49
Central Java 35,566 30,494 9341 0.40 1.08 24,911 0.79
East Java 56,310 46,817 13,186 0.33 0.64 26,445 0.73
South Sulawesi 72,861 50,182 2321 0.26 1.43 18,902 0.48
Other provinces 80,579 132,402 25,614 0.50 3.36 18,785 1.27
Total 334,600 353,889 60,682 0.37 1.24 150,627 0.65

Source: DGF, 1990a,b, Central Bureau of Statistics, 1991.

Note: ) Projected from First five year plan. Labor is categorized as skilled labor which is direct labor to industry Že.g., farmer. and unskilled labor which is seasonal
labor to industry Že.g., harvesting labor.. Unskilled labor is estimated 0.37% of agriculture labor force=365 days with growth rate of 2.08% per year.
 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331 321

the value of the firm ŽBoussard, 1971.. In order to model Indonesia’s five-year
development plans, the planning horizon was set in two 5-yr periods, 1989r1990–
1993r1994 and 1994r1995–1998r1999. Six shrimp brackishwater industry regions
were considered in this study Ž1. The province of Daerah Istimewa ŽD.I.. Acheh, Ž2. The
province of West Java, Ž3. The province of Central Java, Ž4. The province of East Java,
Ž5. The province of South Sulawesi, Ž6. And other provinces Table 2. Within these
regions target levels of shrimp ponds hectares, and labor availability were set based on
government targets in the two five-year government development plans ŽKusumastanto,
1994..
Risk effects were incorporated by modifying the basic multiperiod model. Capital
intensive production technology typically bears a greater level of risk with respect to
price ŽChamberlain, 1991.. To measure the risk various techniques have been developed
to study risky decision making ŽHazel, 1971; Tauer, 1983; Hatch et al., 1989; Hatch and
Atwood, 1988.. Most risk-programming applications in agriculture are based on either
mean variance or minimization of total absolute deviation ŽMOTAD. decision criteria.
In this study, risk was incorporated using the MOTAD multiperiod programming
model with the objective function of maximizing expected NPV. International price
variability compared to yield variability was considered a risk factor that most affects
the industry in the short-run, other than disease problems caused by intensification and
deposits of waste at pond bottoms. In this study risk analysis focused on international
price variability. Since price data were limited, only three states of nature were
considered Žhigh, average, and low prices. within an assumed equal probability of
occurrence. Mathematically the revised model can be stated as:
T J
Maximized E Ž Zt . s Ý Ý NPVt j X jt Ž 5.
ts1 js1

subject to:
J
Ý a k t j X jt F bt k ,k s 1, . . . ,m; Ž 6.
js1

J
Ý Ct j G Ft ; Ž 7.
js1

T J
Iy Ý Ý NPVr t j X j y Yr F 0, r s 1, . . . , s; Ž 8.
ts1 js1

S
Ý pr Yr s l , l s M ™ 0; Ž 9.
rs1

X jt G 0, Yr G 0. Ž 10 .
322 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

where:
EŽ Zt . Expected total net present value of the investment plan
NPVt j Net present value of activity j at period t
X jt Level of activity j in time period t
ak t j Technical requirement of activity j at period t for resource or constraint k
bt k Level of resource or constraint k at period t
Ct j The present value of minimum income of activity j at period t
Ft The present value of minimum total income at time period t
I Target level of net present value
NPVr t j Net present value of activity j at period t for state of nature or observation r
Yr Deviation below T for state of nature or observation r
pr Probability that state of nature or observation r will occur
J Number of activities
l Constant parameterized from M to 0
m Number of constraint and resource equations
s Number of states of nature or observations
M A large number
t Period Ž t s 1, 2..

3. Data

Biological data and cost estimates at a firm-level were simulated to generate annual
activities for shrimp farms for a 10-yr planning horizon within a deterministic frame-
work. Secondary data for each farm budget were adopted from surveys ŽBogor Agricul-
tural Institute, 1990; Chamberlain, 1991; Muluk, 1994.. These data were compiled for
three categories of brackishwater shrimp aquaculture production systems: Extensive,
semi-intensive, and intensive, and for four farm sizes. Farm budgets were evaluated in
terms of 1988 prices since the first calendar year of the Indonesian five 5-yr develop-
ment plan in 1989. Investment data for the fisheries sector were collected from the
Capital Investment Coordination Board, 1987; the National Export Development Board,
1989; Central Bureau of Statistics, 1990, 1991; and the Directorate General of Fisheries
DGF, 1983, 1986, 1988, 1989, 1990a,b, 1992. Total investment funds from private and
public sources amounted to Rp 1,336,131.9 million DGF, 1990a,b. It was assumed that
the private sector would provide investment funds for hatchery, feedmill, processing,
storage and ice-making equipment, while the government would contribute public works
support Žcanals, road, ports, and other amenities., maintenance of public facilities, and
services Žadministration, research, and training..

4. Results

Incremental cashflow for all investment strategies were positive, meaning cashflow
‘with project’ were higher than cashflow ‘without project’. These figures indicated that
Table 3
Project activities at maximum level of private sector investment from multiperiod programming optimal solution in the development of brackishwater shrimp
aquaculture in Indonesia 1989–1998
Provinces Maximum Investment strategy Gross pond Investment Investment Net present Shrimp Skilled Unskilled
level of area Žha. period I period II income production labor used labor used

T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

investment ŽRp million. ŽRp million. ŽRp million. ŽTonryear. ŽPersons. Ž000 man day.
D.I. Acheh 338,637 Medium-scale semi-intensive 37,850 334,340 15,496 393,752 76,225 31,541 4757
Small-scale intensive 122 4291 201 1712 885 194 10
Subtotal 37,972 338,631 15,697 395,463 77,110 31,735 4767
West Java 457,604 Medium-scale semi-intensive 51,147 451,799 20,940 532,082 103,004 42,622 6428
Small-scale intensive 165 5797 271 2313 1196 263 14
Subtotal 51,312 457,596 21,211 534,395 104,200 42,885 6441
Central Java 317,091 Medium-scale semi-intensive 35,456 313,192 14,516 368,846 71,404 29,456 4456
Small-scale intensive 110 3886 182 1550 801 176 9
Subtotal 35,566 317,078 14,698 370,396 72,205 29,722 4465
East Java 502,176 Medium-scale semi-intensive 56,129 495,804 22,980 583,908 113,037 46,744 7054
Small-scale intensive 181 6361 297 2538 1312 289 15
Subtotal 56,309 502,165 23,277 586,446 114,349 47,063 7067
South 649,780 Medium-scale semi-intensive 72,627 641,539 29,735 755,539 146,262 60,523 9127
Sulawesi Small-scale intensive 234 8238 385 3287 1699 374 20
Subtotal 72,861 649,776 30,120 758,826 147,961 60,897 9146
Other 718,609 Medium-scale semi-intensive 80,320 709,495 32,884 835,571 161,756 66,934 10,094
provinces Small-scale intensive 259 9110 426 3635 1879 414 22
Subtotal 80,579 718,605 33,311 839,206 163,634 67,348 10,035
Medium-scale semi-intensive 333,529 2,946,174 136,552 3,469,704 671,689 277,941 41,914
Indonesia Small-scale intensive 1069 37,685 1761 15,035 7772 1711 90
Total 334,598 2,983,897 138,313 3,484,739 679,461 279,652 42,003

323
324 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

shrimp aquaculture in coastal mangrove forests used as a source of material for the pulp
industry generated more quantifiable financial benefits than traditional production in
mangrove forests and used only as a source of materials for the pulp industry. At a 23%
discount rate, NPVs for all investment strategies were positive, suggesting investment in
brackishwater shrimp aquaculture is financially feasible ŽTable 3..
The IRRs for all investment strategies were greater than the required rate of return of
23%, also indicating financial feasibility. At a 25% discount rate, the small-scale
extensive investment strategy became non-feasible.
Results of the multiperiod programming model show for an initial investment level of
Rp 25,000 million, only two investment strategies entered in solution in all regions:
Small-scale semi-intensive and medium-scale semi-intensive. Even when all available
land resources had been used, where other constraints such as investment capital and
labor were relaxed, these two investment strategies remained dominant. Only 334,600 ha
of tambak area were available for shrimp development until 1998 ŽTable 4.. This figure
is conservative, because with tambak area of 334,600 ha placed in production, the five
main shrimp producing provinces were above 10% of maximum mangrove forests to be
converted into tambak in the government plan.
The marginal value product ŽMVP. of capital was Rp 1.18 million per Rp 1 million
capital investment, indicating that an additional Rp 1 million of capital investment
increases the value of net present income by Rp 1.18 million. The MVP of land was
approximately Rp 10.41 million, indicating that the net present income would increase
by Rp 10.41 million per ha increase in land. When investment level increased to Rp
125,000 million, unskilled labor became a constraint. There was no constraint on
unskilled labor in the province of West Java, Central Java and East Java. The MVP of
unskilled labor was Rp 8,300 per man day, meaning an additional one unit of unskilled
labor, increased the value of net present income by Rp 8,300. When unskilled labor
became constraining, the medium-scale semi-intensive and small-scale intensive invest-
ment strategies entered in solution, indicating that the intensive production strategy
needs less unskilled labor, since the solution moved from semi-intensive to intensive
production strategies. The MVP of skilled labor was Rp 12.5 million per person year,
meaning that an additional one unit of skilled labor increases net present income by Rp
12.5 million. Constraint in skilled labor shifts the optimal solution to medium-scale
semi-intensive and medium-scale extensive investment strategy, indicating that an
extensive production system needs less skilled labor.
In the province of D.I. Acheh, financial institutions funded approximately Rp
236,853 million for capital investment and Rp 90,572 million for operating capital in
period I. Total investment needed in period II was Rp 15,697 million. The solution also
indicated that the industry provided employment for 31,735 persons per year of skilled
labor and 4.766 million man days of unskilled labor per year. The industry contributed
77,110 tons of shrimps to total production of which 42,499 tons were exported and Rp
808,804 million was contributed to total GDP per year. To maintain the industry in the
province, the annual capacity of supporting facilities required were: Hatchery Ž3,994
million Post Larval Shrimp ŽPL., feed mill Ž115,962 tons., processing plant and cold
storage Ž46,354 tons., and ice-making plant Ž38,555 tons..
In the province of West Java, when all constraints were relaxed other than land, the
Table 4
Project activities at maximum level of private sector investment from multiperiod programming optimal solution in the development of brackishwater shrimp
aquaculture in Indonesia 1989–1998
Provinces Maximum Investment strategy Gross pond Investment Investment Net present Shrimp Skilled Unskilled
level of area Žha. period I period II income production labor used labor used

T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

investment ŽRp million. ŽRp million. ŽRp million. ŽTonryear. ŽPersons. Ž000 man day.
D.I. Acheh 338,637 Medium-scale semi-intensive 37,850 334,340 15,496 393,752 76,225 31,541 4757
Small-scale intensive 122 4291 201 1712 885 194 10
Subtotal 37,972 338,631 15,697 395,463 77,110 31,735 4767
West Java 457,604 Medium-scale semi-intensive 51,147 451,799 20,940 532,082 103,004 42,622 6428
Small-scale intensive 165 5797 271 2313 1196 263 14
Subtotal 51,312 457,596 21,211 534,395 104,200 42,885 6441
Central Java 317,091 Medium-scale semi-intensive 35,456 313,192 14,516 368,846 71,404 29,456 4456
Small-scale intensive 110 3886 182 1550 801 176 9
Subtotal 35,566 317,078 14,698 370,396 72,205 29,722 4465
East Java 502,176 Medium-scale semi-intensive 56,129 495,804 22,980 583,908 113,037 46,744 7054
Small-scale intensive 181 6361 297 2538 1312 289 15
Subtotal 56,309 502,165 23,277 586,446 114,349 47,063 7067
South 649,780 Medium-scale semi-intensive 72,627 641,539 29,735 755,539 146,262 60,523 9127
Sulawesi Small-scale intensive 234 8238 385 3287 1699 374 20
Subtotal 72,861 649,776 30,120 758,826 147,961 60,897 9146
Other 718,609 Medium-scale semi-intensive 80,320 709,495 32,884 835,571 161,756 66,934 10,094
provinces Small-scale intensive 259 9110 426 3635 1879 414 22
Subtotal 80,579 718,605 33,311 839,206 163,634 67,348 10,035
Medium-scale semi-intensive 333,529 2,946,174 136,552 3,469,704 671,689 277,941 41,914
Indonesia Small-scale intensive 1069 37,685 1761 15,035 7772 1711 90
Total 334,598 2,983,897 138,313 3,484,739 679,461 279,652 42,003

325
326 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

maximum level of investment was Rp 457,604 million, and all 51,312 ha of available
land were used. At this level of investment, the optimum net present income of private
sector investment in brackishwater shrimp aquaculture industry in this province was Rp
534,397 million for the ten-year planning horizon. Financial institutions funded approxi-
mately Rp 320,062 million of capital investment, and Rp 122,391 million for operating
capital in period I. Total investment needed in period II was Rp 21,211 million. The
solution also indicated that the industry provided employment for 42,885 persons of
skilled labor per year and 6.441 million man days of unskilled labor per year. The
industry contributed 104,200 tons of shrimp, of which 57,429 tons were exported, and
contributed Rp 1,092,947 million to GDP per year. To support the industry in the
province, these facilities were needed: Hatchery Ž5,398 million PL., feed mill Ž156,702
tons., processing plant and cold storage Ž62,639 tons., and ice-making plant Ž52,100
tons..
With maximum level of investment at Rp 317,091 million, and 35,566 ha available
land, the optimum net present income of private sector investment in Central Java was
Rp 373,303 million for the ten-year planning horizon. Financial institutions funded
approximately Rp 221,783 million of capital investment and Rp 84,808 million of
operating capital in period I. Total investment needed in period II was Rp 14,697
million. The solution also indicated that the industry provided employment for 29,722
skilled laborers per year, and 4.465 million man days of unskilled labor per year ŽTable
4.. The industry contributed 72,205 tons of shrimp, of which 39,793 tons were exported,
and contributed Rp 757,384 million to GDP per year. To support the industry in the
province, the following annual capacity of these facilities were needed: Hatchery Ž3,740
million PL., feed mill Ž108,578 tons., processing plant and cold storage Ž43,403 tons.,
and ice-making plant Ž36,102 tons..
In the province of East Java when investment level in this province was increased to
Rp 275,000 million, skilled labor became a constraint. After relaxing the skilled labor
constraint, the maximum level of investment was found at the level of Rp 502,177
million and 56,310 ha of available land. At this level of investment, the optimum net
present income of private sector investment in brackishwater shrimp aquaculture indus-
try was Rp 586,449 million for the ten-year planning horizon. There was no constraint in
unskilled labor in the province of East Java. Financial institutions funded approximately
Rp 351,236 million of capital investment and Rp 134,312 million of operating capital in
period I. Total investment needed in period II was Rp 23,277 million. The industry
contributed 114,349 tons of shrimp, of which 63,023 tons were exported, and con-
tributed Rp 1,199,401 million to GDP per year. The solution also indicated that the
industry provided employment for 47,063 skilled workers per year of skilled labor and
7.068 million man days of unskilled labor per year. To support the industry in the
province, the following annual capacities were needed: Hatchery Ž5,923 million PL.,
feed mill Ž171,964 tons., processing plant and cold storage Ž68,740 tons., and ice-mak-
ing plant Ž57,174 tons.. If the NPV of medium-scale semi-intensive was between Rp
61.78 and Rp 84.36 million, and NPV of small-scale intensive was between Rp 32.43
million and infinity, the optimal solution did not change.
The maximum level of investment which used 72,861 ha of targeted land in the
province of South Sulawesi equalled Rp 649,780 million. At this level of investment, the
 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331 327

optimum net present income of private sector investment in brackishwater shrimp

aquaculture industry in this province was Rp 758,825 million for the ten-year planning
horizon. Financial institutions funded approximately Rp 454,481 million of capital
investment and Rp 173,792 million of operating capital in period I. Total investment
needed in period II was Rp 30,119 million. The solution also indicated that the industry
provided employment for 60,897 skilled workers per year and 9.146 million man days of
unskilled labor per year. If investment level in this province increased to Rp 175,000
million, unskilled labor became a constraint. Then, if the unskilled labor constraint was
relaxed, at an investment level of Rp 375,000 million, skilled labor became constraining.
The industry contributed 147,961 tons of shrimp, 81,549 tons of which were exported,
and contributed Rp 1,551,960 million to GDP per year. To support the industry in the
province, the following capacity per year of these facilities were needed: Hatchery
Ž7,664 million PL., feed mill Ž222,513 tons., processing plant and cold storage Ž88,947
tons., and ice-making plant Ž73,981 tons..
For all other provinces combined, the maximum level of investment was Rp 718,609
million and 80,579 ha of land. The tambak area was the same amount targeted by GOI.
At this level of investment, the optimum net present income of private sector investment
in brackishwater shrimp aquaculture industry in these provinces was Rp 839,203 million
for the ten-year planning horizon. Financial institutions funded approximately Rp
502,623 million of total capital investment and Rp 192,202 million for operating capital
in period I. Total investment needed in period II was Rp 33,310 million. The industry
contributed 163,634 tons of shrimp, 90,187 tons of which were exported, and Rp
1,716,354 million to total GDP per year. The solution also indicated that the industry
provided employment for 67,348 skilled laborers and 10.035 million man days of
unskilled labor per year. To support the industry in the provinces, the following capacity
per year of these facilities was required: Hatchery Ž8,476 million PL., feed mill Ž246,083
tons., processing plant and cold storage Ž98,369 tons., and ice-making plant Ž81,750
tons..

5. Risk analysis

It was important to consider risk factors, such as expected income below target levels
and income variability, in selecting investment strategies. Since Indonesia is one of the
major world producers of shrimp, an increase in shrimp output could affect world price.
Because of industry vulnerability to world market price fluctuation, planners and shrimp
farmers are concerned about the deviation of net income below target levels.
The results showed that there was limited risk-expected net present income trade-offs
and declining risks associated with declining expected net present income for all regions
ŽTable 5.. With no deviational constraints, the model generated expected net present
incomes at levels slightly higher than targeted net present income. At the highest level of
risk measure Žtotal absolute deviation divided by expected net present income.,
medium-scale semi-intensive and small-scale intensive investment strategies were se-
lected. The results suggested that expected net present income was high, as was the risk.
As deviations were constrained, which means decreased risk, the hectarages allocated to
 328

Table 5
Investment strategies, risk measure, and expected net present income from optimum solution of the multiperiod programming target MOTAD model in the development of brackishwater shrimp aquaculture
in Indonesia 1989–1998

Province of D.I. Acheh Province of west Java Province of central Java Province of east Java Province of south Sulawesi Other provinces

Risk Strategy Exp. inc. Risk Strategy Exp. inc Risk Strategy Exp. inc. Risk Strategy Exp. inc. Risk Strategy Exp. inc. Risk Strategy Exp. inc.
3.186 MSI SI 407,477 3.161 MSI SI 549,782 3.047 MSI SI 378,266 3.165 MSI SI 603,496 3.263 MSI SI 780,699 3.079 MSI SI 858,941
3.083 MSI SI 404,863 3.084 MSI SI 547,167 3.007 MSI 373,231 3.096 MSI SI 600,882 3.157 MSI SI 780,470 3.030 MSI SI 856,326
2.999 MSI SI 402,272 3.023 MSI SI 545,075 3.040 MSI SI 598,790 3.076 MSI SI 776,548 3.000 MSI SI 854,758
2.998 MSI 402,010 3.016 MSI 536,433 2.998 MSI SI 597,221 3.002 MSI SI 733,933 2.991 MSI 853,024
2.964 MSI 563,142 2.995 MSI SI 722,625
2.989 MSI 712,138
T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331
 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331 329

small-scale intensive investment strategy were reduced. Since most farmers tended to
minimize risk, the semi-intensive production system was more suitable for development
of brackishwater shrimp aquaculture. The results also indicated that the lower the risk,
the lower the expected net present income, investment level, shrimp produced and
exported, and the number of skilled labor used, but also the higher the number of
unskilled labor, meaning that semi-intensive systems used more unskilled labor.
Investment strategies selected from the risk model, when farmers considered high
levels of risk, were the same with the deterministic model: Medium-scale semi-inten-
sive, and small-scale intensive strategies. At the highest risk level, total capital invest-
ment, shrimp production and export, and net present income were higher compared to
results of the deterministic model. At lowest risk, investment, production, and exports
were lower compared to the deterministic model, and only medium-scale semi-intensive
investment strategy was selected. Government encouragement for intensive production
systems placed farmers in a higher risk bracket associated with income-related price
variability. Extensive systems did not enter in solution because of lower net present
income generated compared to other strategies. These results are consistent with
strategies that also will minimize risks associated with deteriorating water quality and
disease. Intensive systems generate large volumes of toxic metabolites and effluent from
shrimp farms that are associated with widespread disease problems and loss of pond
productivity Žsometimes permanently..

6. Summary

Capital budgeting analyses showed that IRRs for all investment strategies were
greater than the required rates of return. This economic evaluation suggested that all
investment strategies were financially feasible, and large economies of scale were
associated with larger investment strategies. The semi-intensive production strategy was
superior for all IRR criteria examined. If land available for shrimp aquaculture was
limited, the medium-scale semi-intensive system was the best investment strategy.
When the industry was restructured for the planning horizon 1989-1998, the multi-
period programming model at project level suggested that a total of Rp 2,983,852
million of private sector investment in period I was needed in order to maximize net
present income in the industry. With that level of investment, GOI’s target of tambak
expansion of 334,600 ha could be achieved. When all constraints were relaxed, but
investment, the small-scale semi-intensive and medium-scale semi-intensive investment
strategies were the best alternatives to maximize net present income. If skilled labor
became constraining, the best investment strategies were medium-scale extensive and
medium-scale semi-intensive. When unskilled labor became constraining, the medium-
scale semi-intensive and small-scale intensive were the best investment strategies. If
there was constraint in land, the best investment strategies were medium-scale semi-in-
tensive and small-scale semi-intensive. Extensive systems entered in solution only if
there were skilled labor constraints. At the maximum level of private sector investment,
if extensive systems were forced in solution, the net present income decreased within the
range of Rp 24.2 to Rp 338.7 million, depending on investment strategies and provinces.
330 T. Kusumastanto et al.r Aquaculture 159 (1998) 317–331

The optimal solution showed that net present income of the industry at the maximum
level of investment was Rp 3,484,739 million for the 10-yr planning horizon. The
average income per farmer ranged from Rp 8.6 to Rp 19.58 million per year. If the
optimum allocation of resources at the project level was implemented, the industry
produced 679,460 tons of shrimp, of which 374,480 tons were exported. The industry
contributed Rp 7,126.85 billion to GDP and employed 279,651 skilled labor and
42,003.24 million man days of unskilled labor.
Risk analysis suggested that there was risk-expected net present income trade-offs
and declining risk associated with declining expected net present income for all regions.
Intensive production systems posed a higher risk than semi-intensive systems. The
results showed that lower risk resulted in the medium-scale semi-intensive investment
strategy being selected. This solution indicated that lower risks were associated with
lower expected net present income, investment, shrimp production, skilled labor used,
but higher numbers of unskilled labor used, meaning that semi-intensive systems were
more unskilled labor intensive. Based on this solution, the semi-intensive system was
more suitable for the development of brackishwater shrimp aquaculture since small-scale
producers have financial limitations in upgrading their farms. Moreover, semi-intensive
systems place fewer burdens on aquatic ecosystems due to lower feeding rates than for
intensive systems. This in turn reduces risks associated with loss due to disease
outbreaks. Semi-intensive systems also generate more employment opportunity and
other economic benefits than do extensive production systems. GOI development
programs to improve extensive systems to semi-intensive systems for local farmers will
generate benefits for rural communities. Efforts directed towards intensive systems of
production pose significant economic as well as ecological risks.

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