8 Externalities in Aquaculture
267
countries. As such they can be regarded as a characterisation of the externalities
problem in shrimp farming and an illustration of the commercial pressures to
convert mangroves where such externalities can be ignored. Evidence from
Thailand, where the major cause of mangrove conversion has been shrimp
farming, demonstrates that such pressures are real (Sathirathai and Barbier 2001,
Pongthanapanich and Roth 2006).
5.1 Financial Analysis
Table 8.2 presents the financial benefits and costs per hectare for a proposed investment project involving the conversion of mangroves to shrimp farming. The time
horizon is 5 years, which is the typical life of a shrimp farm in countries such as
Thailand. Experience suggests that after this period, productivity declines and sites
are abandoned for new locations. It is assumed that set-up costs of $5,000 per ha
are incurred initially (year 0), with net financial benefits of $3,000 per ha per year
from the sale of shrimp being earned over the years 1–5. These net benefits have to
be discounted to obtain the net present values. This is done by multiplying the net
benefits by the discount factor, 1/(1 + r)
t
, where t is the number of years the net
benefits have to be discounted for. Given a discount rate of 5%, we can see that the
net present value of the project for the private investor is positive ($7,988 per ha).
The investment is thus financially viable.
5.2 Economic Analysis
Table 8.3 looks at the same investment from the perspective of society. For simplicity
we assume that the costs of production reflect the real alternative use value (i.e., the
true opportunity cost) of the capital and labour employed. The main difference in
Table 8.2 Financial appraisal of a hypothetical shrimp farming project ($/ha)
Net discounted
Year
Benefits
Production costs
Net benefits Discount factor
benefits
0
_
5,000
−5,000
1.000
−5,000
1
18,000
15,000
3,000
0.952
2,857
2
18,000
15,000
3,000
0.907
2,721
3
18,000
15,000
3,000
0.864
2,592
4
18,000
15,000
3,000
0.823
2,468
5
18,000
15,000
3,000
0.784
2,351
NPV =
7,988
267
countries. As such they can be regarded as a characterisation of the externalities
problem in shrimp farming and an illustration of the commercial pressures to
convert mangroves where such externalities can be ignored. Evidence from
Thailand, where the major cause of mangrove conversion has been shrimp
farming, demonstrates that such pressures are real (Sathirathai and Barbier 2001,
Pongthanapanich and Roth 2006).
5.1 Financial Analysis
Table 8.2 presents the financial benefits and costs per hectare for a proposed investment project involving the conversion of mangroves to shrimp farming. The time
horizon is 5 years, which is the typical life of a shrimp farm in countries such as
Thailand. Experience suggests that after this period, productivity declines and sites
are abandoned for new locations. It is assumed that set-up costs of $5,000 per ha
are incurred initially (year 0), with net financial benefits of $3,000 per ha per year
from the sale of shrimp being earned over the years 1–5. These net benefits have to
be discounted to obtain the net present values. This is done by multiplying the net
benefits by the discount factor, 1/(1 + r)
t
, where t is the number of years the net
benefits have to be discounted for. Given a discount rate of 5%, we can see that the
net present value of the project for the private investor is positive ($7,988 per ha).
The investment is thus financially viable.
5.2 Economic Analysis
Table 8.3 looks at the same investment from the perspective of society. For simplicity
we assume that the costs of production reflect the real alternative use value (i.e., the
true opportunity cost) of the capital and labour employed. The main difference in
Table 8.2 Financial appraisal of a hypothetical shrimp farming project ($/ha)
Net discounted
Year
Benefits
Production costs
Net benefits Discount factor
benefits
0
_
5,000
−5,000
1.000
−5,000
1
18,000
15,000
3,000
0.952
2,857
2
18,000
15,000
3,000
0.907
2,721
3
18,000
15,000
3,000
0.864
2,592
4
18,000
15,000
3,000
0.823
2,468
5
18,000
15,000
3,000
0.784
2,351
NPV =
7,988