S. Arquitt et al.

: Boom and Bust in the Shrimp Aquaculture Industry 305

A system dynamics analysis of boom and bust
in the shrimp aquaculture industry
Steve Arquitt,a* Xu Honggangb and Ron Johnstonea

Steve Arquitt is a Abstract

research assistant with
Driven by growing international demand for shrimp and stagnating catches of wild shrimp, the
the Centre for Marine
shrimp aquaculture industry has grown remarkably over the past two decades. Initial hopes that
Studies at the
farmed shrimp could provide an environmentally benign alternative to over-exploited wild stocks
University of
have, however, proven disappointing. Although global growth has been steady, the industry has
Queensland, Brisbane,
experienced dramatic production crashes at national and sub-national scales associated with
Australia, where he is
severe environmental damage. From a systems perspective, the industry is prone to exceed and
working to develop
consume its environmental carrying capacity, resulting in boom and bust patterns of develop-
system dynamics
ment. In this paper we describe a dynamic commodity system model built to examine boom and
models for improved
bust in the shrimp aquaculture industry. Experiments with the model suggest that a policy that
management of coastal
taxes the industry and rebates proceeds to licensed producers may help shift the system toward
ecosystems.
sustainability. Copyright © 2005 John Wiley & Sons, Ltd.
Xu Honggang is Syst. Dyn. Rev. 21, 305–324, (2005)
Associate Professor of
System Dynamics at
the School of
Geography, Science,
Introduction
and Planning at Sun
Yat-sen University, Growing international demand for shrimp and stagnating catches of wild
Guandong, China. shrimp in the early 1980s created an opportunity for the development of
Professor Xu’s special export-orientated shrimp aquaculture industries (Csavas 1995). Countries
interests are natural
resource management
with climate and natural resources suitable for shrimp farming, particularly in
and tourism planning. Asia and Latin America, seized on the opportunity, converting vast stretches
of coastline into shrimp farms. Growth in the sector has been spectacular over
Ron Johnstone is the past two decades (Figure 1). In 1982 shrimp aquaculture (also known as
Associate Professor shrimp farming) accounted for only about 5% of world shrimp supply; by 1994
and Deputy Director of
the Centre for Marine
this figure had risen to 30% (Flaherty et al. 1999). Some experts estimate that
Studies at the aquaculture now accounts for 50% of world shrimp supply (Rosenberry 2004).
University of Globally, farmer earnings from shrimp farming were estimated at U.S. $7
Queensland. His billion in 2000 (FAO1 2002). In Thailand, one of the world’s largest exporters
research interests of farmed shrimp, the industry generated approximately U.S. $2 billion in
include investigations
into nutrient
export earnings in 2000 (FAO 2002). In addition to providing social benefits of
interactions between employment creation and foreign exchange earnings, many believed that shrimp
habitats and biotopes, aquaculture would take pressure off overfished wild shrimp stocks and offer
encompassing an environmentally benign alternative to destructive practices of the shrimp
capture industry (Naylor et al. 2000).2

a
Centre for Marine Studies, University of Queensland, Brisbane, QLD 4072, Australia. E-mail: sarquitt@uq.edu.au
b
Sun Yat-sen University, Guandong, China.
* Correspondence to: Steve Arquitt.

System Dynamics Review Vol. 21, No. 4, (Winter 2005): 305–324 Received January 2005
Published online in Wiley InterScience Accepted June 2005
(www.interscience.wiley.com). DOI: 10.1002/sdr.313
Copyright © 2005 John Wiley & Sons, Ltd.

305
306 System Dynamics Review Volume 21 Number 4 Winter 2005

research on coral reefs, Despite the apparently bright picture of growth and export earnings at the
seagrass beds, and global scale, the shrimp farming industry has exhibited an extremely unstable
mangroves. Professor
Johnstone is also
pattern of development strongly associated with ecological damage and nat-
working to develop ural resource depletion. Examination of Figure 1 reveals patterns of boom and
appropriate tools and bust at national scales. In the early 1980s the industry grew rapidly in Taiwan,
approaches for better China and The Philippines only to suffer dramatic production crashes within
integration of a few years. Boom and busts have been observed both at national scales
environmental science
into decision making
and within countries. In Thailand, for example, the national production
processes for coastal figures have remained high but mask a series of boom and busts in which the
zone management. industry has developed rapidly in one region only to crash and migrate to
another (Huitric et al. 2002). The production crashes have left extensive areas
of abandoned shrimp ponds and depleted natural resources, in particular
coastal mangrove forests, and have caused social damage through loss of
employment in shrimp farming and related side industries.
This paper describes a system dynamics model developed to examine the
underlying causes of boom and bust in the shrimp aquaculture industry and
to aid in policy design for improved sustainability. The development of the
model was guided by a case study of shrimp aquaculture in Thailand. Thailand
is one of the world’s leading producers and exporters of farmed shrimp, and its
shrimp aquaculture industry has been the subject of much study and debate.
The model builds on earlier work modeling the shrimp commodity system

Fig. 1. Shrimp
aquaculture
production in main
producing countries
(Source: FAO, Kautsky
et al. 2000)
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 307

(Arquitt 1995; Arquitt et al. 2003) and was informed by the shrimp commodity
modeling project undertaken by the Sustainability Institute (Johnston et al.
2002). The model is based on recognized commodity modeling principles
(Meadows 1970; Sterman 2000) and is general enough to be applicable to
shrimp aquaculture in other countries. It is hoped that this study will contrib-
ute to the ongoing debate on policy for environmental sustainability of the
shrimp farming industry and other aquacultural commodity systems.

Environmental limits to shrimp farming

The form of shrimp farming examined here is known as “brackish water”

shrimp farming. Several species are farmed but all are marine species requir-
ing salt water. For this reason shrimp farms are typically found along coastal
margins, often on the shores of estuaries and embayments lined or formerly
lined with mangrove forests. “Mangrove” refers to a tropical coastal ecosystem
type that is alternately inundated and exposed by tides and dominated by
species of salt-tolerant trees. Mangroves are the dominant ecosystem type
found in most shrimp farming areas and serve as an important resource base
for shrimp production by maintaining water quality through assimilation of
nutrients and pollutants (Rönnbäck 1999). Mangroves also provide shoreline
protection, and serve as nursery grounds for many commercially important
fish species, including wild shrimp3 (Hogarth 2002).
Shrimp farming is at once strongly dependent on supplies of clean intake
water and highly pollutive. The degree of pollution produced by a given farm
is directly related to farming intensity. Farming intensity is usually categor-
ized into one of three broad production modes. Traditional “extensive” shrimp
farming has been practiced in Asia for centuries. The farmer relies on feed
occurring naturally in the coastal waters, inputs are minimal and there is little
release of waste into the environment. Yields are comparatively low, in the
range of 0.5–1.5 metric tons (live weight) per hectare of pond per year. “Inten-
sive” farming is dependent on heavy inputs of commercial feed and chemical
treatments. Yields are much higher, in the range of 7–15 metric tons (Kautsky
et al. 2000). Demands on the ecosystem are also much greater. Intensive farming
produces large amounts of wastewater contaminated with dissolved feed, dead
shrimps, fecal matter, etc. that must be flushed from the pond and replaced
with clean water. Also, up to 500 metric tons of sediments per hectare of pond
per year of extremely high organic content are produced and must be disposed
of (Flaherty et al. 1999). The third category, “semi-intensive” farming, is inter-
mediate between extensive and intensive in terms of inputs, yields, and envir-
onmental impacts. In general it follows that the greater the farming intensity,
the greater the demand placed on the ecosystem for waste assimilation.
Kautsky et al. (2000) have developed the concept of “ecological footprint”
for shrimp farming. The ecological footprint with respect to water quality is
308 System Dynamics Review Volume 21 Number 4 Winter 2005

the area of adjoining intact mangrove required to assimilate farm waste and
sustain production for a unit area of shrimp pond, the size of the footprint
being directly related to the farming intensity.4 An indication of an area’s
carrying capacity for shrimp farming can be obtained by dividing the man-
grove area by the average footprint. If the carrying capacity is exceeded,
organic waste from shrimp farms accumulates and yields fall due to pollution
and, in particular, to increased incidence of infectious shrimp diseases that
occur under polluted conditions.

Causes of shrimp production crashes

In many industrial systems production busts occur as a result of over-
investment in production capacity relative to market demand. Since the early
1980s global shrimp aquaculture production has grown more or less continu-
ously (Figure 1), whereas production crashes have occurred at national or sub-
national scales even in the face of strong international demand. Underlying the
production busts are failures of policy makers and authorities to recognize
industry dependence on ecological services and take effective measures to
limit entry into the industry and preserve the natural capital that provides the
services. Shrimp farms have often been allowed to proliferate in numbers and
densities far exceeding the ecological carrying capacity. Furthermore, farms
have often been established directly within mangroves with the result that
large areas of mangrove have been cleared to make way for shrimp ponds,
canals, and access roads. In sum, the shrimp farming industry has often ex-
ceeded and consumed its carrying capacity. Such systems inevitably exhibit
overshoot and crash behavior (Sterman 2000).

The case of Thailand

Boom and bust of commercial shrimp farming in Thailand has been well
documented (Huitric et al. 2002). Since its beginnings in the early to mid
1980s, the industry has shifted from one coastal region to another, first from
the central to the western Gulf of Siam, then to the eastern Gulf, and finally
to the Andaman seacoast. It is estimated that Thailand lost approximately
half of its mangroves during this time and that at least half of this loss
resulted directly from proliferation and migration of shrimp farms (Barbier
and Cox 2004; Huitric et al. 2002). Since the mid 1990s there has been a
significant move of shrimp farming to the interior, in particular to the central
Chao Phraya River basin, using seawater brought in by truck (Flaherty et al.
1999). The move to the interior is due to increasing difficulty of obtain-
ing clean seawater suitable for shrimp farming in coastal areas (Huitric et al.
2002).
As recognition of the environmental damage wrought by the industry in-
creased through coverage in the popular press and through research studies,
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 309

the Thai government enacted measures to regulate shrimp farming, including

a ban on shrimp farming within mangrove areas and a prohibition on loans
for farms in mangroves. Ministerial regulations placed limits on pond effluent
discharge and required that all shrimp farms be registered. More recently the
Thai government has banned shrimp farming in interior regions due to risks
of salinization of surrounding farmland, problems associated with disposal of
wastewater and sludge, and conflicts with neighboring rice and fruit farmers.
Shrimp farming is now officially permitted only in designated near-shore areas
of the coastal provinces (Flaherty et al. 1999; Szuster 2003).
Official policy changes in Thailand indicate that policy makers now recog-
nize industry dependence on ecological services. However, policies address-
ing environmental problems of the shrimp farming industry have not proven
effectual to date. For example, despite the ban on farming in mangroves,
encroachment on officially protected mangroves continues. Also, regulations
on pond effluents are commonly ignored and the majority of farms operate
without licenses (Huitric et al. 2002). Reasons cited for non-compliance
include inadequate sanctioning, and shortage of departmental resources to
monitor mangrove encroachment and farming practices and enforce regula-
tions (Flaherty et al. 1999; Huitric et al. 2002; MIDAS 1995).

Model structure

General structure
The bulk of shrimp aquaculture production is traded on international markets;
in the case of Thailand over 90% of production is exported. We have therefore
modeled Thai shrimp aquaculture within the context of an international com-
modity system. To accomplish this, inventory, production, and ecological
sectors specific to Thailand were developed. Rest of world (ROW) inventory
and production sectors model shrimp supply from all other countries. We
have not included an ROW ecological sector on the assumption that world-
wide shrimp farming and capture industries are able to maintain production
by moving into unexploited areas over the time horizon considered in this
study. Thai shrimp production is disaggregated into two sectors representing
production undertaken within mangrove zones and production in coastal
inland areas adjacent to mangroves. This makes it possible to model policy
that shifts advantage from mangrove based to more sustainable near-shore
inland production. The model does not consider shrimp production in far
interior regions discussed in the previous section. Figure 2 shows principal
feedback loops operating between sectors.
The demand, inventory, and production sectors are based on the generic com-
modity model developed by Meadows (1970) and refined by Sterman (2000).
Balancing feedback loops between the demand, inventory, and production
310 System Dynamics Review Volume 21 Number 4 Winter 2005

Fig. 2. Organization
of shrimp commodity
model showing
feedback loops
between the sectors

sectors (loops B1, B2, B3, B4, B5) seek to equilibrate supply and demand by
adjusting prices to maintain inventory coverage at desired levels. Balancing
loops between the Thai production sectors and the ecological sector mimic
environmental limits on shrimp production. When production rises through
farming intensification (loops B6, B7) and expansion (loops B8, B9), the
industry ecological footprint increases and yields begin to fall as the footprint
outstrips the mangrove area. Expansion of mangrove shrimp farms directly
consumes the mangrove resource base and ultimately results in a production
crash (loop B10). Note that all feedback loops between sectors are balancing.
Reinforcing loops causing growth of Thai production are contained within the
Thai production sectors.

Internal structure of sectors

We shall limit our discussion to the sectors most relevant to our policy ana-
lyses: the Thai production sectors and the ecological sector.5
The Mangrove Shrimp Farm Production sector represents decision rules
controlling shrimp farming within mangrove zones. The basic stock and flow
structure is shown in Figure 3.
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 311

Fig. 3. Simplified stock and flow structure of Mangrove Shrimp Farm Production sector. Variables outside the large rectangle
are developed in other model sectors

Production is the product of farm area and yield with a delay to account for
the time lag between seeding the crop and harvest. Yield is a function of
farming intensity and ecological effect. Intensity adjusts after a delay to a level
indicated by the expected mark-up ratio, formulated as the ratio of expected
revenue to expected variable costs. The model does not explicitly distinguish
between the three modes of farming intensity described earlier, but treats
intensity as a smooth continuum.
Initial investment is modeled as an exogenous one-time pulse. Farm area
expands or contracts in response to expected profitability, which is formulated
as expected long-run profit divided by expected revenue. Expected profit-
ability for new entry farms is based on yield expectations uninfluenced by
ecological feedback. This is because new farms are typically initiated in rela-
tively unspoiled areas. Expected profitability for existing farms is based on
yields that are influenced by the environment. This means that new farms are
initiated as existing farms are abandoned, mimicking the sequential exploita-
tion of mangroves described by Huitric et al. (2002). A supply chain captures
delays and momentum associated with planning and construction. Mangroves
are modeled as a partially renewable resource. We assume that some mangrove
is cleared for other purposes at a constant fractional rate. Also, a fraction of
abandoned mangrove shrimp farm land is converted to other purposes. We
assume that the remaining abandoned area eventually regenerates back to
mangrove. A stock representing mangrove seedlings captures inertia asso-
ciated with regeneration.
312 System Dynamics Review Volume 21 Number 4 Winter 2005

The Thai Coastal Inland Shrimp Production Sector models shrimp farming
in the coastal inland adjoining the mangrove zone. The decision-making and
stock and flow structure is similar to the Thai Mangrove Shrimp Production
Sector. The only notable difference is that mangroves are not cleared by farm
expansion and abandoned farm land returns directly to a stock of coastal
inland available for farming.
The Ecological Sector models environmental influence on yields of mangrove
and coastal inland shrimp farms. The sector structure is shown in Figure 4.

Fig. 4. Information structure of Ecological Sector

An industry ecological footprint is calculated based on average farming

intensity and total farm area. The indicated ecological effect on yields is a
non-linear function of the ratio of mangrove area to industry footprint. The
ecological effect on yields is a first-order exponential smooth of the indicated
effect with time lag representing delays associated with accumulation of
contaminants and with regeneration of environmental quality.
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 313

Base simulation

The simulation time horizon is 50 years. Euler integration was used with DT
set to 0.125.
The base simulation shown in Figure 5 shows a decided overshoot and
collapse pattern of production similar to cases observed in Thailand, Taiwan,
China, The Philippines and other countries. The variables shown are (1) Man-
grove Area, (2) Total Thai Production, (3) Thai Mangrove Farm Production,
and (4) Thai Coastal Inland Farm Production.

Fig. 5. Base simulation

showing Mangrove
Area (1), Total Thai
Production (2), Thai
Mangrove Farm
Production (3), and
Thai Coastal Inland
Farm Production (4)
over a time horizon of
50 years. Mangrove
area is given in
hectares. Production
figures are given in
metric tons (live
weight)

The base simulation can be described in a series of five development phases:

1. Pre-investment phase, year 1970 to 1975. From year 1970 the mangrove
area decays gradually at a fixed fractional rate representing exploitation for
timber and conversion to other land uses. Shrimp farm area and production
are zero.
2. Exponential growth phase, year 1975 to approximately 1991. In 1975 shrimp
farms are initiated in mangrove and coastal inland areas and production
begins to grow exponentially in response to attractive expected profit-
ability. Mangrove farm production increases faster than inland because
land acquisition cost is lower.
3. Decelerating growth phase, approximately 1991 to 1997. At approximately
year 1991 the growth of production begins to slow due to declining yields
caused by environmental feedback as the ecological footprint begins to
exceed the mangrove area, and as the mangrove resource base is consumed.
314 System Dynamics Review Volume 21 Number 4 Winter 2005

4. Collapse phase, year 1997 to year 2007. After reaching a peak around year
1997 production drops rapidly as unprofitable farms are abandoned or
converted to other uses and the rate of new entries declines.
5. Post collapse phase, beginning approximately year 2007. With mass closure
of shrimp farms the ecological footprint is reduced and environmental
pressure on yields relaxes. Mangroves are not entirely depleted because
appropriation cost has risen with increasing scarcity of mangroves. A level
of coastal inland production much lower than the production peak in 1997
is now sustained by the remaining mangrove stock. Mangrove shrimp farm
production declines gradually toward zero because of greater fixed cost
associated with mangrove scarcity.

Comparison of simulated to historical data

Figure 6 compares simulated behavior to historical data for the period 1970
through 2000. The historical data (time path 1) represents production in the
coastal areas of Thailand only. Interior shrimp production based on the
estimates of Flaherty et al. (1999) and Szuster (2003) has been subtracted from
aggregate production figures published by the FAO. The derived estimates
suggest that coastal shrimp farming in Thailand has undergone a serious
collapse (Szuster 2003).

Fig. 6. Comparison
of simulated and
historical data for total
production in coastal
zones of Thailand.
Estimated production
figures for interior
shrimp farming are
not included in the
historical data shown
on the diagram

The simulation overestimates the early growth of production and produc-

tion peaks slightly later than the historical data. It should be noted that the
historical production figures are rough estimates (Rosenberry 2004) and the
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 315

simulated behavior is numerically sensitive to parameters and the shapes of

table functions. Given that our concern is with the basic pattern of boom and
bust, the simulated behavior appears to adequately track historical data.

Policy analyses

Our policy objectives are twofold: (i) a sustainable shrimp farming industry that
can provide sizeable benefits of foreign exchange earnings and employment;
and (ii) conservation of mangrove resources that are essential to the sustainability
of the shrimp farming industry, capture fisheries, rural incomes and biodiversity.
The policy debate on shrimp aquaculture is bipolar. At one extreme are pro-
ponents of high-cost technological solutions to reduce and eventually eliminate
the dependence of shrimp farming on ecological services. On the other are
advocates for sustainable shrimp farming based on conservation of natural
capital and recognition of ecological carrying capacity (Kautsky et al. 2000).

Technology
Technological improvements include water treatment and recirculation systems
to reduce dependence on the environment, and species selection and breeding
programs to improve disease resistance. The benefits of these technologies can
be construed as a reduction in the shrimp farm ecological footprint. To test the
impact of gradual adoption of improved technology we conducted a simula-
tion with exogenous 2.5% per year reduction in the industry’s ecological
footprint. By the year 2020 the average footprint is approximately one third of
the value in 1975. The results are shown in Figure 7.
Production reaches a higher maximum than in the base simulation but a
pronounced boom and bust pattern is still present. The simulation implies that
farmers will be unable to internalize benefits from technological improve-
ments if the shrimp farm population is allowed to overcrowd and consume the
ecological carrying capacity.

Eco-taxes
A variety of eco-tax schemes have been proposed to promote sustainable
shrimp aquaculture by discouraging over-exploitation of natural capital. These
include a start-up tax on new shrimp farms to slow excessive growth of the
industry (Parks and Boniface 1994), a tax on variable inputs such as feeds to
encourage farmers to reduce farming intensity (Bailly and Willmann 2001),
and taxes on farms located on lands unsuitable for sustainable farming (Miller
1999). However, the enforceability of taxes assessed directly on farmers ap-
pears impracticable for the same reasons that enforcement of regulations on
effluents and land use has proven ineffective (Miller 1999, Bailly and Willmann
316 System Dynamics Review Volume 21 Number 4 Winter 2005

Fig. 7. Simulation
with exogenous
improvement in
technology

2001). Taxing shrimp exports appears to be a more tenable proposition. In a

study of coastal resource management in Thailand undertaken for the World
Bank, consultants recommended an ad valorem tax on shrimp exports to slow
the growth of the shrimp farming industry and to internalize some of the
environmental costs of mangrove destruction and coastal pollution (MIDAS
1995). Earlier modeling work (Arquitt et al. 2003) suggests that an export tax
alone will not push the system toward sustainability or protect the resource
base because it does not discriminate between farmers who abide in environ-
mental regulations and those who do not.

Export tax with rebate

The export tax and rebate policy was inspired by the “feebate” policies described
by Ford (1995, 1999). We propose that an export tax and rebate policy may
help promote a large-scale sustainable shrimp farming industry and reduce
mangrove deforestation by indirectly taxing all farmers and rebating tax proceeds
to licensed producers. Licenses would only be granted to farmers with opera-
tions located in designated areas deemed suitable for shrimp farming. Also,
the licensed farm area for a given region would be limited to the estimated
environmental carrying capacity. In essence the proposed tax and rebate policy
is a means of enforcing zoning regulations and restricting total farm area.
A policy implementation sector (Figure 8) was developed to model the
export tax and rebate policy.
A unit export tax is assumed, i.e., a fixed money amount assessed on each
unit of exported shrimp. We assume that the tax in its entirety is added to
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 317

Fig. 8. Simplified causal structure of policy implementation sector

merchants’ required margin and is thereby transmitted to all eligible farmers.

After a delay a rebate equal to the unit tax, and adjusted upward or downward
in accordance with the availability of tax funds, is paid to licensed farmers. A
unit tax is used because it eliminates uncertainties associated with percentage
taxes on changing export prices. Expected long-term rebate and expected
short-term rebate are modeled with adaptive expectations (first-order smooth-
ing) and influence expected profitability and the expected mark-up ratio
respectively.
The inflow of tax receipts to the tax fund is exports times the unit tax
amount. An outflow represents disbursements to administration based on a
fixed yearly fraction. Administrative functions would include verification of
weights of shrimp sold by farmers, and the corresponding rebate amount owed
the farmer. Another outflow represents disbursement of rebates, the rebate
payment per farm times the number of licensed inland farms. An inventory
318 System Dynamics Review Volume 21 Number 4 Winter 2005

Fig. 9. (a)Sensitivity
of Total Thai
Production to export
tax and rebate policy.
(b) Sensitivity of
Mangrove Shrimp
Farms Production to
export tax and rebate
policy. (c) Sensitivity
of Inland Shrimp Farm
Production to export
tax and rebate policy.
(d) Sensitivity of
Mangrove Area to
export tax and rebate
policy

management structure seeks to maintain the level of tax funds at a desired

level by adjusting the rebate amount. Only licensed farms are eligible for the
rebate. The maximum area of licensed farms allowed is based on the perceived
ecological carrying capacity, which embodies time lags associated with updat-
ing perceptions of mangrove stock and industry footprint.
To test the export tax and rebate policy the Thai case model is used in a
generic sense. Insights gained through these tests can be extended to other
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 319

Fig. 9. (Continued)

countries where shrimp farming industries are being planned or are in early
stages of development. Figure 9 shows impacts on total production, mangrove
farm production, coastal inland production, and the mangrove stock when the
tax and rebate policy is implemented in 1975, the year of industry initiation.
Time path 1 represents the base simulation with the unit export tax set to 0.
Time paths 2, 3 and 4 represent cases with the export set to U.S. $1, 2, and 3 per
kilogram, respectively.
320 System Dynamics Review Volume 21 Number 4 Winter 2005

When the export tax is set to U.S. $1 the impact on the system is negligible.
When set to $2 the overshoot and collapse pattern of total production is
reduced; however, mangrove deforestation from the expansion of mangrove
shrimp farms is still significant. When set to $3 the overshoot pattern is greatly
reduced and mangrove destruction by shrimp farm expansion is negligible.
Production still declines gradually because the mangrove resource base is
being continuously eroded by conversion to other uses. The simulations shown
in Figure 9 indicate that the export tax rate is a behaviorally influential para-
meter for the tax and rebate policy. To achieve the policy goals the tax must be
set high enough to discourage the entry or continuance of unlicensed farming
operations by reducing expected profitability.
Part of the tax receipts under the tax and rebate policy could be allocated to
supplement research and education programs encouraging farmers to adopt
improved technology or management practices. Figure 10 shows simulation
results when a U.S. $3 tax and rebate policy is implemented with a continuous
2.5% reduction in environmental footprint associated with adoption of im-
proved technology and management.

Fig. 10. Simulation

of Mangrove Area,
Total Thai Shrimp
Production, Mangrove
Shrimp Farm
production, and
Inland Shrimp Farms
Production with
export tax and rebate
policy and gradual
adoption of improved
technology

In this case production climbs to a higher level than with the U.S. $3 export
tax and rebate program alone and is sustained even as the mangrove resource
base gradually erodes due to exogenous factors. As improved technology and
management become more widely adopted, the average ecological footprint of
farms decreases, causing the environmental carrying capacity for the industry
to increase. After a recognition delay the licensing limitation is raised to the
recognized carrying capacity.
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 321

Implementation of this policy would necessitate the establishment of an

environmental responsibility institution similar to that proposed by Saeed
(2004, 1985). Such an institution would continuously monitor the man-
grove stock, the industry footprint, and set appropriate quotas for shrimp
farming permits. The institution could also monitor production costs in
order to set the export tax to a level adequate to prevent entry of unlicensed
farms.

Discussion

The export tax and rebate policy proposed in this paper attempts to limit the
industry to the ecological carrying capacity and conserve the natural capital
base by placing a prohibitively high indirect tax on the production of unli-
censed producers, thus obviating the expenses and conflicts associated with
command and control policies. Simulation experiments suggest that the tax
and rebate policy can lead to a more sustainable production system. Is the tax
and rebate policy realistic in terms of implementation? A number of key
assumptions must hold for the policy to be successful. Among these are the
following:

• Production is predominantly exported. In the case of Thailand over 90%

of shrimp aquaculture production is exported. If significant domestic
demand exists or emerges, the farmgate price may not be forced low enough
to discourage unlicensed production. Domestic shrimp sales may be more
difficult to tax than exports.
• The export tax is shifted to producers. In our model the tax amount is
automatically added to exporters’ margin, meaning that the tax in its
entirety is transmitted to producers and none is absorbed by exporters. The
degree of tax transmission is an influential assumption that warrants further
investigation.
• Producers must have assurance that authorities will pay rebates. We model
expected rebates with adaptive expectations (first-order exponential smooth-
ing). In the real world adaptive expectations may not apply to cash rebates
from government bodies. Advance payment to producers or issuance of a
government bond to be adjusted at the time the crop is sold may be neces-
sary. An alternative may be to pay the rebate by subsidizing the costs of
variable inputs for licensed farmers.
• An institutional structure for implementation must be put in place. Third
party arrangements would be necessary to certify weights and grades of
shrimp harvests at the time of sale in order to determine the amount of
rebate owed to eligible farmers.
• The policy must be implemented preemptively. For maximum effectiveness
the policy should be initiated early in the development process before the
322 System Dynamics Review Volume 21 Number 4 Winter 2005

mangrove resource base is depleted. The potential for sustainable shrimp

production will decrease as the mangrove stock is depleted.

A limitation of the tax and rebate policy is that it focuses on mangrove protec-
tion but does not directly address restoration of degraded mangroves. The
policy, however, could support reforestation efforts by restricting encroach-
ment on replanted areas.
There is potential for the tax and rebate policy to work in concert with other
policies for sustainable shrimp production. We have discussed how a tax and
rebate policy could allow farmers to capture benefits of technological innova-
tion and expand production sustainably. Eco-certification and labeling for
sustainable aquaculture is another policy now being promoted by a number of
international agencies and industry organizations.6 There is evidence that
seafood consumers are becoming concerned about the environmental conse-
quences of their purchases, and may be willing to pay a premium for seafoods
that are harvested or produced sustainably (for a review of certification and
eco-labeling for fisheries see Wessells et al. 2001). Price premiums for eco-
certifed shrimp produced under a tax and rebate policy could help cover the
cost of implementing the policy. Arquitt and Cornwell (2005) apply system
dynamics to examine the influence of eco-certification and labeling on shrimp
aquaculture.
The Thai case study helped us develop a hypothesis of shrimp aquacul-
ture boom and bust and provided a structure with which to perform policy
experiments. The policy experiments, however, must be viewed as learning in
retrospect. At the time of this writing Thailand’s mangrove resources have
been depleted to the point where a mangrove-based shrimp farming industry
cannot attain the high production levels shown in the tax and rebate policy
experiments. It is possible, however, that a tax and rebate policy could help
protect remaining mangroves in Thailand and help enforce zoning require-
ments for shrimp farms. There is now concern that shrimp aquaculture may
expand into unexploited mangrove regions in Asia, Africa, and Latin America
and continue the boom and bust patterns. The model primarily applies to these
unexploited regions where we hope it may contribute to preemptive policy
design for sustainable shrimp production.

Notes

1. FAO is the Food and Agriculture Organization of the United Nations.

2. Estimates of average “by-catch” or incidental catch by shrimp bottom-
trawling range between 3 and 20 times the weight of harvested shrimp. By-
catch is typically killed in the process of harvesting and thrown overboard.
Bottom-trawling involves dragging a weighted net across the seafloor, caus-
ing serious marine habitat damage ( Johnston et al. 2002).
 S. Arquitt et al.: Boom and Bust in the Shrimp Aquaculture Industry 323

3. An important service provided by mangroves is coastline protection against

wave action. Preliminary reports after the tsunami disaster of December
2004 indicate that villages located behind intact mangrove stands incurred
significantly less damage than those unprotected by mangroves. Govern-
ments in the tsunami-affected region have announced intentions to
plant mangroves to provide buffering against future tsunami events (FAO
2005).
4. Shrimp are farmed in other coastal ecosystems not featuring mangroves,
e.g., tidal flats in subtropical regions. The ecological footprint will be differ-
ent in other ecosystems but the concept can still be applied.
5. The fully documented model in STELLA Research 7.2 is available from the
corresponding author upon request. The model includes detailed sector
descriptions.
6. For discussions of eco-certification and eco-labeling policies for shrimp see
the website of the Network of Aquaculture Centers for the Asia-Pacific
(NACA): http://www.enaca.org.

Acknowledgements

The authors wish to thank the four anonymous referees for their valuable comments.
We also thank Professor Andy Ford for his suggestions for improving the model.
Finally, a special word of thanks is due to Professor Saeed, who supervised this
research in its earliest stages at the Asian Institute of Technology.

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