ECONOMIC AND FINANCIAL ANALYSIS OF 

 INCREASING COSTS IN THE GULF SHRIMP FLEET ^ 2 



Wade L. Griffin, Newton J. Wardlaw, and John P. Nichols^ 



ABSTRACT 



The 115 Gulf of Mexico shrimp vessels used in this study were grouped into classes I (larger vessels) 

 through V (smaller vessels) based on their type of construction, length of keel, and index of effort. In 

 1973, class 11 vessels were the only vessels able to register a positive return to owner's labor and 

 management, $560; the other four classes registered negative returns. The payback period occurred 

 during the eighth year due to the sale of the vessels in classes II, III, and V, whereas payback did not 

 occur for classes I and IV. A positive rate of retvu-n on investment was experienced by the vessels in 

 classes II, III, and V in the amount of 13.21, 2.65, and 2.63%, respectively. The internal rate of return 

 on investment was negative for vessels in classes I and IV. 



Input prices increased some 20% from 1973 to 1974 whereas production remained approximately 

 constant and ex-vessel shrimp prices were lower. Thus none of the classes of vessels would have 

 experienced a break-even cash flow for 1974. Increasing input cost another 10% above the 1974 level, 

 and assuming normal production, the average vessel in class 11 seems to be operating at a better than 

 a break-even level in 1975 assuming ex-vessel shrimp prices remaining constant at 1973 levels. 

 Classes I, HI, IV, and V experienced less than break-even cash flows under the same conditions in 

 1975. 



The U.S. economy has faced some strong buffet- 

 ing in recent years. In spite of temporary wage 

 and price controls and other efforts by the admin- 

 istration, inflation has continued to be a major 

 problem for most sectors. The percentage in- 

 creases in the wholesale price index (including 

 all commodities) were 4.2% from 1971 to 1972, 

 13.1% from 1972 to 1973, and approximately 20% 

 from 1973 to 1974 (Board of Governors of the 

 Federal Reserve System 1974). Since inflation 

 can occur at different rates for different products, 

 profit and loss positions in almost every sector or 

 industry in the economy have been affected. Of 

 particular interest to shrimp vessel owners are 

 changes in the price for basic inputs used in the 

 shrimp industry: the price index for fuel, which 

 accounted for approximately 25%of variable costs 

 of shrimp production in 1971 (excluding crew 

 shares) (Hayenga et al. 1974) increased 76% from 

 December 1971 to December 1973; and the price 



'Technical Article No. 11534 of the Texas Agricultural 

 Experiment Station. 



^The work upon which this publication is based was 

 supported by the U.S. Department of Commerce, NOAA, 

 National Marine Fisheries Service under contract number 

 03-4-042-18, and partially supported through Institutional 

 Grant 04-3-158-18 to Texas A&M University by the National 

 Oceanic and Atmospheric Administration's Office of Sea Grant, 

 U.S. Department of Commerce. 



^Department of Agriculture Economics, Texas Agricultural 

 Experiment Station, Texas A&M University, College Station, 

 TX 77843. 



Manuscript accepted December 1975. 

 FISHERY BULLETIN: VOL. 74, NO. 2, 1976. 



index for lumber, metals, and machinery and 

 equipment (inputs used in the construction of 

 shrimp vessels) jumped 46.5, 19.2, and 7.9%, 

 respectively, during the same period (Board of 

 Governors of the Federal Reserve System 1973). 



With regard to prices and production in the 

 Gulf States, in 1973 ex-vessel shrimp prices 

 increased 33% from the 1972 figures, but land- 

 ings were off from the 1972 levels by 21% 

 (United States Department of Commerce 1974). 



Due in part to the economic climate, vessel 

 owners, managers, financial institutions, and 

 marine resource researchers have come to rely 

 heavily upon cost and return data in analyzing 

 investment, financing, and profitability alterna- 

 tives within the Gulf shrimp industry. But a 

 classification problem exists because of the wide 

 range of combinations of vessel size, construc- 

 tion, power, and fishing capability within the 

 Gulf shrimp fleet and the wide range of variable 

 costs, fixed costs, investment requirements, and 

 profitability associated with the various vessel 

 configurations. It is the purpose of this paper to 

 investigate, for different vessel classes, the 

 profitability of investing in and operating a 

 vessel in the Gulf shrimp fleet based on data 

 collected for the 1973 calendar year, and then 

 with the data adjusted to estimated 1974 and 

 1975 levels. 



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