DUAL STRUCTURAL EQUILIBRIUM IN 

 THE FLORIDA SHRIMP PROCESSING INDUSTRY 



Jose Alvarez, Chris 0. Andrew, and Fred J. Prochaska' 



ABSTRACT 



Stability, entry, exit, and mobility patterns for six size categories of firms in Florida shrimp processing 

 industry for the 1959-71 period were studied by utilizing Markov Chain analysis. Forecasts over time 

 predict that a structural equilibrium in the industry will be achieved by 1985. The forecasted changes in 

 firm distribution suggest that Florida shrimp industry sales will become increasingly concentrated due 

 to expansion in number of both small and large firms. A dual equilibrium, resulting in fewer 

 medium-sized firms and more small- and large-sized firms, can be explained by the tendency for small 

 firms to develop a specialty product and/or services in order to differentiate their markets from those of 

 the very large firms. Medium-sized firms, then, tend to expand in size, or decline and either move to 

 specialty products and services or exit from the industry. 



Structural characteristics and patterns of Florida shrimp processing firms over the 1959-71 period, 

 and the forecasts reveal several important structural characteristics of the industry. Entry into the 

 Florida shrimp processing industry is relatively easy for small firms and more diflScult for large firms. 

 All firms are likely to move up in size by one only step or size category per time period. Exit from the 

 industry in one time period is less probable for small and large firms than for medium-sized firms. Large 

 firms are most likely to maintain their size between any two time periods and also experience less 

 probability of declining in size than do medium- and small-sized firms. 



Shrimp are the most important seafood processed 

 in Florida. Total value of the shrimp processed in 

 Florida in 1972 was slightly over $88 million. 

 Processed shrimp products account for approx- 

 imately 69% of Florida's total volume of nonin- 

 dustrial seafood products and 70% of the value of 

 seafood processed. In 1972, Florida's share of 

 processed shrimp production in the southeast 

 region was 28% (the southeast region representing 

 about 75% of U.S. production). The growth of this 

 industry was substantial during the last decade; 

 both Florida's production and share of the U.S. 

 market increased (Alvarez 1974). 



Despite the growth in processing experienced 

 by this industry, shrimp landings in the State 

 declined significantly during the 1960-73 period. In 

 1960, 51 million pounds (23 million kg) of shrimp 

 were landed; however, by 1973, landings declined 

 to only 20 million pounds (13 million kg). Current- 

 ly, the volume of shrimp processed in the State is 

 three times as large as the volume of landings in 

 the State, with the deficit being met by imports 

 and non-Florida U.S. landings (Alvarez 1974). 

 These comparisons indicate the basis of concern 

 for the growth potential and nature of competition 



'Food and Resource Economics Department, Florida Sea 

 Grant Program, University of Florida, Gainesville, FL 32611. 



within the Florida shrimp processing industry. In 

 a recent study addressing this concern (Alvarez 

 1974), emphasis was placed on processor sales 

 concentration since there was evidence of "market 

 power" in raw product purchases. The present 

 study corroborates the findings of that study and 

 further explains the results. 



Predictions regarding future economic rela- 

 tionships are important to this industry for cur- 

 rent managerial and investment decisions by 

 firms and for long-run planning in optimizing firm 

 size, scale economies, and product lines. Knowl- 

 edge of the estimated number and size distribu- 

 tion of firms in the future will also help predict the 

 character and intensity of competition within the 

 market. Markov Chain analysis, employed in this 

 study, is a useful tool for making such predictions. 

 The analysis is a discrete-time stochastic process 

 for which the state of the process at any time k 

 depends only on the state of the process at the 

 immediately previous time k -\. A Markov Chain 

 is described by listing the states of the chain, the 

 initial probabilities of being in various states, and 

 the probabilities of transition from one state to 

 another (Bishir and Drewes 1970). 



The purpose of this paper is to analyze by size 

 category the entry and exit patterns of firms in 

 the Florida shrimp processing industry during the 



Manuscript accepted May 1976. 



FISHERY BULLETIN: VOL. 74, NO. 4, 1976. 



879 



