GRIFFIN ET AL.: ECONOMIC AND FINANCIAL ANALYSIS 



have registered a positive return on investment. 

 As a matter of fact, the class II vessels, which had 

 the highest rate of return in 1973, would have had 

 to receive approximately $2.20 per pound of 

 shrimp landed to achieve a break-even invest- 

 ment (0% internal return on investment) if an- 

 nual production of shrimp is held constant at the 

 1973 level of 48,602 pounds. Since they only re- 

 ceived $1.89 per pound in 1973 and prices declined 

 in 1974, investment in a class II vessel in 1974 

 would have yielded a negative rate of return on 

 investment. 



1975 Analysis 



If inflation continues at a 10% rate in 1975, and 

 production remains at approximately the 1973 

 level. Figure 1 indicates that ex-vessel prices 

 would have to increase to approximately $3.10, 

 $2.25, $2.65, $2.50, and $2.00 per pound of 

 shrimp landed for vessel classes I, II, III, IV, and 

 V, respectively, to achieve even a zero internal 

 rate of return on investment. Or, on the other 

 hand, with prices remaining constant at the 1973 

 level, production would have to increase to ap- 

 proximately 66,000, 57,000, 52,000, 49,000, and 

 40,000 pounds of shrimp landed per vessel, 

 respectively. 



However, based on production functions esti- 

 mated by Nichols and Griffin (1974) for the Gulf 

 of Mexico shrimp fleet where catch is a function 

 of effort, 1973 production of shrimp from the Gulf 

 was below normal. Average annual landings for 

 the vessels in the sample were estimated in a 

 normal year to be approximately 53,000, 59,000, 

 49,000, 37,000, and 38,000 pounds of shrimp 

 landed per vessel for classes I, II, III, IV, and V, 

 in that order. The vertical dashed lines in Fig- 

 ure 1 labeled "normal" indicate the average 

 landings for each class of vessel for the normal 

 production year. 



The average vessel in class II seems to be 

 operating at better than a break-even level in 

 1975 assuming normal production and 1973 ex- 

 vessel prices for shrimp. That is, given normal 

 production, class II vessels would have to receive 

 $1.85 per pound for shrimp landed in 1975 while 

 the 1973 average price for the class was $1.89 

 per pound. But, a new vessel cost of $130,000 

 would be just enough to set this cash flow at the 

 break-even level and the replacement of a class II 

 type vessel is estimated to be in excess of 

 $150,000 in 1975. 



From the graphs in Figure 1 it is obvious that 



none of the other classes (I, III, IV, V) are 

 operating at the break-even level assuming a 

 normal production year and 1973 average shrimp 

 prices and new vessel costs. In order to bring the 

 cash outflows down to the levels necessary to 

 achieve break even, class Ill-type vessel owners 

 could only invest approximately $30,000 in a new 

 vessel in 1975, and class V owners could invest no 

 more than $40,000. To reiterate, these break- 

 even levels represent a zero internal rate of 

 return on investment. Significantly, class I and 

 class IV-type vessel owners could not achieve the 

 breakeven level even with a zero investment 

 requirement. 



DISCUSSION AND IMPLICATIONS 



The resolution of problems facing the Gulf 

 shrimp industry may come about as a result of 

 changing economic conditions and/or changes in 

 specific policies which may or may not be initia- 

 ted or suggested by the industry. A number of 

 possible changes have been suggested which bear 

 consideration. 



One suggestion has been a fuel subsidy for the 

 fishing industry. This would be a direct saving to 

 vessel owners on the largest single input cost 

 item. Assuming a normal production year, it 

 would take a subsidy of 35, 13, 48, and 15 cents 

 per gallon for classes I, III, IV, and V, respec- 

 tively, to break even with a zero return on invest- 

 ment assuming prices stayed constant at the 

 1973 level. Chances of obtaining any relief in this 

 area are very slim. At best, the extent of such 

 relief would likely be limited to future increases 

 related to oil import taxes. Current fuel expenses 

 would probably not be reduced. 



Efforts to improve the efficiency of fishing 

 operations are also a priority consideration. The 

 operation of fishing vessels during periods of 

 marginal profitability required improved man- 

 agement and closer consideration of the effects of 

 the day-to-day decisions in running the vessel. 



Import quotas and tariffs are one suggested 

 alternative to the current cost-price squeeze in 

 the industry. By controlling imports it is antici- 

 pated that supplies on the market can be reduced 

 thus preventing prices from being depressed be- 

 low the domestic producer's costs. The goals of 

 free trade and stabilized or lower consumer 

 prices may make approval of the necessary con- 

 trols through the political process difficult to 

 realize. 



307 



