Price and yield risk in catfish aquaculture

Linda Benedict, Kazmierczak, Richard F.  |  5/29/2009 11:04:11 PM

Many of the problems in the catfish industry are exacerbated by the uncertainty producers face when planning their operations. The sources of risk are numerous, ranging from weather fluctuations and bird predation to regulatory policy. If ignored, each source of risk can adversely affect profitability. Because producers have little opportunity to influence output and input prices, their ability to manage risk is often severely tested. To incorporate risk into their decision-making process, farmers need information. But since their industry is relatively new, there is little information about risk. This study examined the impact of price and yield variability on the profit variability of catfish production.

Two types of data were needed: yields (pounds of catfish produced per acre) and prices (for feed and marketable catfish). Catfish yields have not been systematically measured, and some of the information needed to calculate yield has only recently been collected. As an alternative, this study incorporated simulated yield data validated using expert estimates of typical farm yields. Weather was selected as the force behind simulated yield variability because channel catfish feeding varies significantly with temperature and ceases when water temperature drops too low.

Yield distributions were simulated for three different farm sizes and two different culture systems. Farms were categorized by size into small (160 total acres), medium (320  total acres) and large (640 total acres). Channel catfish are usually cultured as food fish by one of two methods: the multiple-batch system, where multiple-size fish are cultured within the same pond, and the single-batch system. Simulations generated information on total production, average annual yields and the amount of feed required for each simulated yield.

Prices paid to U.S. catfish producers for the 1970-1997 period were obtained from the National Agricultural Statistics Service. Annual catfish feed prices were obtained from secondary sources for the 1977-1998 period (Mississippi Cooperative Extension Service Fact Sheet).

Resulting net returns distributions indicated that the most risk efficient production system for catfish is either single or multiple batches on large farms. Single batch production system on small farms, a common operational scenario for marginally viable producers, was the most inefficient technology/size combination. These results confirm the anecdotal evidence that sophisticated farmers choose to work with the multiple-batch production systems in order to have a steady cash flow through the year and avoid losses caused by unpredictable circumstances.

The relationship between farm size and risk efficiency may become even more important in the future if the aquaculture industry encourages the private sector development of revenue insurance contracts for producers. If accurate yield, price and net return distribution information is available, then private insurers can, in principle, create the risk-adjusted premium and deductible schedules necessary for the establishment of a private insurance market.

Patricia Soto, Graduate Research Assistant, and Richard F. Kazmierczak Jr., Associate Professor, Department of Agricultural Economics and Agribusiness, LSU Agricultural Center, Baton Rouge, La

(This article was published in the fall 1999 issue of Louisiana Agriculture.)

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