Production Performance Indicators with Externalities: Environmentally-Adjusted Productivity and Efficiency Indicators of a Sample of Semi-Intensive Shrimp Farms in Mexico

Sustainability in operations is a key consideration when discussing aquaculture’s current and future role in providing food and increasing coastal and rural employment and incomes, among other social benefits. An important problem from the economics point of view is how the economics point of view is how the externalities generated by aquaculture and those that the industry suffers are internalized. This paper extends the analysis reported in Martinez-Cordero and leung (2004) for a group of semi-intensive shrimp farms in Mexico. Modifications to the traditional Total Factor Productivity (TFP) and Technical Efficiency (TE) indicators are carried out in order to incorporate in the evaluation the environmental effects of aquacultural activities. In a framework of sustainable operations and development, these indicators (called environmentally-adjusted Total Factor Productivity EATFP and environmentally-adjusted Technical Efficiency EATE) allow for a better assessment of aquaculture activities, where enterprises are evaluated not only for obtaining the target product but also for how successfully farms are in generating the minimum among to undesirable outputs (wastes or pollutants). In this paper the years 1994, 1996-1998 and 2001-2003 are analyzed using an input distance function, and the environmental effects evaluated are total Nitrogen (N) and Phosphorous (P) discharges in farm’s effluents, calculated using mass balances for N and P reported for semi-intensive shrimp farms in Mexico. The results show that in all years EATE and EATFP were lower than the traditional TE and TFP scores. In the first period of evaluation (1994, 1996-1998) the TE and TFP trend is opposite to yields. As expected, years following diseases outbreaks result in a drop in all the economic indicators, but the fall is bigger in 2001 compared to 1996. In the second period (2001-2003) and despite drastic reductions in annual yields, productivity and efficiency don’t fall in the same proportion, meaning that both private and governmental efforts to assure that shrimp farming operations are carried out more efficiently, with higher productivity, are producing results, even though the fact that production continues being impacted by viral disease. For example, currently several Good Management Practices (GMPs) are already implemented or in the process of being adopted in semi-intensive farms. Two of the most important GMPs are present in the operation and management of the farms during 2001-2003: reduced water exchange rates and more controlled feeding strategies. Both have a direct effect on the discharges of shrimp farms to the environment and this study shows that EATFP and EATE properly capture these externalities. Farms that produce higher yields but also have a reduced impact on the environment (N and P discharges) achieve higher values for these economic indicators.