FINANCIAL ANALYSIS OF FRESHWATER PRAWN IN MIXED FARMS IN SELECTED PROVINCES OF THAILAND by Chao Tiantong, B.Sc.(Agr.), Dip. Agr. Sc. (Post) A sub-thesis submitted in partial fulfilment of the requirements for the degree of Master of Agricultural Development Economics in the Australian National University August, 1981 ii DECLARATION Except where otherwise indicated, this sub-thesis is my own work. August, 1981 C. Tiantong ( LIBRAS iii ACKNOWLEDGEMENTS The present sub-thesis would not have been completed without the assistance and support of a number of people. Dr Barry Shaw and Dr David Evans spent a lot of their precious time supervising me on this thesis. At all times they could be approached for discussion. Without their valuable advice, constructive ideas and willingness to correct my English this thesis would have taken a much longer time to finish. In fact, they were more than supervisors and I can hardly express the extent of my gratitude to them. The MADE Convener, Dr Dan M. Etherington was very helpful in guiding the analysis of the data and the provision of related materials. His understanding of the problems involved in writing a thesis allowed me sufficient time to complete my work. To him, I wish to express my sincere thanks. The thesis also would not have been finished without financial support from the Australian Development Assistance Bureau (ADAB). My thanks to ADAB and all the officers involved in students' affairs. Dusit Sirirote, Wuttikorn Masaphand, Dr Sumlit Tiandum and Tek Kowalski, the first three from OAE and the latter from the Australian Embassy in Bangkok, can never be forgotten because of their help in supplying data and related information. Without their assistance the present thesis might not have been initiated. To them, I am very thankful. My thanks also to Mrs Daphne Boucher, Mrs Anne Cappello and Mrs Christine Antoniak who typed this thesis. Finally, my wife, Wannee, deserves many thanks for her understanding and patience because during the latter days of my stay in Canberra most of my time was spent writing this thesis. 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" i «* . ifwimififimTswuEhniarili:iwium'on'vmjttnfi'iu imrurmamlntJ v r •as iflußtiurluuvijinhiB'jivitJ'iuvmt V ABSTRACT This thesis was undertaken in the light of the Thai Government's policy of promoting the production of the giant freshwater prawns. It is primarily concerned with factors affecting the adoption of this aquatic animal and the problem is approached from the farmer's point of view. It is argued that profitability is an important determinant of whether farmers switch to prawns, and the profitability of prawns is compared to that of rice and cassava. Activity budgeting is used, and is based on detailed costs and returns of the three activities derived from a sample of farms in three provinces of Thailand. Sensitivity analysis was applied to the results in order to see whether prawn profitability was seriously affected by changes in prawn prices, costs of production, and the removal of a government subsidy on pond construction. Simple regressions showing the relationship between returns and variable inputs for the three crops were used to illustrate some of the findings. The results show that prawns were much more profitable than the other crops in all locations yet the adoption rate for prawns is fairly low. Possible explanations for this are considered. The physical constraints of suitable land, access to water supplies and extension services are possible reasons why prawns have not been introduced in some areas. Moreover, a serious undersupply of prawn juveniles and the difficulties of obtaining adequate credit may partly explain why the farmers Vi who do grow prawns still grow other crops on a relatively high proportion of their land. However, fanners may have voluntarily chosen not to grow prawns for reasons other than the physical constraints. The problem of risk and uncertainty is discussed especially in relation to the high cost of failure involved in prawn production. Attitudes toward debt and tradition are also considered. A number of recommendations for the government's policy of promoting prawns emerge and are discussed at the conclusion of the thesis. vii CONTENTS Page ACKNOWLEDGEMENTS ü i ABSTRACT iv LIST OF TABLES x LIST OF FIGURES xi LIST OF APPENDICES xii LIST OF MAPS xiii CHAPTER 1 INTRODUCTION 1 1.1 Economic Problems in Thailand 1 1.2 The Importance of Prawns in the Thai Economy 2 1.3 Government's Role in Promoting Prawn Culture 5 1.4 Objectives of the Study 7 2 AN OVERVIEW OF THE GIANT FRESHWATER PRAWN 9 2.1 General Information on the Giant Freshwater Prawn 9 2.2 Economic Importance of M. rosenbergii 10 2.2.1 Marketing of the Giant Freshwater Prawn in Thailand 12 2.2.2 Price Movements of the Giant Freshwater Prawns in Thailand 12 2.2.3 Status of Freshwater Prawn Farming in Thailand 15 2.3 Pond Culture of the Giant Freshwater Prawn 16 2.3.1 Site Selection and Pond Construction 17 2.3.2 Preparation and Stocking of Ponds 18 2.3.3 Feeds and Feeding 20 2.3.4 Harvesting of Prawns 22 3 THE STUDY OF FRESHWATER PRAWN PRODUCTION 25 3.1 Background of the Study 25 viii CHAPTER Page 3.2 Description of Study Location 26 3.2.1 Kalasin 26 3.2.2 Roi Et 29 3.2.3 Chachoengsao 29 3.3 The Sample 30 3.4 The Survey Methodology 31 3.5 The Questionnaire 32 4 FINANCIAL ANALYSIS OF PRAWN, RICE PADDY AND CASSAVA AS FARM ACTIVITIES - METHODOLOGY 35 4.1 The Production Function 35 4.2 The Profit Function 37 4.3 Financial Analysis 40 4.3.1 Activity Budgeting and Gross Margins Analysis 40 4.3.2 An Illustration of Activity Budgeting 43 4.4 Summary 48 5 FINANCIAL ANALYSIS OF PRAWNS, RICE AND CASSAVA - RESULTS 49 5.1 Explanation of the Tables- Prawns 49 5.1.1 Initial Investment - Pond Construction 49 5.1.2 Initial Investment - Other Facilities and Equipment 53 5.1.3 Production and Price - Revenue 54 5.1.4 Annual Operating Costs 55 5.2 Explanation of the Tables - Rice 56 5.3 Explanation of the Tables - Cassava 57 5.4 Sensitivity Analysis - Prawns 59 5.4.1 No Government Subsidy on Pond Construction 60 5.4.2 Changes in the Price of Prawns 62 5.4.3 Changes in the Price of Prawns and the Cost of Production 64 5.5 Regression Analysis 66 ix CHAPTER Page 6 FACTORS INFLUENCING THE ADOPTION AND EXPANSION OF PRAWNS 71 6.1 Physical Constraints on Prawn Production 71 6.1.1 Land 71 6.1.2 Lease Conditions 72 6.1.3 Location 72 6.1.4 Extension Services 73 6.1.5 Credit 74 6.1.6 Juveniles 75 6.1.7 Conclusion 76 6.2 Other Factors AffectingFanners' Decision Making 76 6.2.1 Risk 77 6.2.2 Other Factors 85 6.3 Conclusion 87 7 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 89 7.1 Summary and Major Conclusions 89 7.2 Recommendations 93 7.2.1 Extension Services 93 7.2.2 Credit 95 7.2.3 Prawn Juveniles 97 7.2.4 Other Recommendations 98 BIBLIOGRAPHY 101 APPENDICES 104 X LIST OF TABLES Table Title Page 2.1 List of Macrobrachiwn spp. Found in Natural Waters in Thailand 9 3.1 Major Rice Crops: Planted Area, Production (Paddy) and Average Yield by Province Under Investigation, Crop Year 1974/75 - 1978/79 27 3.2 Cassava: Planted Area, Production and Average Yield By Province Under Investigation, Crop Year 1974/75 - 1978/79 28 3. 3 Number of Farms in the Sample By Province 31 4.1 Activity Budget Farm 25 44 5.1 Estimated Average Costs and Returns per Rai of Giant Freshwater Prawn Production by Farm Size 50 5.2 Estimated Average Costs and Returns per Rai of Rice Production 51 5.3 Estimated Average Costs and Returns per Rai of Cassava Production 52 5.4 Estimated Average Costs and Returns per Rai of Giant Freshwater Prawn Production (Without Government Assistance in Pond Construction) 61 5.5 Estimated Break-Even Production per Rai of Prawns by Farm