Day: November 12, 2011

Frank Asche, Atle Oglend, Marty Smith and I have a new paper that looks at the determinants of prices in different shrimp markets–prices for big and small shrimp; prices for brown, white and pink shrimp; and prices for wild-caught shrimp and farmed shrimp.   In particular, we look to see whether prices for different categories of shrimp (different sizes, species, and methods of production) move in tandem.  Consumer decisions in markets are a function of relative prices of goods.   Thus, if the prices of large and small shrimp move in tandem, then the relative prices of the two sizes of shrimp do not change and consumers choices in the shrimp market should remain unaffected.  If this is true across all types of shrimp we say the market is integrated.

There are two important facts to know about the shrimp market.  First, we consume a lot of shrimp.  Shrimp is the leading seafood product by value.  In 2006, shrimp accounted for 17% of all global seafood trade (FAO 2009).  It is also the leading seafood product by weight.  Americans consume 4.2 pounds of shrimp per capita annually.  The next largest seafood product is canned tuna of which we consume only 3.3. pounds per capita (NRC 2007).  Second, the method by which shrimp is “produced” has changed dramatically over the last decade.  As you can see in Figure 1, farmed (or aquaculture) shrimp has skyrocketed in the last decade and now accounts for more than 50% of global shrimp production.

But why focus on prices and market integration?  There are at least four reasons why the nature of the shrimp market matters.  First, the increased competition from farmed shrimp has lead to trade disputes.  The U.S. enacted trade restrictions on shrimp from a group of countries (all in Asia or Latin America) after domestic shrimp fisherman filed anti-dumping complaints (Keithly and Poudel, 2008).  Second, diseases have been an issue for farmed shrimp, particularly white spot disease (Anderson, 2003)  Third, there are significant environmental shocks that affect the supply of domestic wild-caught shrimp.  For U.S. shrimp fishermen the  “dead zone” that occurs seasonally in the Gulf of Mexico potentially influences aggregation, production, and the size distribution of shrimp (Craig 2011; Huang, Smith, and Craig, 2010; Huang et al. 2011). Hurricanes Katrina and Rita caused significant shrimp supply disruptions through destruction of shrimp vessels and processing facilities (Buck 2005), while rising fuel prices are particularly costly for wild-caught shrimp because trawling is fuel-intensive (Ran, Keithly, Kazmierczak 2011), Moreover, costs of complying with the U.S. requirement for shrimp trawlers to use Turtle Excluder Devices decreased domestic supply (Mukherjee and Segerson 2011).

The degree of market integration affects how these environmental and economic stressors affect prices.  The impact of all of these stressors (trade, production costs, disease, and environmental) will have a strong impact on the price determination process if the markets are not integrated, while the impact will be weaker in a larger and more integrated shrimp market.

We use monthly price series data from June 1990 through December 2008 to investigate market integration.  The details of the statistical analysis are available in the paper, but Figure 2 captures the idea graphically.  In Figure 2, we plot the price trends for different sizes of brown shrimp caught in the U.S.  The graph shows remarkable co-movement in prices of different sizes.  Our statistically analysis bears out this observation.  Prices of different sizes of brown, pink, and white shrimp move in tandem.  Prices of U.S. wild-caught shrimp and imported farm shrimp move in tandem.  The shrimp market is remarkably well integrated.

Why should environmentalist care?  Market integration has significant implications for how domestic wild-shrimp fisherman can respond to certain environmental supply shocks. In North Carolina (a much smaller market than Gulf of Mexico), there is evidence that hypoxia has decreased shrimp production in the range of 13% but has not increased prices (Huang, Smith, and Craig 2010; Huang et al. 2011). In the much larger Gulf of Mexico,  there is emerging evidence that hypoxia decreases the supply of large shrimp and increases the supply of smaller shrimp likely as a result of aggregation on the edge of hypoxic areas (Bennear, Kociolek, and Smith 2011; Craig 2011).  Market integration suggests that the decreased supply of large shrimp cannot be offset by an increase in price.  Rather, imports of larger farmed shrimp will increase to satisfy demand.  Similarly, domestic supply shocks from hurricanes, oil spill, or fuel price spikes cannot be offset by price increases. In particular, market integration suggests that the economic losses from a significant decrease in 2010 domestic shrimp production – assuming this decrease was caused by the Deepwater Horizon oil spill – was not likely offset by a price increase.  Market integration thus has important implications for the long-run economic viability of the U.S. shrimp fishery.  The losses from supply shocks are more consequential for producers, and the various shocks are additive as economic challenges to the fishery. But U.S. shrimp consumers are essentially unharmed.

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Anderson, J.L. 2003. The International Seafood Trade. Cambridge: Woodhead Publishing.

Bennear, L.S., E. Kociolek, and M.D. Smith. 2011. Estimating the effect of hypoxia on the Gulf Coast shrimp fishery. Selected Paper, AERE Summer Conference. Seattle, WA, June 2011.

Buck, E.H. 2005. Hurricanes Katrina and Rita: Fishing and Aquaculture Industries – Damage and Recovery. CRS Report for Congress, RS22241, Washington DC: Congressional Research Service.

Craig, J.K. 2011. Aggregation on the edge: Effects of hypoxia avoidance on the spatial distribution of brown shrimp and demersal fishes in the northern Gulf of Mexico. Marine Ecology Progress Series (in press).

FAO. 2009. The State of the World Fisheries and Aquaculture 2008. Rome: Food and Agricultural Organization of the United Nations.

Huang, L., L.A.B. Nichols, J.K. Craig, and M.D. Smith. 2011. Measuring Welfare Losses from Hypoxia: The Case of North Carolina Brown Shrimp. In Review.

Huang, L., M.D. Smith, and J.K. Craig. 2010. Quantifying the Economic Effects of Hypoxia on a Fishery for Brown Shrimp Farfantepenaeus aztecus. Marine and Coastal Fisheries: Dynamics, Management, and Ecosystem Science. 2:232-248.

Keithly, W. R. Jr., and P. Poudel. 2008. The Southeast U.S. Shrimp Industry: Issues Related to Trade and Antidumping Duties. Marine Resource Economics 23:459-83.

Mukherjee, Z. and K. Segerson. 2011. Turtle Excluder Device Regulation and Shrimp Harvest: The Role of Behavioral and Market Responses. Marine Resource Economics 26: 173-189.

Ran, T., W.R. Keithly, and R.F. Kazmierczak. 2011. Location Choice Behavior of Gulf of Mexico Shrimpers under Dynamic Economic Conditions. Journal of Agricultural and Applied Economics, 43:29–4