Do Aquaculture Farmers Have an Incentive to Maintain Good Water Quality? The Case of Small-Scale Shrimp Farming in Indonesia

While shrimp is the most important farmed seafood product worldwide, its production often induces negative externalities as discharge of nutrients to the aquatic environment. If farmers have an incentive to maintain good farm-level water quality, it may also positively affect the surrounding environment, reducing the risk of eutrophication in downstream river systems. If this is done, then the need for public intervention regulating the externalities may be reduced. This study analyzes the incentives for farmers to maintain good water quality by identifying whether technical efficiency increases with improved water quality. Based on interviews with 183 shrimp farmers producing Litopenaeus vannamei and Penaeus monodon in Sidoarjo, Indonesia, technical efficiency was estimated using data envelopment analysis (DEA). A positive correlation between good water quality and technical efficiency was identified using a second stage DEA, but only found in L. vannamei. L. vannamei farmers thus have an incentive to improve farm-level water quality, potentially decreasing the need for public interventions. Moreover, the technical efficiency of farmers of P. monodon was significantly higher than for farmers of L. vannamei. The higher productivity and environmental robustness of P. monodon indicate a possibility for revitalizing the global supply of the species after two decades of stagnation.