By Aquaculture Magazine Editorial Team
Over the past two decades, global shrimp farming has grown substantially due to rising demand driven by population and income growth, while wild shrimp supply stagnates. This growth is mainly in Litopenaeus vannamei, with production surpassing Penaeus monodon, especially in Indonesia. Interviews with farmers revealed that L. vannamei farms benefit from the economics of scale, excelling in larger operations, while P. monodon farms perform better in smaller setups, serving high-quality international markets.
Over the past two decades, global shrimp farming has surged due to increasing demand driven by population and income growth, and a rising preference for healthy food, while wild shrimp catches have stagnated.
Litopenaeus vannamei has led this growth, with global production rising from 155 thousand tons in 2000 to 5.8 million tons in 2020. In contrast, Penaeus monodon production has remained relatively stable, increasing from 631 thousand tons to 717 thousand tons in the same period (FAO, 2022).
In Indonesia, the trend mirrors global developments. L vannamei production first recorded in 2004, surpassed P. monodon by 2007. By 2020, L vannamei production was 2.5 times greater, reaching 722 thousand tons, while P. monodon production increased to 208 thousand tons (FAO, 2022). This research uses Indonesia as a case study to explore the production economics of these species.
The rapid growth of L. vannamei and the stagnation of P. monodon production raise questions about the economic dynamics at play. L vannamei’s growth is associated with larger farms and potentially increasing returns to scale, while P. monodon remains viable in smaller, traditional farms.
This paper analyses the economics of scale in L. vannamei and P. monodon production in Indonesia.
Using data envelopment analysis (DEA) and a permutation test (RonnNielsen et al., 2022), technical efficiency and production possibility frontiers are compared. Results suggest L. vannamei benefits from economics of scale, making it ideal for larger operations, while P. monodon is advantageous for smaller farms, targeting high-quality international markets.
The study contributes to the existing literature by combining tests of increasing returns to scale with comparisons of production possibility frontiers, providing insights into the optimal industry structure for these shrimp species.

Material and Method
For the present study, data was collected in Sidoarjo, one of the top producing shrimp districts in Indonesia, located in East Java Province. Interviews were conducted with 96 L. vannamei farmers and 87 P. monodon farmers, from October 2017 to June 2018. The data collected include inputs for production such as seed, feed, labor, and other costs (including lime, medicine, and gas).
In Table 1, the average size in hectare, the output yield in weight (kg) and value (USD) and input costs are shown for the two species investigated.

In Figure 1, the average running cost component structure for the four inputs used are shown for the two species. Feed, labor, and seed are the most important inputs for L. vannamei’s production, respectively. For P. monodon farmers, the highest running cost shares are used for labor, seed, and feed, respectively, with a relative lower amount spent on other cost items.

The researchers used DEA. Some of the advantages of DEA are that it can simultaneously consider multiple inputs and multiple outputs, and does not require a specification of the functional form of the relationship between inputs and outputs, nor of the distribution of the (in)efficiency scores.
Results
Returns to scale
Since the overarching premise of the analyses is that the production possibilities for the L. vannamei and the P. monodon producers might be different, the frontiers and resulting efficiency scores are estimated within each species separately. Consider first the scale efficiency scores plotted against a measure of size (output quantity) within each species, as illustrated in Figure 2.

It is clear from Figure 2 that there is a positive relationship between size and scale efficiency within each species since larger producers tend to have higher scale efficiency scores than the smaller producers, and the lowest scale efficiency scores are found amongst the smallest producers (with one exception amongst the L. vannamei producers).
Since larger scale efficiency scores (≤1) indicate that farms are operating closer to the optimal scale (or most productive scale size), the positive relationship between scale efficiency and size indicates the presence of increasing returns to scale (IRS) within each species.
Furthermore, it is observed that the scales of operations are quite different between the species, with the mean produced quantity being 2,506 kg for the P. monodon producers and 5,791 kg for the L. vannamei producers, and even bigger differences in terms of the total revenue, with the mean being 7,394 USD for the P. monodon producers and 23,695 USD for the L. vannamei producers.

Comparing production possibilities between species
Modifying the permutation tests for frontier differences from Rønn Nielsen et al. (2022) to the case of IRS, means that we can first determine whether the production possibilities for the P. monodon and the L. vannamei producers are similar or significantly different and next determine whether one frontier is nested within the other.
The p-value from the first of these tests (= 0.02) tells us that the frontiers for the production possibilities for the P. monodon and the L. vannamei producers are significantly different. The p-value from the second of the tests (= 0.80) tells us that one is not nested inside the other.
This means that it can be concluded that the frontiers are different, but one is not better than the other meaning that they intersect. Thus, for some farms, producing P. monodon provides better production possibilities than producing L. vannamei, whereas for others is the other way around. This means that “one species does not fit all” and the best choice of production technology (species) will depend on other factors such as size, input mix, etc., which we will look further into in the following.

Implications of findings
The implications of the findings are important in four directions. First, the identified increasing returns to scale in L. vannamei farming indicate that investments in extensions of large farms may be economically advantageous and may drive continued productivity growth. This favors an increasing global production of L. vannamei compared to P. monodon.
Second, while increasing returns to scale is identified also in the farming of P. monodon, it is only superior to L. vannamei when produced in smaller farms, as reflected by the FD measure that tends to be low for small farms, indicating that P. monodon is superior at smaller farm sizes.
This implies that investments in small P. monodon farms, specialized in supplying large-sized shrimp to the world market at a premium price, are economically advantageous.
However, the export earnings from P. monodon may be more fluctuating than those from L. vannamei because large-sized shrimp to a larger extent is a luxury good, so its demand is more affected by peaks and lows in the world economy than that for the smaller L. vannamei shrimp.

Third, although it remains an issue for future research, the results indicate that the growth of the two species might be achieved in different ways. The reason is that the extensive production of P. monodon depends on the natural feed base available at the farms, which increases with space. Conversely, the intensive production of L. vannamei depends on the added feed with space being of less importance.
Fourth, the identified industry structure, where it seems appropriate both to expand L. vannamei production on large farms and continue P. monodon production at small farms, indicates that an optimal aquaculture policy must strive to offer proper framework conditions for the benefit of both types of farms to exploit the full potential of the shrimp farming industry.
Finally, the larger and more intensive the farms become the more important bio-security and optimization of input use becomes. This is because the economic losses due to diseases and in-optimal use of inputs, such as feed, also become large when farm size increases.
Here it seems that L. vannamei has an advantage because pathogen-free seed can be produced from domesticated broodstocks and the feed conversion rate is better (Esparza-Leal et al., 2010; Shakir et al., 2014; Supono, 2021).
Conclusions
Increasing returns to scale in L. vannamei farming have driven the shift from P. monodon to L. vannamei in Indonesia. Although P. monodon also benefits from rising returns to scale, its production has stagnated due to L. vannamei`s superiority in large-scale farming.
This advantage stems from better pathogen-free seed and more efficient feed use. Consequently, L. vannamei has dominated the global shrimp market, while P. monodon remains viable in smaller farms targeting premium markets.
Optimal policy should support large L. vannamei farms and small P. monodon farms, leveraging their advantages. While this conclusion is based on Indonesian data, it may apply globally, reflecting similar production trends. Future research should explore whether these findings hold in other countries. Combining tests of increasing returns to scale with production possibility frontier comparisons, the method used is broadly applicable to determining optimal industry structures.
This is a summarized version developed by the editorial team of Aquaculture Magazine based on the review article titled “IS ECONOMIES OF SCALE DRIVING THE DEVELOPMENT IN SHRIMP FARMING FROM PENAEUS MONODON TO LITOPENAEUS VANNAMEI? THE CASE OF INDONESIA)” developed by: ASMILD, M. – University of Copenhagen; HUKOM, V. – KALEKA, JL.; NIELSEN, R. and NIELSEN, M. – University of Copenhagen. The original article was published, including tables and figures, on SEPTEMBER, 2023, through AQUACULTURE. The full version can be accessed online through this link: https://doi.org/10.1016/j.aquaculture.2023.740178