Doctoral Thesis

Developing Risk Management Framework for Small-scale Shrimp Farming– A Case Study in East Java, Indonesia –ᑠつᶍ࢚ࣅ㣴Ṫᴗࡢࡓࡵࡢࣜࢫࢡ࣭࣐ࢿ࣮ࢪ࣓ࣥࢺࡢⓎᒎ ―࢖ࣥࢻࢿࢩ࢔ࠊᮾࢪࣕ࣡ࡢ஦౛―Riski Agung Lestariadi

Department of Bioresources Science
Graduate School of Biosphere Science
Hiroshima University

September 2018

Abstract
Developing Risk Management Framework for Small-scale Shrimp Farming- A Case Study in East Java, Indonesia –ᑠつᶍ࢚ࣅ㣴Ṫᴗࡢࡓࡵࡢࣜࢫࢡ࣭࣐ࢿ࣮ࢪ࣓ࣥࢺࡢⓎᒎ ―࢖ࣥࢻࢿࢩ࢔ࠊᮾࢪࣕ࣡ࡢ஦౛―Aquaculture becomes the main contributor to Indonesian fisheries products to fulfill thefast growing of domestic and global demand. Ministry of Marine Affairs and Fisheries ofRepublic of Indonesia stated that total production of aquaculture reached 14.35 million tons
compared to 6.48 million tons made up from capture fisheries production. Thus, the FAO ranks
Indonesia as the second largest aquaculture producer in the world. Indonesian export
commodities were dominated by seaweed, shrimp, tuna, crab, and pearl. Among thosecommodities, shrimp was the largest (49.42%) in term of value in a couple of years.
Indonesia exports two primary species of shrimp, consist of the giant black tiger(Panaeus monodon) and pacific white leg shrimp (Panaeus vannamei). Compare to the giant
black tiger, vannamei contributes two third (1.5 million tons) of the total Indonesian shrimp
production. In a couple of years, the production of vannamei increased consistently by anaverage of 13.82% per year. Such a fast growth of Indonesian shrimp production has caused
many challenges. Shrimp diseases, environmental degradation, shrimp price fluctuation, andproduct rejection from importing countries were some of the few issues that affected
Indonesian shrimp production in the last several years. Therefore, shrimp farming today is
being increasingly exposed to risk and uncertainty in which those risks inherent to all activities
in their business. All those risks are potential to damaging shrimp industry and need to be
managed in a systematic way for sustainability of shrimp industry. Thus, a solid risk
management framework is much needed for Indonesian shrimp industry, particularly in smallscale level.
The purpose of this study is to develop a risk management framework for Indonesiansmall-scale shrimp farming. Two specific objectives are proposed, consist of (1) to investigate
the small-scale farmers’ attitude and perception of risks and risk management strategies related
to small-scale shrimp farming; (2) to develop a risk management framework throughidentifying the sources of risk and management strategies, as well as evaluate the effectivenessi

of existing management strategies. This study was carried out in two areas of East Java,
Indonesia. They are Lamongan (South coast of East Java) and Banyuwangi (North coast of
East Java) district, which were selected purposively due to the main shrimp producing areas in
East Java. Purposive random sampling using the Taro Yamane formula was conducted to selectthe sample of small-scale shrimp farmers in the study areas. A total of 166 small-scale shrimp
farmers were selected. Before starting field surveys, in-depth interviews with the extension
officers, academia, and head of shrimp farmer groups was conducted to avoid missing any
relevant information.
This study used Exploratory Factor Analysis (EFA) and multiple linear regression tomeasure the impact of socioeconomic characteristics of farmers on their perception of risk andmanagement strategies. Based on factor analysis, the results revealed that input and pond
preparation, finance and credit access, production, personal, harvesting and marketing,weather and environment, policy and institutional, and business environment were major
sources of risks in shrimp farming. The findings of regression indicate that the farmers’
perceptions were influenced by various factors such as the age, experience, education level,availability of off-farm income, and location of a shrimp farm. Our results indicated that thefarmers’ perception of risk and risk management strategies are farm specific. The findings
showed that the shrimp farmers develop a range of strategies and conversely, a risk
management strategy can apply to mitigate different types of risk source.
Regarding developing the risk management framework for shrimp farming, this study
used the AS/NZS ISO 31000:2009 standard as the foundation of the framework due to its
appropriateness to the scale of Indonesian shrimp industry, which mainly at the small-scalelevel. The AS/NZS ISO 31000:2009 standard consist of seven-step risk management process,which are (1) Communication and consultation, (2) Establishing the context, (3) Risk
identification, (4) Risk analysis, (5) Risk evaluation, (6) Risk treatment, and (7) Monitoring
and review. Moreover, Business Process Model (BPM) method has been explicitly used in thethird step to identify the sources of risk involved in small-scale shrimp farming. Based on the
results, this study found that the farmers had six risk management options to deal with the risks
in their shrimp farms. The framework allows the farmers to choose the optimal risk
management strategies based on the degree of efficacy of management strategies. Specifically,
the framework allows the shrimp farmers to measure, rank, analyses, and priorities the risk fortreatment in their business.

iiAbbreviations

ALAAR: As Low as Acceptable Risk

AS/NZS: Australian Standards/New Zealand Standards

BPM: Business Process Model

CDF: Cumulative Probability Distribution Function

DGA: Directorate General of Aquaculture

EFA: Exploratory Factor Analysis

EMS: Early Mortality Syndrome

IMNV: Infectious Myonecrosis Virus

MMAF: Ministry of Marine Affairs and Fisheries - Republic of Indonesia

PDF: Probability Distribution Function

WFD: White feces disease

WSSV: White spot syndrome virusiii

Terms and Definitions

Risk: Effect of uncertainty on objectives.

Risk Management: Coordinated activities to direct and control an organization
with regard to risk.

Risk Management
Framework: Set of components that provide the foundations andorganizational arrangements for designing, implementing,monitoring, reviewing and continually improving risk
management throughout the organization.

Risk Management
Process: Systematic application of management policies, proceduresand practices to activities of communicating, consulting,establishing the context, and identifying, analyzing,evaluating, treating, monitoring and reviewing the risk.

Risk Consequence: Outcome of an event affecting objectives.

Risk Likelihood: Change of something happening.

Risk Level: Magnitude of a risk or combination of risks, expressed interms of the combination of consequences and theirlikelihood.

iv

Table of Contents
Page
Abstract ................................................................................................................................ iAbbreviations ...................................................................................................................... iv
Terms and Definitions ........................................................................................................ v
Table of Contents ................................................................................................................ vi
List of Tables ....................................................................................................................... ix
List of Figures ...................................................................................................................... x
Acknowledgements ............................................................................................................. xi
Chapter 1 Introduction ....................................................................................................... 1
1.1 Background ................................................................................................................ 1
1.2 Statement of Problems ............................................................................................... 2
1.3 Aims of Study and Objectives .................................................................................... 2
1.4 Scope of Study ........................................................................................................... 3
1.5 Limitation of Study .................................................................................................... 3
1.6 Summary of Thesis .................................................................................................... 4
Chapter 2 Background and Literature Reviews .............................................................. 9
2.1 Introduction ................................................................................................................ 9
2.2 Broad view of Indonesian Aquaculture and Shrimp Industry .................................... 9
2.2.1 The Role of Aquaculture on Indonesian Economic Growth .............................. 9
2.2.2 Development of Indonesian Shrimp Industry ..................................................... 122.2.2.1 Shrimp Farming System and Management ................................................. 13
2.2.2.2 Shrimp Production ...................................................................................... 14
2.2.2.3 Market and Segmentation ........................................................................... 14
2.2.2.4 Shrimp Export and Export Destinations ..................................................... 16
2.2.3 The Relevant Issues to the Indonesian Shrimp Industry .................................... 17
2.3 Uncertainty and Risk .................................................................................................. 20
2.3.1 Perception of Risk .............................................................................................. 21
2.3.2 Farmers’ Attitudes Toward Risk ........................................................................ 22
2.4 Risk Management ....................................................................................................... 23
2.5 Risk Management Mechanisms ................................................................................. 24
2.6 Risk and Risk Management in Aquaculture ............................................................... 25
2.7 Risk and Risk Management in the Context of Shrimp Farming ................................ 27
2.8 Risk Management Standard and Process ................................................................... 27
2.8.1 Risk Management Standard ................................................................................ 27
2.8.2 Risk Management Process .................................................................................. 28
2.9 Application of Risk Management Framework in Fisheries and Aquaculture ............ 30
2.10 Conceptual Framework ............................................................................................ 32
Chapter 3 Methodology ...................................................................................................... 35
3.1 Introduction ................................................................................................................ 35
3.2 Data and Data Collection ........................................................................................... 35
3.2.1 Study Areas ........................................................................................................ 35
3.2.2 Population and Sample ....................................................................................... 36
3.2.3 Research Tools ................................................................................................... 36
3.2.4 Pretest the Questionnaire .................................................................................... 37
3.3 Data Analysis ............................................................................................................. 37v

Chapter 4 The Perception of Risk and The Small-scale Shrimp Farmers’ Attitudes
Toward Risk ................................................................................................................... 41
4.1 Introduction ................................................................................................................ 41
4.2 Methodology .............................................................................................................. 42
4.3 Results and Discussions ............................................................................................. 44
4.3.1 Socioeconomic Characteristics of Respondents ................................................. 44
4.3.2 The Sources of Risk in Small-scale Shrimp Farming in East Java .................... 45
4.3.3 The Risk Management Strategies in Small-scale Shrimp Farming .................... 48
4.3.4 Relationship between Shrimp Farmer’s Characteristics and Perception of Risk 52
4.3.5 Relationship between Shrimp Farmers’ Characteristics, the Perception of Risk,
and Risk Management Strategies ....................................................................... 53
4.4 Conclusions ................................................................................................................ 56
Chapter 5 Developing Risk Management Framework for Small-scale Shrimp
Farming .......................................................................................................................... 59
5.1 Introduction ................................................................................................................ 59
5.2 Risk Management Framework for Small-scale Shrimp Farming ............................... 59
5.2.1 Communication and Consultion ......................................................................... 61
5.2.2 Establishing the Context ..................................................................................... 61
5.2.3 Risk Identification .............................................................................................. 61
5.2.3.1 The First Process: Preparation of Shrimp Pond and Inputs for Production 63
5.2.3.2 The Second Process: Production ................................................................ 65
5.2.3.3 The Third Process: Harvesting and Marketing ........................................... 71
5.2.3.4 Summary the Sources of Risk based on Business Process Model (BPM) . 73
5.2.4 Risk Analysis ...................................................................................................... 75
5.2.4.1 Measuring the Consequence of Risk .......................................................... 75
5.2.4.2 Measuring the Likelihood of Risk .............................................................. 76
5.2.4.3 Measuring the Level of Risk ....................................................................... 78
5.2.5 Risk Evaluation .................................................................................................. 79
5.2.6 Risk Treatment ................................................................................................... 82
5.2.6.1 Measuring the Efficacy of Risk Management Strategies (RMS) ............... 82
5.2.6.2 Selecting Risk Management Statagies based on Degree of Efficacy ......... 83
5.2.7 Monitoring and review ....................................................................................... 87
5.3 Conclusions ................................................................................................................ 87
Chapter 6 Conclusion and Recommendations ................................................................. 89
6.1 Conclusions ................................................................................................................ 89
6.1.1 The Perception of Risk and The Small-scale Shrimp Farmers’ Attitudes
Toward Risk ............................................................................................................ 89
6.1.2 Developing Risk Management Framework for Small-scale Shrimp Farming ... 91
6.2 Recommendations ...................................................................................................... 91
6.3 Recommendations for Future Studies ........................................................................ 92
References ............................................................................................................................ 95
Appendix .............................................................................................................................. 107

vi

List of Tables
Page
Table 1. Classification of Shrimp Farming in Indonesia ...................................................... 12
Table 2. Mechanisms in risk management strategies ............................................................ 25
Table 3. Types of Risk Management Standard ..................................................................... 26
Table 4. Socioeconomic Characteristics of Small-scale Shrimp Farmers ............................ 44
Table 5. The Level of Risk and Varimax Rotated Factor Loading for The Sources of Risk 46
Table 6. The Varimax Rotated Factor Loading for The Risk Management Strategies ........ 51
Table 7. Results of Multiple Regression for Risk Sources ................................................... 52
Table 8. Results of Multiple Regression for Risk Management Strategies .......................... 55
Table 9. The Consequence of the Sources of Risk ............................................................... 76
Table 10. The Likelihood of the Sources of Risk ................................................................. 77
Table 11. The Level of Risk Sources .................................................................................... 79
Table 12. Two-dimensional Matrix of Risk Levels .............................................................. 81
Table 13. The Risk Management Strategies ......................................................................... 83
Table 14. Matching the Risks and Risk Management Strategies .......................................... 85
Table 15. Prioritizing Mitigation Strategies of Identified Risks ........................................... 86vii

List of Figures
Page
Figure 1. Indonesia's Growth of Fisheries and National GDP .............................................. 10
Figure 2. Indonesian Fisheries Production and Value .......................................................... 11
Figure 3. Indonesian Fisheries Export .................................................................................. 12
Figure 4. Indonesian Shrimp Production .............................................................................. 15
Figure 5. Market Segmentation of Shrimp in Indonesia ....................................................... 16
Figure 6. Indonesian Shrimp Export ..................................................................................... 17
Figure 7. Impact of Diseases on Indonesian Shrimp Production .......................................... 18
Figure 8. Indonesian Shrimp Feed Production ..................................................................... 19
Figure 9. Shrimp Farmers Decision Making Behavior Model ............................................. 22
Figure 10. The Farmers’ Utility Function of Risk Attitudes ................................................ 23
Figure 11. The Conceptual Framework ................................................................................ 34
Figure 12. Study areas in East Java, Indonesia ..................................................................... 35
Figure 13. Structure of Business Process for Small-scale Shrimp Farming ......................... 39
Figure 14. Risk Management Process (AS/NZS ISO 31000:2009) ...................................... 60
Figure 15. The Core Small-scale Shrimp Farming Business Process ................................... 62
Figure 16. Sub Process 1a: Shrimp Pond Preparation .......................................................... 63
Figure 17. Sub Process 1b: Preparation of Input for Production .......................................... 64
Figure 18. Sub Process 2a: Managing Finance and Credit Access ....................................... 66
Figure 19. Sub Process 2b: Managing Growing Out of Shrimp ........................................... 67
Figure 20. Sub Process 2c: Managing Personal Risk ........................................................... 68
Figure 21. Sub Process 2d: Managing Weather and Environment ....................................... 69
Figure 22. Sub Process 2e: Managing Policy and Institutional ............................................ 70
Figure 23. Sub Process 2f: Managing Business Environment .............................................. 71
Figure 24. Sub Process 3a: Harvesting ................................................................................. 72
Figure 25. Sub Process 3b: Marketing .................................................................................. 73
Figure 26. Summary the Sources of Risk based on Business Process Model (BPM) .......... 74viii

Acknowledgements

At the end of my journey of obtaining my Ph.D. in Hiroshima University, I would like tothank all the people who made this thesis possible and unforgettable experience for me.
Foremost, I would like to express my sincere gratitude to my advisor Prof. Masahiro Yamao
for his patience, motivation, enthusiasm, immense knowledge, and his continuous support
during my Ph.D.
I must express my gratitude to my thesis committees; Prof. Tamiji Yamamoto, Prof.
Koichiro Kawai, and Assoc. Prof. Kenji Hosono. Each of the committee members of my
doctoral thesis has provided me with extensive personal and professional guidance and taught
me a great deal about both scientific research and life in general.
I am also hugely appreciative to Dr. Lawrence M. Liao, especially for academic
suggestions on my manuscripts. I would also like to thank all the members of staff at theGraduate School of Biosphere Science, Hiroshima Universities who helped me during mystudy.
Dozens of people have helped and taught me immensely at the Food Production
Management Laboratory, Hiroshima University. Thus, I would like to thank all my Lab mate;
Ai Kato, Kenshi Hiratani, Wanchao Zhang, Fumiko Hosokawa, Okta, Dr. Ann, Dr. Wai, andDr. Michiko Amano.
Special thanks go to all my colleagues, Nur Fajri Alfatah, Teguh Nur Rohman, Yunus
Abdullah, Afif Supianto, Gunawan, Muhammad Abdillah, Gus Oi, Mbak Mai, Zulhaj, Tama,
Irwan, and Keluarga besar Majlis Taklim Nurul Ilmi.
Finally, this thesis is dedicated to my parents who always love and support me during mystudying in Hiroshima University. Especially, big thank to my wife, Fauziah Risky Amalia
and “Little Sunshine”, Fahira Kheyra Riski and Fahrezi Athallah Riski, who accompanied andencouraged me a lot in working hard during my study.

ixChapter 1
Introduction

Chapter one presents a broad overview of the thesis. This thesis is divided into six
chapters. This chapter begins with an overview of Indonesian fisheries, particularly aquaculture
sector (sub-chapter 1.1). Sub-chapter 1.2 outlines the statement of problems that wereidentified, while sub-chapter 1.3 formulated the aims and objectives of the study. Then, thesub-chapter 1.4 describes the scope the study, and limitation of study defined on sub-chapter
1.5. Last, sub-chapter 1.6 presents the summary of the thesis.
1.1 Background
During the last several decades, fisheries products have always been the primary sourceof trade surplus for Indonesia with the major export destination being United States, Japan andEuropean Union (FAO, 2016). Therefore, the Indonesian government has identified fisheries
as one of the key sectors for supporting the economic growth (Azzura, 2017). The contributionof the fisheries sector to Indonesia GDP has increased almost every year, with an average
7.33% per year. Over five years from 2010 - 2014, volume and value of fisheries production
have experienced a remarkable increase by an average 23.38%, especially for aquaculture(MMAF, 2015). Ministry of Marine Affairs and Fisheries of Republic of Indonesia mentionedthat the contribution of aquaculture to the total production was 68.89%, compared to thecapture fisheries of 31.11%. Among the aquaculture products, shrimp was the largest in termsof value in a couple of years (MMAF, 2015).
In spite of the fact that shrimp farming is the flagship of Indonesian fisheries product, thefast growth of shrimp production also brings some problems. The spread of diseases,
environmental degradation, product rejection from importing countries, and price fluctuation
were several issues that affected Indonesian shrimp farming in the last couple of years(Sustainable Fisheries Partnership, 2013; Undercurrent News, 2014; FAO, 2016). Thesesources of risks push the shrimp farmers to make risky decisions related to their farms.
Unfortunately, there is no guidance or tools for them to manage their risks appropriately. On
the other hand, risk management is a crucial part of shrimp farmers production decisions.
Therefore, a solid risk management framework is definitely needed for mitigating the impactof risks in Indonesian shrimp farming.
11.2 Statement of Problems
Small-scale shrimp farmers in Indonesia face many risks in their shrimp cultivation.
Sustainable Fisheries Partnership (2009) mentioned that farming suffered from Infectious
Myonecrosis Virus (IMNV) during 2008-2009. Then, Indonesian shrimp industry has
encountered a significant problem caused by White Spot Syndrome Virus in the mid-2011(Kilawati et al., 2015). Indonesian shrimp production dropped in 2014 after White Feces
Disease suffered in East Java and Lampung. Moreover, the risk and uncertainty in shrimp
farming may increase due to dynamic markets, changes in consumer behavior, impacts ofclimate change, and aquaculture policy reforms (Theuvsen, 2013). Hence, the shrimp farming
exposed to risk and uncertainty in which those risks inherent to all activities in their business.
Larcher, Schonhart, & Schmid (2016) revealed that risk management is the essential
entrepreneurial activities in shrimp farming. The farmers are usually used to manage their risks
like shrimp price volatility, unfavorable weather condition or availability inputs for production.
In fact, the shrimp farmers do not have access to sufficient tools or guidance, such as risk
management framework, which can help them to cope with the risks efficiently andsystematically. Thus, this study intends to fill this knowledge gap.
1.3 Aims of Study and Objectives
This study is aimed to develop a framework to manage the risks in small-scale shrimp
farming in East Java, Indonesia. In detail, this study seeks to identify the risk, analysis the risk,
and evaluate the risk. Moreover, this study also proposes the appropriate risk management
strategies based on the efficacy to mitigate the risks.
To develop the framework, this study used combination of a risk management process
based on AS/NZS ISO 31000:2009 standard and Business Process Model (BPM). Specifically,
this study aims to achieve the following objectives:
1.

To investigate the small-scale farmers’ attitude and perception of risks and risk
management strategies related to small-scale shrimp farming. Moreover, the socioeconomic characteristics of shrimp farmers also include into the analysis to measure theimpact of those characteristics in the perception of risk and management strategies.

2.

To develop a risk management framework through identifying the sources of risk andmanagement strategies, as well as evaluating the effectiveness of existing management
strategies. This study used the AS/NZS ISO 31000:2009 standard due to its
2appropriateness to the scale of shrimp industry in Indonesia, which mainly at the smallscale level.
1.4 Scope of Study
Shrimp industries consist of many related business activities, including hatchery, shrimp
farming (growing out), formulated feed, processing factory, trading company, etc. Amongthese related industries, this study focused on the farming activity of the small-scale shrimp
farmers. Small-scale shrimp farmers define as the farmers with land holding less than fivehectares. At small-scale level, there is three type of shrimp cultivation systems exist inIndonesia, consist of extensive, semi-intensive, and intensive systems. Naylor et al., (2000);
Martins et al., (2010); Rice & Garcia, (2011) mentioned that implemented the intensive system
implies increasing the density of individual in the shrimp pond, which requires higher use andmanagement of inputs. Thus, the degree of risk and uncertainty is highest compared to othersystems. Based on those reasons, this study focused on small-scale farmers with an intensive
system in their shrimp cultivation
1.5 Limitation of Study
Besides the contribution to developing the risk management framework for small-scale
shrimp farming in Indonesia, this study has several limitations regarding the data andmethodology used to answer the objectives. These limitations were unavoidable, even though
they do not invalidate the findings of the study.
To evaluate the farmers’ perception of risks and risk management strategies, this study
only used data from the shrimp farmers in the North and South coast of East Java, Indonesia.
Regarding representations of shrimp farmers population, this limitation was acceptable due tothe areas of study represented the main shrimp producing area in East Java. Due to time andcost constraints, this study does not include economic-based analysis, such as benefit-cost, tomeasure the degree of efficacy of risk management strategies. However, this study employed
the descriptive approach to measuring the degree of efficacy of risk management strategies.
Thus, the limit was acceptable regarding achieving the research objective.

3

1.6 Summary of Thesis
The summary of thesis will be described as follows:
Chapter 1 is the introductory part of this thesis. This chapter has laid the foundations for the
rest of the thesis. This chapter begins with general information about Indonesian fisheries
sector and some related issues that gave rise to the statement of problems. Then, the aims of
the study have been formulated, and objective of study have been briefly described. Last, thischapter concludes with the scope and limitations of the study.
Chapter 2 presents the broad review of aquaculture development in Indonesia. This review isprovided information about current status of Indonesian aquaculture industries, particularly
shrimp industry. During the last 15 years, Indonesian shrimp production has grown at asignificant rate, from around one million tons to two million tons. In 2015, Ministry of Marine
and Fisheries Affairs of the Republic of Indonesia stated that shrimp is one of the flagships ofIndonesian fisheries export commodities from aquaculture sector (MMAF, 2015). However,the primary constraint shrimp farming in Indonesia encountered was the diseases outbreaks
since the 2000s (Taukhid & Nur'aini, 2009). Besides diseases problems, several problems suchas environmental degradation, shrimp price fluctuation, and product rejections due to foodsafety and food security issues from importing countries occurred in the shrimp industry. Thus,
the farmers have to work in an environment with numerous types of risk and uncertainty.
This chapter also presents the concepts of risk and risk management strategies in aquaculture.
The last part of this chapter intensely discussed the risk management standard and risk
management process. Recently, there exist two types of risk management standards in theworld. The first type is developed or adopted by national or international standardization
bodies, while the second type is designed by professional organizations which focus or interestin risk management. In general, these standards provide guidelines for risk management inbusinesses and organizations. However, all those standards are different regarding the scope,
activities, and size of businesses. Considering a tiny scale of Indonesian shrimp farming, thisstudy used the AS/NZS ISO 31000:2009 standard to develop the risk management framework.
Therefore, a part of this chapter focused on the seven steps of risk management process basedon AS/NZS ISO 31000:2009 standard. Last, the conceptual framework of this study waspresented in the last section of this chapter.
Chapter 3 describes the methodology of this study, including study areas, population andsample, research tools and justification of research tools. Data analysis is divided into two4

stages to address the research objectives. The first stage is to analyze the shrimp farmers’
perception of risk and risk management strategies in small-scale shrimp farming.
Understanding the shrimp farmers’ perception is crucial information and foundation fordeveloping risk management framework. In the first stage, this study analyzed the shrimp
farmers’ perception of risk and risk management strategies in small-scale shrimp farming using
field survey data of 166 farmers. Two regression models are developed to measure the impact
of socioeconomic characteristics of shrimp farmers on their perception of risk and management
strategies to deal with the risk. The first regression model analyzes the effect of farm and farmer
characteristics on the perception of risk sources. Last, the second model measures the impactof farm and farmer characteristics and their perception of risk on the perception of risk
management strategies.
In the second stage, the methods used for developing risk management framework arepresented in detail. Refers to AS/NZS ISO 31000:2009 standard, there are seven steps for risk
management process which are related to each other. These steps consist of 1) communicationand consultation, 2) establishing the context, 3) risk identification, 4) risk analysis, 5) risk
evaluation, 6) risk treatment, and 7) monitoring and review. Specifically, this study used
Business Process Model (BMP) to identify all the possibility of risks and risk management
strategies involved in the shrimp production in the third step.
Chapter 4 examined the perceptions of sources of risk and risk management strategies inIndonesian shrimp farming. Exploratory Factor Analysis (EFA) and multiple linear regression
used to answer the objective. The 32 sources of risk found from field survey data were grouped
into eight factors through exploratory factor analysis. Regarding risk management, 35
strategies from field survey data were reduced to ten factors through the same method. The
scores for each factor are saved for subsequent regression analysis. Also, Jointed Varimax
Rotated Extraction method used to maximize the independency of the factor. Exploratory factor
analysis identified input and pond preparation, finance and credit access, production,
personal, harvesting and marketing, weather and environment, policy and institutional, andbusiness environment as major of risk factors. The findings of regression indicate that thefarmers’ perceptions were influenced by various factors such as the age, experience, educationlevel, availability of off-farm income, and location of a shrimp farm. Our results indicated thatthe farmers’ perception of risk and risk management strategies are farm specific. The findings
showed that the shrimp farmers develop a range of strategies and conversely, a risk
management strategy can apply to mitigate different types of risk source.
5Chapter 5 describes in detail the steps to develop the risk management framework based on
the AS/NZS ISO 31000:2009 standard. In the first step, communicates and consults were done
through the in-depth interview and focus group discussion with the expertise in shrimp farming.
The context of the risk management framework was established in the second step, consist of(1) the objective of shrimp farms was to maximize profit; (2) the economic criteria were used
to measure the consequence of risks; (3) the higher degree of efficacy of risk management
strategies considers as a higher priority risk management strategy to be used. In the third step,
this study used Business Process Model (BMP) to identify all the possibility of risks and risk
management strategies involved in the shrimp production.
The fourth step is risk analysis. This study used the concept of the level of risk to measure therisk in Indonesian small-scale shrimp farming. The result showed that two sources of risk,
shrimp price volatility and high mortality due to diseases, were classified as a very high risk
with the potential of having the most severe impact on shrimp farmers' income. In the fifth step,
this study used the “As Low As Acceptable Risk” (ALAAR) criteria to evaluate the sources ofrisk. Based on this the ALAAR criteria, the risk with rating 1 on a 5-point Likert scale, either
the risk consequence or risk likelihood, will be accepted and no treatment needed. The results
revealed that, there are no sources of risk located in the low-level cell, either the risk
consequence or risk likelihood
In the sixth step, each risk source matched with all risk management strategies for that risks.
As a result, a complete list of risks and risk management strategies with six risk management
options. Based on this result, the shrimp farmers could make their own decision on choosing
the management strategies that best meet their risk mitigation objectives. The last step ismonitoring and review. However, since the risk management framework in this study still on
developing process, the monitoring and review cannot be done.
Chapter 6 provides the conclusions and recommendations of this study. The study found thatthe relationships between the perceptions of risks significantly impact on shrimp farmers’
perception of risk management strategies. However, these relationships are multidimensionaland represent characteristics of farm and shrimp farmers. Based on the findings, this study
concludes that there is no particular risk management strategy for the specific type of risk
source. The results showed that the shrimp farmers develop a range of strategies to deal withthe risk. Conversely, a risk management strategy can apply to mitigate diverse types of risk
sources. Moreover, the farmers had six risk management options to deal with the risks in their
6shrimp farms. The framework allows them to choose the optimal risk management strategies
based on the degree of efficacy of management strategies.
In addition, most of the shrimp farmers are risk-seeking. To maintain sustainability in theirbusiness, policies that enhance access to ensuring shrimp farms activities should be put inplace, such as encouraged the off-farm income, enhance the credit access, and improve theinsurance scheme for shrimp farms business.

7Chapter 2
Background and Literature Reviews

2.1 Introduction
During the last decade, Indonesian aquaculture production continued in a positive trendthat resulted in a 36.6% growth. Among aquaculture products in Indonesia, shrimp was theleading fisheries export in value for couple years. However, Indonesia also faces several
problems in its aquaculture productions. Thus, this chapter aims to give a broad review ofIndonesian aquaculture, including relevant issues in shrimp industry, which consist of four subchapters.
The Chapter 2 begins with the development of aquaculture, particularly Indonesian shrimp
industry and its contribution to economic growth in sub-chapter 2.2. High-risk and uncertainty
are the two factors that characterize small-scale shrimp farming. Hence, the concepts of risk
and risk management strategies in aquaculture are discussed in sub-chapter 2.3 to 2.7. Due tothe fact that risk management framework is the essential tools to manage the risk, reviewing
the existing risk management standards is provided in sub-chapter 2.8. In general, the existingrisk management standards provide guidelines for process of risk management. However, thesestandards were different in term of scope and size of business. In this study, we use theAustralian and New Zealand (AS/NZS ISO 31000:2009) standard as foundation fordevelopment of risk management framework for small-scale shrimp farming in Indonesia due
to its appropriateness of the Indonesian shrimp farming, which are mostly at small-scale farms.
Hence, the risk management framework for Indonesian small-scale shrimp farming based on
AS/NZS ISO 31000:2009 is presented in sub-chapter 2.9.
2.2 Broad view of Indonesian Aquaculture and Shrimp Industry
To provide a depth insight into Indonesian shrimp industry, this sub-chapter will give areview of the role and development of the shrimp farming in terms of production, supporting
equipment of shrimp farming, and export market. Moreover, the relevant issues regarding
shrimp farming are also identified.
2.2.1 The role of Aquaculture on Indonesian Economic Growth
As archipelago country with the fourth longest coastline in the world, Indonesianfisheries sector, both capture, and aquaculture have the potential to become a major fisheries
9producer in the global market. Seaweed, milkfish, shrimp, and tuna were the primarycommodities in Indonesia during the 2011 – 2015 period. The contribution of the fisheries
sector to Indonesia GDP has increased almost every year, with an average 7.33% per year in
the last five years. Despite the slower growth of Indonesian economy in 2015, the contribution
the fisheries sector to national GDP increased from 7.55% to 8.36%, which is almost double
compared to the GDP growth of 4.79% in 2015 (Figure 1). The main growth for Indonesianfisheries is a strong demand in both domestic and international market, respectively (IPSOS
Business Consulting, 2016).
8.36

8
7.32

Percentage

6

7.55

7.14
6.17

6.26

6.03
5.58
5.02

4.79

4

2

0
2011

2012

2013

2014

2015

Year
Fisheries GDP

National GDP

Figure 1. Indonesia's Growth of Fisheries and National GDP
In general, fishing activities are divided into two sub-activities, consist of aquaculture
and capture fisheries. Because of IUU fishing practices and overfishing in Java and Sumatera
islands, capture fisheries have experienced stagnant growth during 2010 to 2014. However,aquaculture becomes the main contributor to Indonesian fisheries products to fulfill the fast
growing of domestic and global demand. As a result, Indonesian fisheries production has acontinuous positive trend over 15% during 2010 – 2014 (Figure 2). In 2014, the contributionof aquaculture to the total production was 68.89%, compared to the capture fisheries of 31.11%.
Over five years from 2010 - 2014, volume and value of fisheries production haveexperienced a remarkable increase by an average 23.38%, especially for aquaculture. In 2014,
total fisheries production reached 20.84 million tons, which increased 7.35% compared to theprevious year (MMAF, 2015). As Figure 2 shows, total production of aquaculture reached1014.35 million tons compared to 6.48 million tons made up from capture fisheries production.
Thus, the FAO ranks Indonesia as the second largest aquaculture producer in the world (FAO,
2016). Moreover, the value of fisheries production has also exhibited the most rapid growth
overall, growing at 15.80% in the last five years.
The impressive growth of fisheries production was supported by the expansion area for
aquaculture. During 2012 to 2013, aquaculture was expanded by 154.421 hectares (Central
Bureau of Statistics, 2015). Recently, the total area of aquaculture in Indonesia has reached to1.253.773 hectare (Central Bureau of Statistics, 2016). Ministry of Marine and Fisheries
Affairs (MMFA) of the Republic of Indonesia stated that there are 16.6 million hectares
untapped potential area for fish cultivation, consist of 11.8 million hectares of seawater, 2.3
million hectares of brackish water, and 2.5 million hectares of freshwater (MMAF, 2016).
20000
200000US$ (000)

Tons (000)

15000

10000

5000

150000100000

50000

0

0
2010

2011

2012

2013

2014

2010

2011

Year

2012

2013

2014

Year
Aquaculture

CaptureFigure 2. Indonesian Fisheries Production and Value
The fast growth of fisheries production has also followed by a rise in exports. As figure
3 shows, the total volume of fisheries export grew smoothly with an average of 8% during theperiod from 2010 to 2014. Regarding the value of export commodities, total earnings fromfisheries export rose from UD$ 2.8 million in 2010 to US$ 4.6 in 2014 with the average growthof 17.6% per year.
MMAF (2015) reported that seaweed, shrimp, tuna, crab, and pearl were the main
Indonesian export commodities. Among those commodities, shrimp was the largest in term ofvalue in a couple of years. In 2014, shrimp contributed 49.42% to the total value of fisheries
11product, following with tuna (16.04%), crab (9.56%), seaweed (6.46%), and pearl (0.72%),
respectively.
12000030000

US$ (0000)

Tons (000)

90000

60000

20000

10000
30000

0

0
2010

2011

2012

2013

2014

2010

2011

Year
Crab

2012

2013

2014

Year
Other Fish

Pearl

SeaweedShrimpTuna

Figure 3. Indonesian Fisheries Export
2.2.2 Development of Indonesian Shrimp Industry
Indonesian aquaculture has a long history, starting with milkfish (Chanos chanos) farmingin Java island. Before the 1960s, the brackish water ponds is used only for the cultivation of
milkfish. Subsequently, the wild shrimp larvae were introduced into brackish water ponds andgrown extensively. In the mid-1960s, extensive shrimp farming was initiated in South Sulawesi
and spread rapidly to other islands in a few years later (Poernomo, 2004). In addition, the firstshrimp hatchery was commissioned in the early 1970s in South Sulawesi followed by Jepara,
Central Java Province. So far, three species of shrimp cultivated consist of black tiger shrimp(Panaeus monodon), white leg shrimp (Panaeus vannamei), and rostris shrimp (Litopenaeus
stylirostris).
During the 1980s to 2000s, most of the shrimp farmers cultivated species of black tiger(Panaeus monodon). However, the production of black tiger stagnated at around 90,000 tons
during 1997 to 2001 due to outbreaks of White Spot Syndrom Virus (FAO, 2003). Then, theIndonesian government imported the broodstock of Panaeus vannamei from Hawai in 2000 to
support shrimp farming development. In July 2001, the government declared that vannamei
has a better quality of shrimp. It has higher resistance to diseases, faster growth (1.37 gram perweek), can be cultured in high density (more than 70 head per m2), and more tolerance of12environmental fluctuation (FAO, 2003). As a result, the farmers shifted from the traditionally
farmed black tiger shrimp to vannamei (Ablaza, 2003; Rimmer et al., 2013). Since then, shrimp
farming has become the alternative solutions to support national shrimp production, especiallyafter prevailing of Presidential Decree No. 39/1980, which banned trawls in shrimp capture(Dyspriani, 2007). The following section below will describe the driving force of Indonesian
shrimp industry during the last five years in more detail.
2.2.2.1 Shrimp Farming System and Management
Indonesian shrimp farming was characterized by small-scale farms, low capital, and local
ownership (Hanafi & Ahmad, 1999; Dyspriani, 2007). Based on management and input factors,
shrimp farming classified into three types; small, medium, and large scales farming. The smallscale farms are typically less than five hectares in the total shrimp pond areas, usually operated
by family members, simple facilities, low level of management, and sometimes hire labor for
special activities, such as pond preparation and harvesting. Medium-scale farms have a total
shrimp pond areas about 5 to 40 hectares. It has seasonal hire labor, medium facilities, andimproved the level of management. Large-scale characterized by high tech technology andfacilities along with controlled management level. They also required hiring labor andtechnicians to support their facilities.
Table 1. Classification of Shrimp Farming in Indonesia*
Size of Shrimp Pond
Stocking Density
Expected Yield(hectare)(fry / ha / crop)(kg / hectare / crop)
Extensive
1–4
10.000 – 30.000
150 – 240
Semi-intensive
1–2
30.000 – 100.000
600 – 1.200
Intensive
0.2 – 0.1
100.000 – 150.000
2.000 – 3.000* : Recommended by the Directorate General of Aquaculture, MMAF.
SystemRegarding cultivation system, shrimp farming in Indonesia is divided into three systems,
consist of extensive, semi-intensive, and intensive ones (Table 1). The farming systems dependon the size of cultivation area, presence or absence of the management of brackish waterexchange, fertilization, monitoring brackish water quality and biomass, aeration system,
feeding management, and stocking density.
The extensive system is characterized by using little of fertilizer to stimulate plankton
bloom as a source of shrimp feed, sometimes supported by supplementary feeding, and water
pumping with stocking density between 10.000 – 30.000 per hectare (10 – 30 fry per m2). Semiintensive use regularly inputs of production, such as formulated feed and supplementary feed13with stocking density between 30.000 – 100.000 per hectare (30 – 100 fry per m2). The
intensive system uses more regular inputs, consist of formulated feed, supplementary feed,water pumping, and aerators. The stocking density for the intensive system is much higher (100
– 150 fry per m2), and production costs are high (± US$ 4 per kg live shrimp) (Dyspriani, 2007).
Moreover, Naylor et al., (2000); Martins et al., (2010); Rice & Garcia, (2011) mentioned that
implemented the intensive system implies increasing the density of individual in the shrimp
pond, which requires higher use and management of inputs and produces greater of waste
products.
Recently, a new shrimp farming system has been developed in Indonesia. This is called
the super intensive farming system and will replace the current intensive farming technique(Sangadji, 2014). The stocking density for the super intensive farming system is up to 1250 fry
per m2 (Mo, 2017). The system could boost production to up 153 tons per hectare (Aqua Culture
Asia Pacific, 2013). However, the system is not suitable for small-scale shrimp farming due tocapital-intensive and required modern facilities.
2.2.2.2 Shrimp Production
The total Indonesian shrimp production has grown at a significant rate during 2005 2015. Figure 4 depicts the development of the total volume of Indonesian shrimp farming.
Within this 15 years period, shrimp production increased from around one million tons to twomillion tons, a two-fold increase. In 2015, Ministry of Marine and Fisheries affairs of the
Republic of Indonesia stated that shrimp is one of the flagships of Indonesian fisheries export
commodities from aquaculture sector (MMAF, 2015).
Based on geographical conditions, Indonesia had warm and stable brackish watertemperatures. Those conditions provide the best conditions for shrimp cultivation throughout
the year (EU Indonesia Business Network, 2017). Due to the great potential of shrimp to theIndonesian trade balance, the Directorate General of Aquaculture (DGA) has increased thetarget of production of 934 thousand tons in 2016 (MMAF, 2016). Furthermore, to achieve thegoal to increase production, DGA stated that it is available of 1.2 million hectares ofmanufacturing areas could potentially be used as breeding of shrimp broodstock (Global
Business Guide Indonesia, 2016)14

Tons (000)

2000

1000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Year
Penaeus monodon

Penaeus vannamei

Total Production

Figure 4. Indonesian Shrimp Production
Indonesia exports two primary species of shrimp commodities, consist of the giant black
tiger (Panaeus monodon) and pacific white leg shrimp (Panaeus vannamei). During 2005 –2015, the volume of production for Panaeus vannamei has experienced a significant increase,
while Panaeus monodon remains stagnant. Compare to giant black tiger, vannamei contributes
two third of the total Indonesian shrimp production, accounting for around 1.5 million tons in2015. Refers to Figure 4, the production of vannamei increased consistently by an average of
13.82% per year.
2.2.2.3 Market and Segmentation
Shrimp industry in Indonesia has continued to enjoy higher demand in both internationaland domestic markets, respectively. During the 2011 to 2015 periods, the international market
grew at 6.9% compared to 5% for the domestic market. However, the domestic demand forshrimp is relatively lower compared to fish since most of the Indonesian households still
consider shrimp as an expensive source of protein. Because of the weaker domestic demand,Indonesian shrimp industry is sensitive to global shrimp production. In 2012, several shrimp
producer countries suffered from production losses due to Early Mortality Syndrome (EMS),
include China, Thailand, and Vietnam (Sustainable Fisheries Partnership, 2016). As a result,Indonesian shrimp industry enjoyed increasing profit margin around 30% - 60% for shrimp
farming with the intensive system during that time.

15

Tons

300

200

100

0
2011

2012

2013

2014

2015

Year
Domestic

ExportFigure 5. Market Segmentation of Shrimp in Indonesia
2.2.2.4 Shrimp Export and Export Destinations
Figure 5 depicts the Indonesian shrimp export during 2010 to 2014. In 2010, the export
volume reached 145.092 tons with export earnings of US$ 1.056 Million. Based on the latest
data, the total Indonesian shrimp production reached to 196.623 tons with the export value of
US$ 2.140 Million for the year 2014.
Indonesian shrimp industry has continued to see higher demand from the international
market (Figure 6). By the end of 2014, the USA become the largest export market forIndonesian shrimp, accounting for 55.28% of the total Indonesian shrimp export and being
equivalent to 107.427 tons. The second primary market was Japan, with 17.29% of the totalexport value and equal to 33.608 tons, following with ASEAN and Middle East Market with
16.01% (31.100 tons). Spreading shrimp diseases in several ASEAN countries, such as
Thailand, Vietnam, and Malaysia triggered increasing demand from processing factories inthose countries due to lack of supply in the last several years (Pratruangkrai, 2013; Towers,
2016).

16

200
2000
150

US$ (000)

Tons (000)

1500

100

1000

50

500

0

0
2010

2011

2012

2013

2014

2010

2011

Year
ASEAN & Middle East

2012

2013

2014

Year
China

Japan

UE

United Kingdom

USA

Figure 6. Indonesian Shrimp Export
Moreover, several experts in the shrimp industry estimate that the export market ofIndonesian shrimp commodity will continue to exhibit a strong growth of 6% per annum forthe 2016 – 2020 periods (IPSOS Business Consulting, 2016).
2.2.2.3 The Relevant Issues to the Indonesian Shrimp Industry
a. Shrimp Diseases
Since the 2000s, the main constraint vannamei farming in Indonesia encountered was thediseases outbreaks (Taukhid & Nur'aini, 2009). Anderson, Valderrama, & Jory, (2017)
mentioned that shrimp diseases were the main issue for the global shrimp industries. Diseases
outbreaks could reduce the survival rate of shrimp below 30%. As the one of the major
aquaculture producers, Indonesia also experienced with several problems caused by diseases.
During the 2008 to 2009 periods, vannamei farming suffered from Infectious Myonecrosis
Virus (Sustainable Fisheries Partnership, 2009; Utari, Senapin, Jaengsanong, Flegel, &Kruatrachue, 2012). Taukhid & Nur'aini (2009) mentioned that three provinces, such as East
Java, Bali, and West Nusa Tenggara, have experienced with Infectious Myonecrosis Virus. As
a result, Indonesian shrimp production dropped by 31.52% during 2008 – 2009 (FAO, 2016).
Afterward, Indonesian shrimp industry encountered a serious problem caused by White
Spot Syndrome Virus in the mid-2011 (Kilawati et al., 2015). The first occurrence of thisdiseases was reported in the northern coast of Central and West Java, then spread to many
shrimp farms across the country (Ferasyi et al., 2015). Due to this diseases, shrimp farming17

areas in Central Java decreased from 7.500 hectare to 1.000 hectares, and national shrimp
production throws down by 7.77% (Arafani, Ghazali, & Ali, 2016; FAO, 2016).
Due to White Faces
Disease production
dropped by 18.8%

Tons (000)1500

Due to White Spot
Syndrome production
dropped by 7.7%
Due to Infectious
Myonecrosis Virus
production droppedby 31.5%

1000

500

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Year

Figure 7. Impact of Diseases on Indonesian Shrimp Production
Vannamei production dropped during 2014 to 2015 after White Faces Disease sufferedin East Java and Lampung. This disease decreased shrimp growth and the survival rate ofvannamei (Thitamadee et al., 2016). As a result, the farmers harvest in large quantities of small
shrimp and the shrimp price fell down due to oversupply in the market (Seaman, 2014).
Moreover, national shrimp production dropped by 18.87% due to White Faces Disease (FAO,
2016).
b. Demand for Shrimp Feed
The fast growth of Indonesian shrimp industry bolstered the growth of supporting
industries, such as shrimp feed, as well. Indonesian shrimp feed production has increased from
120 thousand tons in 2011 to 366 thousand tons in 2015, a threefold increase. However,Indonesia is highly reliant on import raw material for shrimp feed, especially fish meal, cornmeal, and soybean meal. Tacon (2016) stated that Indonesian shrimp feed producers depended
on world commodity prices and currency exchange due to around 50% - 80% raw materials
being imported. Currently, the domestic price of shrimp feed was around US$ 1.04 per kg,
which was about 15% higher than that of the international market.
18

325

Tons

300

275

250

2011

2012

2013

2014

2015

Year
Shrimp Feed Production

Figure 8. Indonesian Shrimp Feed Production
c. Environment Degradation and Natural Disaster
The fast growth of shrimp industry in Indonesia brings not only benefits for the farmers
and country but also changes the nature gradually. In the last twenty years, Indonesia mangrove
forest has been lost around 1.1 million hectares due to the expansion of shrimp farming (Sigit,2013). Moreover, Sidik (2010), mentioned that development of shrimp industry in East
Kalimantan province had been occupied 57.912 hectares equal with 54% of total area of Delta
Mahakam river, and still growing up due to mangrove deforestation. The similar cases are also
reported in several areas in Indonesia. The Environmental Impact Agency (BAPEDAL) statedthat the mangrove forest in South Sulawesi province had been converted to shrimp ponds up to
80% during 2012 (Mayudin, 2012). National Geographic reported that the main cause ofmangrove destruction along the Lampung coast was the expansion of fishery cultivation areas,
mainly shrimp farming (Widodo, 2016). In addition, wastewater from shrimp ponds, whichcontained organic wastewater, antibiotics, and chemicals could pollute groundwater or coastal
estuaries (WWF, 2017).
Furthermore, the most shrimp farmers in Indonesia use open water system as the sourceof brackish water. This system receives brackish water from ground water or sea water, inwhich the quality of water usually depends on the environmental condition and pollution fromother sectors, such as agriculture, animal husbandry, and industry. During 2016 – 2017, theshrimp farmers in eight provinces in Indonesia have experienced a crop failure and loss profit
due to brackish water sources quality (Adji, 2016; Chandra, 2016; Widiyanto, 2017). The
19

shrimp farming in Indonesia also vulnerable related to the natural disaster. In a couple of years,
natural disaster problems has been damage the ponds in some shrimp production areas, suchas extreme weather in Rembang, flooding in Pekalongan, Sumenep, Indramayu (Hadiyan,
2017; Temmy, 2017; Widiyanto, 2017)
2.3 Uncertainty and Risk
Since the 1920s, the differences and common features between uncertainty and risk havebeen a major debate. Frank H. Knight was the first scholar to distinguish risk from uncertainty.
He differentiates uncertainty into two terms, consists of (1) measurable uncertainty and (2)unmeasurable uncertainty. The first term refers to the “risk,” while the “uncertainty” related tothe second terms (Knight, 1921).
Recently, the clear terminology is given by several scholars to distinguish between risk
and uncertainty. Jaeger, Renn, Rosa, & Webler (2013); Rachev, Stoyanov, & Fabozzi (2011)
defined the risk as exposure to uncertain unfavorable economic consequences, while theuncertainty as imperfect knowledge. The uncertainty arises from the lack of perfect knowledgeof decision makers.
Thompson (2002) argue that uncertainty implies the situation which the decision makers
might make non-optimal choices because insufficient of their knowledge. Moreover,
Kochenderfer (2015) stated that the uncertainty covers all things that can happen, but thedecision maker will never expect to happen. In some case, the uncertainty can reduce byobtaining related information, but this may not always be possible.
Regarding risk, it is a complex concept, which does not apply smoothly to in one line
definition. Although there is no universal definition of risk, several definitions are commonly
used. Even (2010); Andersen & Schrøder (2010) defined risk as a situation in which the action
to face the uncertainty would affect the well-being of decision maker due to involves the changeof gain and loss. According to Si & Thi (2015), the risk is defined as probabilities of events
causing any positive and negative impact that give impact on business performance. Also, therisk is used by scholars to describe the situation in which the decision maker knew the objective
probability distribution of outcomes (Nguyen, Wegener, & Russell, 2016; Just, Wolf, &Zilberman, 2003). Briefly, the risk is considered as uncertainty with consequences (Jaeger,
Renn, Rosa, & Webler, 2013; Australian and New Zeland standard, 2009; Cross, 2000).

20

2.3.1 Perception of Risk
The risk perception is focused on the psychological factors that have been shown to havea significant impact on decision-making behavior. Sjöberg, Moen, & Rundmo (2004) explainedthat the risk perception refers to the subjective assessment of the probability of a specified typeof accident happening and measure how far the decision maker concerned about theconsequences. The best way to analyze the farmers' decision under risk and the uncertain
condition is by taking into consideration their risk perception and attitude toward risk (Ullah etal., 2015; Lucas and Pabuayon, 2011; Ahsan, 2010).
Based on Thaler (2000), the economist has a theory of risky choice with both normativeand descriptive approaches. The normative approach focuses on the question of how people
should make decisions in various types of conditions if they wish to be regarded as rational.
On the contrary, the descriptive approach reflects how people make decisions in different
circumstances (Rapoport, 2013). Regarding descriptive approach, van Raiij (1981); de Wolff,
Pieter, & Thierry (1998); Stensland (2013) developed the framework on decision making
behavior (Figure 8). This framework is useful to explore the relationship between farmer andfarm characteristics, the perception of risk, and risk management strategies (Flaten et al. 2005;
Ahsan, 2010; Ullah et al. 2015).
According to Figure 9, the relationship between P → E/P describes how personal
characteristics and farm status (P), such as age, experience in shrimp farming, education level,
off-farm income, land holding, and the number of shrimp ponds affect the shrimp farmers’ risk
perception (E/P). Then, the relationship E/P → B reflect how shrimp farmers’ characteristics
influence their economic behavior (B) i.e. they risk management strategies, planning, andinvestment decision. This model is useful in understanding how various variable influence theshrimp farmers’ economic behavior.

21

P
Personal Characteristicsx Age of shrimp farmerx Experience in shrimp
farmingx Education levelx Off-farm income

E/P
Shrimp Farmers’
Risk Perception

Shrimp Farm Status

B
Shrimp Farmers’
Economic Behaviorx Risk management
strategiesx Planning and investment
decisionsx Land holdingx The number of pond

Figure 9. Shrimp Farmers Decision Making Behavior Model(Modified of van Raaij, 1981; de Wolff, Pieter, & Thierry, 1998; and Stensland, 2013)
2.3.2 Farmers Risk Attitudes Toward Risk
The farmer's attitudes toward risk often could be used to describe the reason why
seemingly similar farmers make entirely different decisions. Understanding the farmer's
attitudes toward risk is important in analyzing their economic behavior. Hence, the risky
attitude has been studied in detail, usually as an individual characteristic (Gloede, Menkhoff,& Waibel, 2015). In economics, the farmers’ risk attitudes could be divided into three general
types, consist of (1) risk-averse, (2) risk-seeking, and (3) risk-neutral. These types divided
based on the shape of the farmer’s utility function (Rabin, 2013; Nguyen, 2007; Marchant,2003). Figure 10 below shows the three differently shape of farmers’ utility curves
corresponding to the risk-averse, risk-seeking, and risk-neutral behaviors.
Risk-averse refers to the farmer who prefers less risky sources on income in theirbusiness. In this type, the farmers will sacrifice some amount of income to reduce theprobability of losses. In other words, they will forego some possible gains to reduce theprobability of losses (Just & Pope, 2013). In contrast, the risk-seeking farmers would not be
willing to give up the possibility of gains to eliminate the possibility of losses. In short, thefarmers prefer more risky business alternatives (Gloede, Menkhoff, & Waibel, 2015). Last,
between risk-averse and risk-seeking are risk-neutral. Rabin (2013) mentioned that the riskneutral farmers make decision based on the expected values of the distribution ofconsequences. The farmers choose the action with the highest expected value, regardless of theassociated distribution outcomes. Moreover, the risk-neutral farmers are unresponsive to the22risk involved in their business. They are only concerned about the expected return on theinvestment in their business (Nguyen, 2007).

Utility

Risk-averse
Risk-neutral
Risk-seeking

Monetary Outcome
Figure 10. The Farmers’ Utility Function of Risk Attitudes(Modified of Vlahos, 2001)
Briefly, in all three cases above, the greater wealth corresponds to the higher utility.
However, the curve of risk-averse is concave because to as wealth increase, the incremental
attractiveness of the same amount of money becomes smaller. In the opposite side, the riskneutral curve is a straight line, while the risk-seeking is a convex curve.
2.4 Risk Management
The farmer’s response to the risk is diverse, same as the risks that affect their farms.
Rabin (2013) stated that the risk management strategy is a form of farmer’s respond to deal
with the risk. There are two components of risks related to different aspects of farmers’
decisions. The first is the possibility of unforeseeable future events. This component makes thefarmers try to reduce future risks and their consequences. This is referred to as ex-ante risk
management strategy. The second is the actual occurrence of shocks. This component pushes
farmers to cope with the effects of shock when it occurs. This referred to as ex-post risk
management strategy.
Ex-ante risk management and ex-post risk coping strategies could be defined as measurestaken before and after experiencing shock, respectively (Lekprichakul, 2009). A shock is an
unpredicted or unfavorable event that effects fluctuation in shrimp farmers’ income. Ex-ante23

risk management strategies that are undertaken before a shock occurs include risk avoidance,risk reduction and risk transfer (Chuku, 2009). These strategies are taken to minimize theimpact of a shock when it occurs. Makoka (2008) said that the purpose of ex-ante risk
management strategies is to reduce fluctuation in farmers’ income. Furthermore, if the farmers
fail to manage the shock ex-ante, they develop strategies to cope with the shock. This is called
ex-post coping strategy which is aimed at reducing fluctuation in consumption and assets
protection.
2.5 Risk Management Mechanisms
In exploring how to manage the risk in agriculture and aquaculture farms, it is useful todistinguish between strategies and mechanisms used by farmers in dealing with risk. The WorldBank (2005) highlighted two mechanisms regarding risk management mechanisms inagriculture: informal and formal.
Informal mechanisms involve individuals, household or communities. Informal ex-antestrategies with informal mechanism are characterized by diversification of income sources andchoice of production strategy. Informal ex-ante strategies are classified into two: on-farm andrisk-sharing. Table 2 shows that on-farm ex-ante strategies include risk avoidance, crop
diversification, diversification of income sources, buffer stock accumulation of crop or liquid
assets and adoption of advanced technology (World Bank, 2005). Ex-ante strategies areclassified as risk-sharing include sharecropping, sharing equipment, and informal risk pooling(Gunning, 2012). Informal ex-post mechanisms consist of sale of assets or reallocation of labor
resources, reduced consumption pattern, and migration (Perdana, 2005).
Formal mechanisms are arrangements that include market-based activities andgovernment support or publicly-provided strategies. Extension support from government,
subsidy for on-farm inputs and infrastructure are publicly provided strategies that could beclassified as formal on-farm ex-ante mechanism. Ex-ante risk sharing strategies include
marketing contract, production contract and insurance. According to Gunning (2012) formal
ex-post strategies consists market-based strategies in the form financial institutions andpublicly-provided strategies in the form of social assistance and cash transfer from thegovernment.

24

Table 2. Mechanisms in risk management strategies
Informal Mechanism

Formal Mechanism
Market Based

Ex-AnteStrategies

On Farmxxxxx

Ex-PostStrategies

Risk avoidance
Risk Reduction
Diversification of income
sources
Buffer stock accumulation
Adoption advanced
technique-

Sharing the x
Risk
x
x

Sharecropping
Sharing equipment
Informal risk poolingxxContract marketing
Insurancex

Reduce consumption
pattern
Sale of assets
Reallocation of labor
Mutual aid

xCreditCoping the
Risk

x
x
x

Government Support
x Aquaculture extension
x Subsidy or supply of
quality seeds, inputs, etc.

xx

Social assistanceCash transfer

Soucer: World Bank (2005)

2.6 Risk and Risk Management in Aquaculture
In commercial aquaculture, the farmers should manage a various set of risks that treat the
profitability of their farms. Besides other risks that are similar in agriculture and animalhusbandry, aquaculture are also sensitive to the quality of the environment. Lebel, Whangchai,
Chitmanat, & Lebel (2015) mentioned that the success of aquaculture production highly
depends on the support of the environment.
Recently, several scholars give more attention to the impact of climate change on
aquaculture. A study by Doubleday et al. (2011) on the effect of climate change to maricultureindustries in south-east Australia revealed that oyster industry was suffered the highest
potential risks due to increased temperature and heatwave-related mortalities. Across 11
mariculture industries, the result showed that the level of connectivity of growth to theenvironment, diseases, and pest management significantly influenced the level of risk. Similar
study by Le Bihan, Pardo, & Guillotreau (2013) also found comparable results. Oyster farmers
in Bay of Bourgneuf, France mentioned that the massive mortality of oyster juvenile has been
increasing their sensitivity to environmental risks. Moreover, the oyster farmers rated spill-oil
and zoo-sanitary problems were considered as a major risk in their business, while the price of
input and output were ranked as minor risks. Regarding the oyster farmers’ perception of risk
management strategies, the result revealed that the farmers combined several risk management
instrument to deal with the risk, such as shared storage capacity, taking out the insurance
policies, and deductible payments. In addition, a comparative study of risk exposure in25

agriculture and aquaculture done by Flatten, Lien, & Tveteras (2011) revealed that salmon
farmings in Norway were riskier on the variability of yield, output price, and economics return
compare to agriculture business, such as potatoes farms and livestock. However, salmon
farming has the highest Return on Asset (ROA) with the average annual return of 9.6%, while
all agriculture business showed a negative ROA. This result implied that salmon farming as
the most risk-efficient in the long term.
In case of freshwater aquaculture, Lebel, Niwooti, Chanagun, & Lebel (2015) studied theimpact of climate risks on river-based tilapia cage culture in Thailand. The result showed thatdrought, high feed price, and diseases outbreak were the top three of risks faced by tilapia
farmers. In terms of management strategies, the farmers gave more attention to mixture several
strategies, consist of technical, business, and social risk management strategies. In detail,choose good stock, keep a good relationship with neighbors, and keep a good relationship withfisheries staff were rate as the most effective strategy to mitigate welfare impact of risks inriver-based tilapia cage farming. Those strategies are underlining the potential importance ofcollection action, best practices and decision support tools for strengthening risk management.
In line with this study, the fish farmers in Northern Thailand managed the risks that they faceby adjusting stocking calenders, take financial measures, seek new information, andmaintaining good relations with other stakeholders and reservoir management (Lebel, Lebel,& Lebel, 2016). In another case, Pimolrat, Niwooti, Chanagun, Jongkon, & Lebel (2013)
mentioned that the climate change phenomena, such as flood, drought, extreme hot and cold
weather, were factors of high concern to tilapia pond farms in Thailand. The farmers respondthose risks by reducing the amount of formulated feed supplied and considering non-farm
occupations as adaptation strategies.
Besides affected by climate change risks, aquaculture sectors are also vulnerable toexposes by other risks. Le & Cheong (2010) stated that production and price risk wereperceived as the most significant risks for Vietnamese catfish farming. Regarding management
strategies, this study mentioned that there was no specific strategy to mitigate the impact ofrisk. Several strategies, such as financial, input quality, diseases prevention, and diversification,
were perceived as relevant to reduce production risks in Vietnamese catfish farming. In caseof Mussel farming in Greece, Theodorou, Tzovenis, Adams, Sorgeloos, & Viaene (2014) foundthat institutional risk, such as a licensing system for Mussel farm size, was a major risk factor
faced by Mussel farmers and threaten the sustainability of their business. Thus, horizontal
integration can be used as the effective strategy to scale up the Mussel production and brings
26benefit from economies of scale for the Mussel farmers. In addition, Ngo, Azadi, Tran, &Lebaily (2017) mentioned that market risks were the primary risk factor for clam farming in
Vietnam due to the rapid expansion of clam farming areas in the last several years. Regarding
management strategies, the clam farmers applied several strategies, such as implementing
technical innovations, diversifying livelihood activities, and accessing financial sources withno or lower interest rate, were the most effective for reducing loss as well as achieving fast
recovery when the risks occur.
2.7 Risk and Risk Management in the Context of Shrimp Farming
In many scientific disciplines, the risk is an important topic. Therefore, a variety of risk
concepts exist (See Renn, 2008a; 2008b). This study refers the concept of risk to social science
approach, which combines two components; 1) the real event of human action that cause an
actual outcome, and 2) the identification of the impact of the outcome on the individual’s
welfare. Based on this approach, the study defines risk as a perceived potential of impact onsomething of value (i.e., shrimp farmer’s income) that is caused by an event or action.
Regarding management strategies, Dorfman (2008) and Sethi (2010) defined as the logicaldevelopment and implementation of plans to deal with the potential losses. In this study, risk
management strategies refer to the general process of (1) identifying the risk along the businessprocess of shrimp production, (2) characterizing the risk by measured the consequences andthe likelihood of each risk, (3) reacting to the risk as a form of shrimp farmers’ strategy.
2.8 Risk Management Standard and Process
2.8.1 Risk Management Standard
Since the last decade, the interest of professional organizations and the national
management standard bodies in several countries to improve methods in risk management has
been a surge. Hence, development of tools, processes, technique, and methodologies has led.
Those developments are typically classified under the label of risk management standards (Raz
& Hillson, 2005). Crikette et al., (2011) defined risk management standard as a fixed
requirement. These requirements are usually a formal document that established criteria,
methods, processes, and practices under the jurisdiction of an international, regional or national
standards body.

27

Table 3. Types of Risk Management Standard
National or international
Professional organizations
standardization bodies
which focus or interest in risk
management
Australian and New Zealand standard Committee of Sponsoring Organizations of(AS/NZS ISO 31000:2009)
the Treadway Commission – Enterprise Risk
Management (COSO ERM)
Japanese Standards Association (JIS Q2001: The Institute of Risk Management (IRM),
2001(E))The Association of Insurance and Risk
Managers (AIRMIC), The National Forumfor Risk Management in Public Sector(ALARM) - UK
CanadianStandards
Association Hazard Critical Control Point (HACCP)(CAN/CSA-Q850-97)
GLOBALG.A.P. Risk Assessment on Social
Practice (GRASP)
Recently, there exist two types of risk management standards in the world. The first typeis developed or adopted by national or international standardization bodies, such as Australianand New Zeland standard (AS/NZS ISO 31000:2009), Japanese Standards Association (JISQ2001: 2001(E)), Canadian Standards Association (CAN/CSA-Q850-97), etc. The second typeis developed by professional organizations which focus or interest in risk management.
Examples are the Committee of Sponsoring Organizations of the Treadway Commission –Enterprise Risk Management (COSO ERM), The Institute of Risk Management (IRM), The
Association of Insurance and Risk Managers (AIRMIC), Hazard Critical Control Point(HACCP), The National Forum for Risk Management in Public Sector (ALARM), etc. In
general, these standards provide guidelines for risk management in businesses andorganizations. However, all those standards are different regarding the scope, activities, andsize of businesses. By considering the scale of shrimp farms in Indonesia, which are mainly at
the small-scale level, this study used the AS/NZS ISO 31000:2009 as the foundation to develop
risk management framework. The AS/NZS ISO 31000:2009 was chosen purposively due toprovide guidelines for developing risk management framework across various sizes and typesof organizations.
2.8.2 Risk Management Process
According to the AS/NZS ISO 31000:2009 standard, the risk management process
defined as a series of steps, which enable continuous improvement in decision making when it
undertook in sequence (SAI Global, 2009). The AS/NZS ISO 31000:2009 standard divided theprocess of risk management into seven steps that closely related to each other. These steps
consist of 1) to communicate and consult, 2) to establish the context, 3) to identify the risk, 4)28

to analyze the risk, 5) to evaluate the risk, 6) treat the risk, and 7) to monitor and review. Figure
1 below described the seven steps of risk management standard based on AS/NZS ISO
31000:2009. The following sections provide a brief description of each step of the risk
management process.
Step 1. Communication and consultation
Communication and consultation are the earliest steps in the risk management process.
Knight (2010) defined the risk communication and consultation as the two-way dialogue
between or among stakeholders not only about the existence of risk but also the nature andform of risk, and severity of acceptability of risk. In this step, two factors should be identified
to establish the remaining proses of risk management, which are (1) eliciting risk informationand (2) managing stakeholder’s perceptions for the management of risk.
Step 2. Establishing the context
Establishing the context of risk defines as the sets of scope and necessary parameters thatgive information within which risks must be managed for the rest of risk management process(Standards Australia & Standards New Zealand, 2005). This step aims to identify theboundaries within which the risk management should be applied to the business process. There
are five points to assist with establishing the context, consist of (1) establish the internal
context, (2) establish the external context, (3) establish the risk management context, (4)develop the risk criteria, and (5) define the structure for risk analysis.
Step 3. Risk identification
The risk cannot be managed unless it is identified. Once the context has been defined in
the previous step, the next is to identify as many risks as possible. Comprehensive
identification, using a well-structured, and systematic process to identify the risk are critical inthis step (Kanona & Tawalbeh, 2007). In this step, the main purpose is to identify possible risks
that may affect, either positive or negative.
Step 4. Risk analysis
The critical step in developing an understanding of the risk is risk analysis. Risk analysis
aims to provide information on the level of risk and its nature. Based on AS/NZS ISO
31000:2009, the level of risk is defined by the relationship between consequence and likelihood
applicable to the areas of risk (SAI Global, 2009).

29

The formula bellow shows the simple form of level of risk that represents the relationshipbetween consequence and likelihoodℎ=ℎAlam (2016) mentioned that risk analysis provides information to decisions on whether
the risk needs to be treated and the most risk management strategies. There are three types ofanalysis could be used to determine the level of risk, consist of qualitative, semi-quantitative,
and quantitative analysis (Knight, 2010).
Step 5. Risk evaluation
The objective of risk evaluation is to create action or decision, based on the outcome ofrisk analysis in the previous step. This step includes a decision about which risk should be
accepted or treat and the treated priorities (Standards Australia & Standards New Zealand,2005). There are several reasons to accept the risk, consist of (1) the level of risk is low; (2)the degree of efficacy of risk management strategies is effective to mitigate the impact of risk;and (3) the cost of treating the risk outweighs the benefit (Kanona & Tawalbeh, 2007).
Step 6. Risk treatment
The risk treatment involves selecting one or more available options to face the risk whichwere not accepted at the previous step (SAI Global, 2009). In treating the risks, a combinationof options may be appropriate. Following the AS/NZS ISO 31000:2009 standard, the several
treatments that available should be identified, consist of avoiding the risk, reducing the risk,
sharing the risk, and retention the risk (SAI Global, 2009).
Step 7. Monitoring and review
Monitoring and review is the crucial and integral step in the risk management process. Many
factors may improve the consequences and likelihood of the risk source. Thus, the risk should bemonitored periodically to confirm changing circumstances do not alter the risk environment(Knight, 2010). Based on AS/NZS ISO 31000:2009 standard, the risk management plan should
be review periodically to ensure the effectiveness of risk management strategies plan and to capture
the possibility arising from new risks (Standards Australia & Standards New Zealand, 2005).

2.9 Application of Risk Management Framework in Fisheries and Aquaculture
During the last decade, risk management framework has been applied widely acrossindustries. However, the literature on implementation of risk management framework infisheries and aquaculture is limited. Based on the previous studies, implementation of risk
30management framework in fisheries and aquaculture was widely diversed in term of the scopeof risk analysis, the scale of business, and specify on target of risk assessment, with focuss onenvironmental sustainability, food safety problems, and diseases prevention management. The
following sections will provide several examples of risk management framework in fisheries
and aquaculture sectors for different purposes.
McDaniels, Longstaff, & Dowlatabadi (2006) applied the value-based framework for risk
management decisions in salmon aquaculture at British Columbia, Canada. The authors
developed three principle steps to solve multiple levels of institutional and regulatory control
risks in the salmon industry. These principle steps consist of (1) characterizing the multi-levels
at which regulatory decisions arise, and linkages among them; (2) characterizing the objectiveof stakeholders at each level; and (3) assessment and evaluation. These steps tried to reachcritical decisions that arise at each level and identify the relationship among them.
Murray & Peeler (2005) developed a framework for understanding the potential for
emerging diseases in aquaculture. The authors combine risk analysis method and virulence
theory to identify key diseases-emergence risk factors in salmon production. This study
proposes a four-step model to identify diseases emergence, consist of (1) emergence thepathogen, (2) establishment in a farmed population, (3) establishment at the regional scale, and(4) development of diseases and its consequences. Moreover, the rate and extent of theemergence of diseases could be reduced by applied biosecurity programmes that designed tomitigate the risk factors for emergence of the diseases. Similar to this study, Bartley, BondadReantaso, & Subasinghe (2006) developed a risk analysis framework for aquatic animal healthmanagement in marine stock enhancement programmes. The framework contains 10 aspects
to be considered in marine stock enhancement programmes, consist of (1) the source of animal
to be released, (2) the population to be managed, (3) hazard identification, (4) risk assessment,(5) risk management, (6) quarantine, (7) diagnostic and treatment procedure, (8) mitigation
measure, (9) monitoring, and (10) reporting. The study highlight that to avoid incursions ofdiseases and pathogens as a result of a wild animal released, diseases control strategies should
be an integral part of stock enhancement programmes.
In case of risk management in fisheries, Sethi (2010) applied two stages-framework forrisks management in Alaska fisheries. These stages consist of (1) risk identification and (2)risk treatment. In the first stage, risks in Alaska fisheries are identified and analyzed. The
strategies presented in this stages focus on decision analysis, including multicriteria decisionmaking tools, and the related concept of risk assessment. In the second stage, the identified31

risks will be analyzed to determine the particular treatment for each risk, such as avoided,transferred, or retained. Also, the author mentioned several tools to manage risk in Alaska
fisheries as the precautionary approach, consist of portfolio management, horizontal
integration, and financial contract for manage price risk.
Williams, Dowdney, Smith, Hobday, & Fuller (2011) used the Ecological Risk
Assessment for the Effect of Fishing (ERAEF) to evaluate the impact of fishing on habitats ofbenthic in Australia. The ERAEF framework is based on a hierarchy with a scoping stage andthree analytical levels. These levels consist of (1) a qualitative “Scale, Intensity, andConsequence Analysis” (SICA), (2) a semi-quantitative “Productivity Susceptibility Analysis”(PSA), and (3) quantitative “Model-based” assessment. The result revealed that 46 of 158
habitats of bottom trawl were identified as a potentially higher risk and deserving management
attention. The authors highlight three critical findings of mitigating risk to fishery habitats,which are (1) identifying performance measures to determine the acceptable levels of impact,(2) determining what monitoring is required to assess recovery from the impact, and (3)defining ways to increase habitat-specific data collection.
In sum, the risk management was widely applied in other sectors to prevent losses fromthe impact of risks. However, employed of risk management in aquaculture was much lesser
extent because of the diversified and unstandardized the scope and scale of production
activities, especially at the small-scale level in developing country. Although there is a different
application of risk management framework in fisheries and aquaculture, the frameworks areeither too specific or too general for particular aims. At this moment, no existing risk
management framework covers all risk factor and provides a comprehensive treatment of riskthat faced by farmers especially at the farm level.
2.10 Conceptual Framework
The main purpose of this study is to develop risk management framework for small-scale
shrimp farming in Indonesia. In detail, this study aims to define a risk management frameworkby identifying, categorizing, and assessing each risk in small-scale shrimp farming andrecommend management strategies to mitigate the risks. The whole study is illustrated by theconceptual framework that is shown in Figure 11. The framework has three main phases,
consist of (1) a wide review of Indonesian shrimp industry and its relevant issues, (2) theassessment phase which include three topics, and (3) the conclusion and recommendation
phase. The first phase provides the broad view of Indonesian shrimp industry and its related32issues. As the second largest aquaculture producer in the world, shrimp was the leading
Indonesian export commodity for a couple of years. The fast growth of shrimp production not
only brought benefits, such as creating job opportunities, increasing foreign exchange, andimproving farmers’ income, but also changed the risk environment in the shrimp industry.
Thus, a risk management framework became increasingly needed to enhance the ability of
shrimp farmers to deal with risks and maintaining the sustainability of their livelihood. The
next part of this phase includes discussion in depth on theoretical and empirical study on risk
management and its application in aquaculture. The study design and procedures are presented
in last part of the first phase.
The second phase begins with assessing the farmers' perception of risk and risk
management strategies in shrimp farming. Also, socio-economics and shrimp farmcharacteristics are included in the analysis to distinguished difference perception among thefarmers. Then, business process modeling was used to identify risk and management strategies
in each sub-process along the shrimp farming production. This part is the foundation fordeveloping risk management framework in the following section. The framework wasdeveloped based on AS/NZS ISO 31000:2009 standard, which includes seven steps:(1)

communication and consultation, (2) establishing the context, (3) risk identification, (4) risk
analysis, (5) risk evaluation, (6) risk treatment, and (7) monitoring and review. The last part ofthis phase presents the influence factors on the acceptance of framework for managing risk insmall-scale shrimp farming. The third phase of this thesis includes conclusion andrecommendation for future work. Lastly, a discussion of the limitation of this study alsopresented in this phase.

33

Increase shrimp
production costs

Appliedproduction
technologies

Increasedemand ofshrimp

Risk Management
Framework is needed

Increasing risk anduncertainty in shrimp
farmingChanging Risk
Environment inShrimp Farming

Government
intervention inaquaculture
through policies
and regulationsFirst Phase:
Issues(Chapter 1, Chapter 2, Chapter 3)

Risk treatmenn

Risk evaluation

The level of risks

Risk analysis

Business Process Modeling

Risk identification

Establishing the context

Communication and consultation

Developing risk
management framework

Measuring perceptions ofrisk and risk management
strategies

34

Figure 11. The Conceptual Framework

Climate change
phenomena

Environmental
degradation

Industrialization
in aquaculture

Second Phase:
Assessment and Development(Chapter 4, Chapter 5)

Risk Management
Framework

Monitoring and review

Third Phase:
Recommendation(Chapter 6)

Chapter 3
Methodology

3.1 Introduction
This chapter describes the methodology used in this study, including areas, populationand sample, research tools and justification of research tools. Data analysis is divided into twostages to address the research objectives. The first stage is to analyze the shrimp farmers’
perception of risk and risk management strategies in small-scale shrimp farming.
Understanding the shrimp farmers’ perception is crucial information and foundation fordeveloping risk management framework. In the second stage, the methods used for developing
risk management framework are presented in detail. Moreover, the general risk management
processes in this study is based on the AS/NZS ISO 31000:2009 standard.
3.2 Data and Data Collection
3.2.1 Study Areas
The data used for this study originated from a series of field surveys in the south andnorth coasts of East Java, Indonesia (Figure 1). Two regencies were selected: (1) Banyuwangi
Regency in the south, and (2) Lamongan Regency in the north. The research areas are selectedpurposively because they are the main shrimp producing areas in East Java.

Figure 12. Study areas in East Java, Indonesia.

35

3.2.2 Population and Sample
In this study, the population used in data analysis was the small-scale shrimp farmers
with the intensive system in their shrimp cultivation. Small-scale shrimp farmers define as thefarmers with land holding less than five hectares. In 2015, the total population of small-scale
shrimp farmers in study areas was 683 shrimp farmers in the north coast and 755 shrimp
farmers in the south coast respectively.
Simple random sampling technique was used to select a sample from the list of smallscale shrimp farmers, publish by Ministry of Marine and Fisheries Affairs in each study areas.
In addition, Taro Yamane formula (Yamane, 1967) was used to determine sample size at
confidence level 95% and margin of error 10%.
=

(1 +

)

Where;n: Sample sizeN

: Population sizee

: Margin of error

As the results, the sample size of 79 and 87 was obtained. The first survey was conductedduring February to April 2016, while the second survey on September 2017.
3.2.3 Research Tools
Semi-structured questionnaire was constructed to gather information from small-scale
shrimp farmers. The questionnaire was divided into three parts. The first part aims to explore
the socioeconomic characteristics of shrimp farmers and investigate shrimp farming
characteristics. This part contained 20 open-ended questions. The second part consists of 32
close-ended questions. The purpose of the second part is to investigate the sources of risks inshrimp farming, assess the consequences, and measure the likelihood of those risks. Five points
Likert scale was used to measure the consequences and the likelihood of risk sources. The
range varied from 1 (minor impact) to 5 (severe impact) for the consequences fo risk, while 1(rare) to 5 (almost certain occurrence) for the likelihood of risk. The last part contained 34
close-ended questions. This part aims to examine the risk management strategies and evaluate
the effectiveness of those strategies in protecting their farms and income. Regarding risk

36

management strategies, the five-point Likert scale ranged from 1 (not effective at all) to 5 (veryeffective).
3.2.4 Pretest the Questionnaire
Before the actual survey is conducted, the questionnaire was directed to 30 shrimp
farmers to check its appropriateness. Several adjustments have been made and thequestionnaire ready for the survey.
3.3 Data Analysisx

The first stage
In the first stage, this study analyzed the shrimp farmers’ perception of risk and risk

management strategies in small-scale shrimp farming using field survey data of 166 farmers.
Then, the 32 sources of risk found from field survey data were grouped into eight factors
through exploratory factor analysis. Regarding risk management, 34 strategies from fieldsurvey data were reduced to ten factors through the same method. The scores for each factor
are saved for subsequent regression analysis.
In addition, Varimax Rotated Matrix used to maximize the independency of the factor.
Varimax rotation is an orthogonal rotation of the factor axes to maximize the variance of thesquared loadings of a factor (column) on all the variables (rows) in a factor matrix, which has
the effect of differentiating the original variables by extracted factor.
Two regression models are developed to measure the impact of socioeconomic
characteristics of shrimp farmers on their perception of risk and management strategies to deal
with the risk. The first regression model analyzes the impact of farm and farmer characteristics
on the perception of risk sources. Last, the second model measures the impact of farm andfarmer characteristics and their perception of risk on the perception of risk management
strategies.
x

The second stage
The purpose of the second stage is to develop risk management framework for small-scale shrimp farming based on AS/NZS ISO 31000:2009 standard. Refers to AS/NZS ISO
31000:2009 standard, there are seven steps for risk management process which are related toeach other. These steps consist of 1) communication and consultation, 2) establishing thecontext, 3) risk identification, 4) risk analysis, 5) risk evaluation, 6) risk treatment, and 7)
monitoring and review. The method used for risk management process will describe in thefollowing steps:
37

Step 1. Communication and consultation
To improve understanding of stakeholders about risks and risk management strategies inshrimp farming is the main purpose of this step. To achieve the aims, the researcher
communicates and consult with several stakeholders, including an in-depth interview withexpertise in shrimp farming (Indonesian Aquaculture Society and Shrimp Club Indonesia) andfocus group discussions with the shrimp farmers themselves.
Step 2. Establishing the context
This step is intended to set the boundaries or scope of risk assessment and risk
management strategies in small-scale shrimp farming. In this step, in-depth interview and focus
group discussion used to establish the context for (1) the scope of risk management, (2) the
criteria in which the risk will be measured, and (3) the structure of risk identification,assessment, and process.
Step 3. Risks and risk management strategies identification
This step aims to identify all risks and management strategies along the shrimp
production process. This study used Business Process Model (BMP) to identify all thepossibility of risks and risk management strategies involved in the shrimp production. Zott,
Amit & Massa (2011) defined a business process as a set of activities a cross the time and place,and clearly identified the inputs that designed to produce a specified output. They alsomentioned that identifying the activities along the business process, and the sources risk that
may arise in each activity is the key factor to maintaining the sustainability of the business. In
general, business could define as a collection of activities or structure for action (Wirtz, 2011;
Karduck, Sienou, Lamine & Pingaud, 2007). In a business process, activities are thefundamental of the process. Segatto, Padua, & Martinelli (2013) mention that each activity inthe business process is performed with the idea to fulfill a particular transformation.
In this study, risk in small-scale shrimp farming defined as any probable event in eachactivity that able to cause the deviation from the expected enterprise’s goals. By definition, it
is possible to set the following structure of process risks for the small-scale shrimp farming in
the research area.

38

StartProcess 1
Preparation of
Shrimp Pond andInput for Production

Process 2
Production

Process 3
Marketing andHarvestingEnd

Figure 13. Structure of Business Process for Small-scale Shrimp Farming
The structure of process risk above represents each a sub process along the shrimp
production. The sub process 1 “shrimp pond preparation” risk defined as the risks associatedwith activities before the production process begins including maintenance and preparation of
shrimp pond. The risk in the sub process 2 (preparation of inputs for production) is a risk thatassociated with the preparation of all inputs for growing out of shrimp. Then, “production”
risks in sub process 3 described as the risks which interrupted production cycles, such as
finance and credit access, weather and environment, business environment, and change ofgovernment policies and regulations in shrimp farming. The sub process 4 “harvesting” risks
are the risk that associated with loss of product quality and lack of knowledge of harvesting
methods. Last, risk the sub process 5 “marketing” defined as the risk that related to thevariability of shrimp size and price in the harvesting time.
Step 4. Risk analysis
The objective of this step is to measure the level of risks that already identified in theprevious step. Based on AS/NZS ISO 31000:2009 standard, the level of risk is the results ofconsequence and likelihood of risk. In other words, the level of risk could be defined as thefunction of risk consequence and risk likelihood.
ℎ

=

×

ℎ

As already mentioned above, this study used a five-point Likert scale to measure risk
consequence and risk likelihood. Thus, this study used a quantitative approach to analyze thelevel of risk. The first stage in quantitative approach is to measure discrete probability
distribution function (PDF) for of risk consequence and risk likelihood. The Chi-square criteria
used to select the best-fit probability distribution function. Second, cumulative probability
density function (CDF) used to measure the risk consequence and risk likelihood. Once theconsequence and likelihood of risk already determined for both PDF and CDF, the level of risk
can be measured as the result of the two calculated probability (PDF and CDF) of risk
consequence and risk likelihood.

39

Step 5. Risk evaluation
The goal of this step is to build a list of risk sources that give detail information, whichrisks will be accepted and which risks need treatment by shrimp farmers. shrimp farmers have
two options for each risk source, treat the risk or accept the risk. The risk could be accepted forseveral reasons, such as the cost of managing the risk outweighs the benefit or the level of risk
is low.
List of the levels of risk calculated in step 4 will be sorted in a descending order, ranked
and prioritized in step 5. Refers to AS/NZS ISO 31000:2009 standard, this study used the
ALAAR1 criteria to determined which risks are going to accepted or which risks are going to
be treated. Based on this the ALAAR criteria, the risk with rating 1 on a 5-point Likert scale,either the risk consequence or risk likelihood, will be accepted, no treatment needed, and nofurther consideration in risk management. Rating 1 on a 5-point Likert scale in the risk
consequence and risk likelihood can be interpreted as minor impact and rare respectively
Step 6. Risk treatment
This step aims to determine treatment for the sources of risk that identified as “to betreated risk” in the previous step. In other words, this step linked between the risk management
strategies and the risk that identified as “to be treated risk”. In this study, each risk source
matched with all risk management strategies for that risk. Then, risk management strategies arelisted according to the degree of efficacy in reducing the risk. Moreover, the higher degree of
efficacy of risk management strategies considers as a higher priority risk management
strategies to be used.
Step 7. Monitoring and review
The last step is monitoring and review. The objective of this step is to review theeffectiveness of risk management plan and confirm that the changing of circumstances do notalter the current risk treatment.

1

ALAAR is abbreviation of “As Low As Acceptable Risk”.

40Chapter 4
The Perception of Risk and The Small-scale Shrimp Farmers’ Attitudes Toward Risk

4.1 Introduction
Shrimp farming has a long history in Indonesia, having started in the mid-1960s at North
Sulawesi and spread rapidly to other islands in a few years later (Poernomo, 2004). In the
beginning, most of the shrimp farmers cultivated species of black tiger (Penaeus monodon).
However, the production of black tiger stagnated at around 90,000 tons during 1997 to 2001
due to outbreaks of White Spot Syndrome Virus (FAO, 2003). To improve the Indonesian
shrimp production, the Government introduced the Pacific white-leg shrimp (Penaeus
vannamei) in the early 2000s. As a result, the total production of shrimp was increased
gradually since the early 2000s, and at the same period, the production of black tiger sharply
decreased due to the fact that the farmers shifted from the traditionally farmed black tiger
shrimp to vannamei (Ablaza, 2003; Rimmer et al., 2013).
Recently, several studies revealed that the outbreaks of shrimp diseases had impacted the
production of vannamei. During the period from 2008 to 2009, vannamei farming sufferedfrom Infectious Myonecrosis Virus (IMNV) (Sustainable Fisheries Partnership, 2009).
Afterward, Indonesian shrimp industry has encountered a serious problem caused by White
Spot Syndrome Virus in the mid-2011 (Kilawati et al., 2015). Vannamei production dropped
in 2014 after White Feces Disease suffered in East Java and Lampung.
Besides diseases problems, the environmental degradation, shrimp price fluctuation, andproduct rejections due to food safety and food security issues from importing countries wereseveral problems that occurred in the last several years (Lebel, 2008; Oktaviani et al., 2009;Tongeran et al., 2010; Rimmer et al., 2013). Therefore, shrimp farming today is being
increasingly exposed to risk and uncertainty in which those risks inherent to all activities intheir business. The farmers have to work in an environment with numerous types of risk anduncertainty. Regarding risk management at the shrimp farm level, the farmers’ attitude andperception of risks play a significant role. Their perception of risks may assist them to assess
the probability and consequences of exposed risks. Flaten et al., (2005) revealed that theassessment of farmers’ perception is crucial in observing the decision-making behavior of
farmers at the time of confronting uncertainty situation. Moreover, Lucas & Pabuayon (2011)41

mentioned that understanding the farmer's decision in risk and uncertainty conditions isnecessary to observe how they perceive risk and behave in various kind of risks (Lucas &Pabuayon, 2011).
A better understanding of small-scale shrimp farmers’ risk perceptions and the way they
deal with the risk is essential to formulate a proper policy and to maintain the sustainability ofIndonesian shrimp industry. As far as we know, there are no previous studies have focused on
shrimp farmers' risk perception and their management strategies, particularly on the small-scalelevel. Therefore, this chapter aims to investigate the small-scale farmers’ attitude andperception of risk related to shrimp farming and the factor affecting the farmers' risk
perceptions. Rohrmann (2008) revealed that risk perception refers to farmer’s judgment andtheir evaluations of hazards that they are or might be exposed, while risk attitude is defined as
the farmer’s intention to evaluate a risk environment in a favorable of the unfavorable way andto act accordingly. Specifically, this chapter has two objectives: 1) to explore the relationshipbetween perception of risk and farmer’s characteristics, and 2) to explore the relationshipbetween perception of risk management strategies and farmer’s characteristics. the findings ofthe chapter could potentially help the small-scale shrimp farmers and policy makers providing
risk management services.
4.2 Methodology
To measure the potential impact of risk sources, we used the concept of level of risk
based on the Australia and New Zealand risk management standard (AS/NZS ISO
31000:2009). In this study, the level of risk is defined as the results of consequence and thelikelihood of risk (i.e., the level of risk = consequences * likelihood). Based on AS/NZS ISO
31000:2009, a consequence is the outcome of an event and influences the shrimp farm’s
objective. Moreover, the likelihood defines as a change that something might happen. Then,the score of the level of risk will be used for the analysis. In this study, five points Likert scale
was used to measure the consequences and likelihood of risk sources. The range varied from 1(minor impact or rare) to 5 (severe impact or almost certain occurrence). Regarding risk
management strategies, the five-points Likert scale ranged from 1 (not effective at all) to 5
(very effective).
Two stages were designed to address the objectives. In the first stage, this study examines
the perception of risk sources and risk management strategies in small-scale shrimp farming.
First, through exploratory factor analysis, the sources of risk and risk management strategies42

in shrimp farming were grouped into several risk factors and management strategies. Factor
analysis is a multivariate technique used to assess the variability of variables of a data-set (riskand management strategies) through a linear combination of a smaller number of latentvariables, called factors. The relationship of variables to the underlying factor is expressed by
the value between 0.0 to 1.0 and called factor loading (see Table 4 in Page 45 and Table 5 inPage 50). Regarding the factor loading, a minimum cut-off of 0.4 is generally accepted in theliterature. Thus, the source of risk and management strategies were sorted based on the scoreof factor loading. The higher value of factor loading in each variable (risk and management
strategies) represent the particular factor or group.
The assumptions of factor analysis were verified using the Kaiser-Meyer-Olkin (KMO)
test. The Kaiser-Meyer-Olkin test is a statistical test that indicates the proportion of variancein variables that might be caused by underlying factors. Moreover, The Bartlett test was
employed to verify the homogeneity of variances across the data set. Bartlett's test forhomogeneity of variances is a statistical test to measure the variances and test the variances areequal for all samples.
For the second stage, two regression models were developed to measure the impact ofsocioeconomic characteristics of shrimp farmers on their perception of risk and management
strategies. The first model analyzed the impact of farmer characteristics on the perception ofrisk sources. Last, the second model measured the impact of characteristics and their perceptionof risk on the perception of risk management strategies. Specifically, the regression models
could be represented in the form of equation 1 and 2 as shown below;
= (

,

= (

,
,

_
,

,
_

_ℎ
,

_ℎ

, _
, _

, _
, _

(1)

)
,

)

(2)

Where;RFi: Factor scores for source of risk (i=1, 2, 3, …, 8) from Factor Analysis

RMFj: Factor scores for risk management strategy (j=1, 2, 3, …, 9) from Factor

Analysis
Age: Age of shrimp farmers, measure in years.

Exp: Number of years in shrimp farming.

Educ_level: Formal education level of shrimp farmers, measured in years.

43Land_hold: Number of land for shrimp cultivation that operated by a farmer

D_offincome : Dummy variable, 1 denotes the shrimp farmer who had off-farm income, and0 denotes otherwise.
D_location: Dummy variable, 1 denotes the shrimp farmers in the north coast of East Java,and 0 denotes otherwise (south coast).
4.3 Results and Discussions
4.3.1 Socioeconomic characteristics of respondents
The socioeconomic characteristics of small-scale shrimp farmers in the south and northcoast of East Java are compared with the average of total respondents in Table 1. The result
revealed that the average age and experience in shrimp farming in the north are higher than the
average of shrimp farmers in the south coast. However, the other characteristics of shrimp
farmers in the north, such as education level, landholding, and off-farm income were lower
than the farmers in the south.
Table 4. Socioeconomic Characteristics of Small-scale Shrimp Farmers
South Coast of East Java aNorth Coast of East Java

Total

(n=79)(n=87)(n=166)Age (years)

*38.1

43.8

41.3

Experience (years)***7.98.4

7.5

Education (years of schooling) b

*9.6

9.2

9.2

Land holding (ha)

**4.3

2.5

3.7

Characteristics

Off-farm income (%) c**23.2
16.1
18.9
Note:
a Mean number mark with asterisks show that the mean scores of South Coast of East Java and North Coast of East Javaare significantly different at * 0.1; **0.05; ***0.001.
b
Measured as total years of formal education.
c
Measured as a percent of shrimp farmer who had off-farm income from a total number of the respondent.

The survey revealed that the small-scale shrimp farmers in the north and south coast had
similar average ages, being 38.1 and 43.8 years, respectively. In accordance with theIndonesian government standard, the farmers in both areas were included in productive age
range (15 to 64 years old). The farmers in the north coast had more experience in shrimp
farming than the farmers in the south. The farmers in northern East Java have a long history inshrimp farming with the species of Penaeus monodon (Black tiger shrimp), and some of themchanged to cultivated Penaeus vannamei (Pacific white-leg shrimp) in the 2000s.
In terms of education level, there was no significant difference between the two survey
areas in East Java. Small-scale shrimp farmers in the south coast have a larger farm (4.344hectares), comparing to the farmers in the north (2.5 hectares). Of the 166 small-scale shrimp
farmers, 31 farmers (18.9%) had off-farm income. Moreover, the percentage of shrimp farmers
in the south (23.2%) who have off-farm income was slightly higher than in the north (16.1%).
4.3.2 The Sources of Risk in Small-scale Shrimp Farming in East Java.
In order to measure the possible impact of each risk, this study uses the concept of levelof risk that is defined as the result of the consequences and likelihood. In total, 32 sources ofrisk were identified in small-scale shrimp farming at the study areas (see Table 2, column 1).
Among the risk sources, shrimp price volatility and high mortality due to diseases havebeen identified as the most significant sources of risk, being 21.90 and 21.84, respectively (seeTable 2, column 2). The second level with risk scores ranging between 15.01 and 20.00
includes two sources of risk. As shown in Table 2, the second level consisted of increasing
formulated feed price (18.73) and the water pollution due to excessive formulated feed (15.92)
risks. Moreover, the next 19 risk sources, of which the level risk score ranges between 11.00
and 15.00 with corresponding ranks from 5 to 23, constituted the third level of risk (moderately
significant). Finally, nine sources of risk with the level of risk score varying from 5.00 to 10.00
were classified into the fourth level, which is slightly significant. However, no source of risk
was classified at an insignificant level.
Regarding the risk level in Table 2, the small-scale shrimp farmers in East Java focusedon the several risk sources affecting financial aspect of their shrimp farms. These risk sources
consisted of shrimp price volatility and increasing formulated feed price. The conditionreflected not only the shrimp farmers running their enterprise without any price insurance but
also represented the very high level of uncertainty in shrimp farming. The underlying reason
for this condition was an imbalance of supply-demand in the market due to the spread of shrimp
diseases in the last several years. Several studies reported that various kind of shrimp diseases,
such as Infectious Myonecrosis Virus (IMNV), White Spot Syndrome Virus (WSSV), andWhite Faces Diseases (WFD) led to significant losses for shrimp farmers (Kilawati et al.,2015). Hence, it is not surprising that high mortality due to diseases was the second-ranked
source of risk.

45

21.9
21.84
18.73
15.92
14.96
13.75
13.75
13.53
13.29
13.19
12.67
12.6
12.21
12.17
11.49
11.31
11.25
11.04
10.87
10.73
10.56
10.53
10.23
9.69
9.56
9.36
9.12
8.95
8.37
7.79
7.76
7.34

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

Rank
12.74
1
-0.19
0.29
0.12
0.16
0.87
0.84
-0.03
-0.01
0.77
-0.07
0.18
0.03
0.35
0
-0.15
0.2
0.74
0.69
0.09
0.23
-0.14
0.6
-0.07
0.09
0.33
0.06
0.61
0.12
0.47
-0.05
0.15
0.11

b

12.68
2
-0.11
0.06
0.88
0.09
0.11
0.06
0.17
0.79
0.33
0.37
0.07
-0.05
0.08
-0.05
0.21
0.26
-0.09
0.44
0.74
0.12
0.4
-0.07
-0.4
0.02
0.21
0.13
0.01
0.74
0.19
0.28
0.7
-0.02

11.79
3
-0.04
0.74
-0.06
0.72
0.26
0.09
0.08
0.09
0.02
0.67
0.25
0.22
0.65
0.26
0.03
0.18
0.28
0.16
0.11
-0.03
-0.26
0.07
0.64
-0.35
-0.16
-0.15
0.15
0.2
0.24
0.24
0.05
-0.08

Factorsa
11.41
7.09
4
5
0.14
0.7
-0.21
0.06
-0.01
-0.11
0.01
0.4
0
0.03
-0.13
0.43
0.83
0.13
0.17
0.09
0.31
-0.03
-0.01
0.43
0.81
0.1
0.08
-0.19
0.07
-0.22
-0.04
0.28
0.8
0.1
0.6
-0.13
0.27
0.07
0.06
-0.21
0.17
-0.01
0.62
0.26
-0.26
0.61
0.13
0.23
-0.31
0.09
0.3
0.5
0.46
0.41
-0.25
0
-0.1
0.18
0.06
0.13
0.15
-0.07
-0.07
-0.29
0.4
0.05
0.53
-0.1
6.24
6
0.36
-0.04
0.06
0.08
0.03
0.13
0.18
0.16
0.24
0.23
0.12
0.8
0.09
-0.06
-0.01
0.52
-0.15
0.02
0.1
0.35
0.17
-0.07
-0.15
0
-0.04
0.25
0
0.05
-0.05
0.64
0.11
0.24

6.23
7
0.43
0.25
-0.03
0.2
-0.05
-0.01
0.05
-0.38
0.03
0.1
0.02
-0.17
0.25
0.67
-0.33
0.09
0.19
0.01
-0.06
0.07
0.2
0.15
-0.03
0.08
-0.11
0.14
0.07
-0.06
0.03
0.06
-0.13
0.62

4.94
8
-0.01
-0.11
0.12
0.28
0.23
-0.37
-0.15
0.27
-0.11
0.23
-0.07
-0.08
0.18
0.09
0.23
-0.08
0.35
0.12
-0.08
0.04
0.03
-0.14
-0.17
-0.1
-0.17
0.53
0.22
-0.21
-0.08
0.27
0.11
-0.12

a

46

Note:
Factors 1 to 8 are; (1) Input and pond preparation; (2) Finance and credit access; (3) Production; (4) Personal; (5) Harvesting and marketing; (6) Weather and environment; (7) Policy and institutional; (8) Businessenvironment.
bThis number (in percentage) represents the total variance explained based on the results of Exploratory Factor Analysis.

Shrimp price volatility
High mortality due to diseases
Increasing formulated feed price
Water pollution due to excessive formulated feed
Low quality of shrimp fries
Not enough formulated feed supply
Shrimp farmers doesn’t have brackish water treatment facility
Not enough capital to operating shrimp farms
Low quality of formulated shrimp feed
Feeding management failure
Lack of knowledge to prevent shrimp diseases
Polluted brackish water sources
Excessive stocking density
Change government policy and regulation
Lack of information about shrimp fries origin
Lack of knowledge of pond preparation
Inappropriate pond location
Do not conduct treatment before stocking shrimp fries
Lack collateral for loan
Lack of labor knowledge
Shrimp size variability
Inappropriate pond design
Brackish water quality
Inappropriate harvesting method
Harvesting without grading
Asymmetric information between buyer and farmers
Inappropriate shrimp fries size
High interest rate for loan
Not enough labor supply
Flood
High wages of hired labor
Low level of awareness from community

Sources of Risk

Risk
Level

Table 5. The Level of Risk and Varimax Rotated Factor Loading for The Sources of Risk

Furthermore, the total 32 risk sources were reduced using varimax rotation factor analysis
to gain a deeper understanding of small-scale shrimp farmers’ perception regarding sources ofrisk. Before conducting the exploratory factor analysis, the assumptions of factor analysis wereverified using the Kaiser-Meyer-Olkin (KMO) test and Bartlett test. The result revealed that
the KMO is 0.644, and Bartlett test is statistically significant at the 0.01 level. Referring to Hairet al. (2006), these results indicated that the data were satisfactory for factor analysis. Based on
this justification, 32 sources of risk were reduced to eight factors (see Table 2, column 4 to 11).
The factors 1 to 8 could be best denoted as (1) Input and pond preparation, (2) Financeand credit access (3) Production, (4) Personal, (5) Harvesting and marketing, (6) Weather andenvironment, (7) Policy and institutional, and (8) Business environment. These factors
explained 73.1% of the total variance that was observed. The highest loading items, total
variance, and extracted factors are shown in the fourth, fifth and sixth columns in Table 1,
respectively. Moreover, after checking the non-significant level of loading items, no risk
sources were removed.
For the factor extracted, the result revealed that factor 1, namely ‘input and pond
preparation,’ explained 12.74% of the observed variation. Several risk sources, such as low
quality of shrimp fries, not enough formulated feed supply, and low quality of formulated
shrimp feed, were high loading factors among the risk sources in this group. The results showedthat the problems of input and pond preparation triggered the shrimp diseases in the study areas.
In line with this, a recent survey by Ahsan (2011) about risk management strategies in shrimp
industry in Bangladesh indicated that shrimp diseases were identified as the top-rated sourceof risk and the greatest threat to coastal shrimp farming.
Factor 2, ‘finance and credit access,’ had a relatively high loading of increasing
formulated feed price and not enough capital to operating shrimp farms. This finding showedthat formulated feed price could have a major impact on shrimp farmers’ income. A recent
study by Hung and Quy (2013) also noted that formulated feed cost comprised 66 to 68% of
the total production cost in intensive shrimp farming system.
High mortality due to diseases, water pollution due to excessive formulated feed, andfeeding management failure were loaded strongly on factor 3 of the ‘production’ risks. Thisfactor explained 11.79% of the observed variation. Production risk is one of the essential
problems in aquaculture and agriculture activities. Several kinds of literature indicated similar
results of the high loading of diseases in production risk (Meuwissen et al., 2001; Flaten et al.,47

2005; Gebreegziabher and Tadesse, 2014). The high loading of shrimp diseases in ‘production’risk is likely to reflect small-scale shrimp farmers’ concern on shrimp mortality. Moreover,Bush et al. (2010) stated that shrimp farming is complicated due to a close relationship betweensocial and ecological systems. Lack of knowledge in preventing diseases was making theirbusiness riskier.
The small-scale shrimp farmers are also affected by risks that were associated with‘personal’ risk factor. This factor explained 11.41% of the observed variation. Lack ofknowledge to prevent shrimp diseases, lack of information about shrimp fries’ origin, and lackof knowledge of pond preparation were the highest loading factor in personal risk. The smallscale farmers tended to use their experience in managing their shrimp ponds. Hence, thepersonal risk associated with lack of knowledge in shrimp farms management was the realconstraint in maintaining their livelihood and sustainability of the shrimp industry in East Java,
Indonesia.
Majority, ‘harvesting and marketing’ risk in factor 5 was affected by shrimp pricevolatility and shrimp size variability. Harvesting and marketing risk sources were associatedwith an oversupply of shrimp in the market and inappropriate harvesting method. Several
studies also noted that marketing risk was considered as one of the most significant risk sources
in aquaculture and agriculture (Bergfjord, 2005; Ahsan and Roth, 2010; Ahsan, 2011).
The sixth factor, ‘weather and environment’ risk include polluted brackish water source
and flood. This factor explained 6.24% of the observed variation. Furthermore, change
government policy and low level of awareness from the community about environmental
protection loaded strongly on factor 7 of the ‘policy and institutional’ risk. Last, ‘businessenvironment’ risk on factor 8, which explained 4.94% of the observed variation, is associatedwith asymmetric information between buyer and farmers. The same study finding had
supported the study of Ahsan (2011) about shrimp farmers’ motivation, risk perception andrisk management strategies in Bangladesh which stated that shrimp production involves acomplex supply chain. Thus, the exploitation by the middle man in shrimp farming wasconsidered a major risk source.
4.3.3 The Risk Management Strategies in Small-scale Shrimp Farming
In this study, 35 risk management strategies were rated on five points Likert scale byshrimp farmers in regard to their efficacy of mitigating each source of risk. The average scoreof strategies and their ranks presented in the second and third columns of Table 3. The result48

revealed that 16 risk management strategies were classified as very effective in coping with therisk in shrimp farming with the average score varying between 4.1 to 5.0. Strict managementof water quality, strict feeding management, applying better management practices, preventing
shrimp diseases by regular checking, and reducing brackish water pond size were the top five
strategies in this category. The second group included ten strategies. This group had an averagescore that ranged between 3.1 and 4.0 with corresponding ranks from 17 to 26. The next six
risk management strategies, such as change consumption pattern, use of large-sized shrimp
fries, informal marketing contract with the wholesaler, applying new technology, using familylabor, and dissaving, were classified as average effective. Last, only three strategies werecategorized as little effective (ranges between 1.1 and 2.0), which included sharing machineryand paddle wheel, follow the government policy and regulation, and off-farm work.
Although shrimp price volatility was perceived as the most damaging source of risk (seeTable 1 in column 3), the rank of risk management strategy to cope with this risk, such as
production contract, was not perceived as the most effective strategy (see Table 3, column 3).
The study found that the small-scale shrimp farmers preferred to rely on the daily activities tocope with the risk and maximize their income. Several strategies, such as strictly managed
water quality, strict feeding management, and applying better management practices, weremore effective to cope with the risk in their shrimp farms.
Moreover, the factor analysis with varimax rotation was applied to reduce many risk
management strategies. Thus, nine factors loadings were obtained for risk management
strategies in study areas. These nine factors explained 83.61% of the total cumulative variance.
The last three columns in Table 3 presented the loading items, total variance, and factors
extracted. The factors 1 to 9 in Table 2 were identified as: (1) Diseases prevention, (2)Education and technology improvement; (3) Input of production; (4) Farm management; (5)Government support; (6) Risk sharing and insurance; (7) Financial; (8) Household adjustment;and (9) Alternative income sources.
Factor 1, which was named ‘diseases prevention,’ explained 17.33% of the observed
variation. Strictly managed water quality, strict feeding management, and partial harvest were
the top three strategies in this group with the loading scores of 0.92, 0.85, and 0.85,
respectively. These strategies remained the most effective risk management strategies toprevent shrimp diseases and minimize income losses. This study finding was also supported by
Kilawati et al. (2015) which stated that shrimp diseases were the biggest problem forIndonesian shrimp farming during the last several years.
49

Factor 2 represented ‘education and technology improvement’ by attending a workshop
in shrimp farming and applying new technology in shrimp production. These strategies wereperceived as an effective strategy in small-scale shrimp farming in East Java to manage theirrisk. Previous studies also indicated that the farmers tended to adopt new technology to enhance
production (Bergfjord, 2009; Ahsan and Roth, 2010; Ahsan, 2011).
Factor 3 identified as ‘input of production.’ This factor includes high loading of risk
management strategies that were associated with management of input in shrimp farms, suchas only buy shrimp fries from the reliable place and buying formulated feed from reliablebrands. Factor 4 (farm management) comprised the strategies concerning the internalmanagement of shrimp farms. High loadings of this factor were: applying better management
practices, hire a technical assistant, enforcing the shrimp pond dike, and follow the government
policy and regulation.
Two risk management strategies, which are request government support for technicalassistance and request social assistance after the natural disaster, were grouped into factor 5(government support). Factor 6, ‘risk sharing and insurance,’ includes high loading risk
management strategies that were associated with the efforts of shrimp farmers to share withthird parties. Seven strategies are listed in this factor. These strategies include production
contract, sharecropping, contract for farm inputs, informal marketing contract, vertical
integration, and marketing contract with the wholesaler. Ahsan and Roth (2010) obtained
similar results regarding risk management for mussel aquaculture in Denmark. They found thatcooperative marketing was one of the important strategies to mitigate the impact of risk on
their farms.
Three strategies were grouped into factor 7, which is identified as ‘financial’ strategies.
This group had high loadings for the items of use informal loan, make credit arrangement
before production cycle, and dissaving. Factor 8 was named ‘household adjustment’ due to thedominant strategies for this factor which are change consumption pattern and use family labor,
which explained 6% of the observed variation. Finally, two risk management strategies, suchas farm diversification and off-farm work, were classified into factor 9 (alternative income
sources). In Greece, Theodorou, (2010) found a similar result. Greek mussel farmers preferred
the certainty of income from other sources as a risk management strategy.

50

5.00
4.99
4.91
4.79
4.78
4.77
4.69
4.67
4.55
4.52
4.41
4.22
4.21
4.14
4.14
4.11
3.80
3.72
3.54
3.50
3.45
3.44
3.43
3.29
3.29
3.02
2.76
2.76
2.52
2.38
2.11
2.09
1.96
1.22
1.20

Mean
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
25
24
26
28
27
29
30
31
32
33
34
35

Rank
17.32b
1
0.92
0.86
0.13
0.74
0.85
0.03
0.3
0.85
0.06
0.02
-0.07
0.77
0.31
-0.01
-0.1
0.51
0.13
-0.21
0.46
-0.27
-0.07
0.12
0.28
-0.1
0.11
-0.33
0.19
-0.08
0.14
-0.2
0.18
-0.15
-0.24
0.42
-0.2
16.01
2
0.08
-0.08
0.03
0.1
0.09
0.14
-0.06
0.17
0.92
0.02
0.07
-0.01
-0.35
0.26
0.2
-0.35
0.4
-0.05
-0.16
-0.05
-0.02
-0.05
0.15
0.38
-0.06
-0.17
0.12
0.06
-0.12
0.81
0.35
-0.3
0.04
0.1
-0.24

9.53
3
-0.03
-0.16
-0.07
-0.04
-0.02
0.03
-0.04
0.08
0
0.11
0.77
0.24
-0.13
0.85
-0.1
0.48
-0.51
0.5
-0.16
0.67
0.1
-0.04
-0.17
0.08
-0.18
0.64
0.61
0.13
0.48
0.2
-0.05
-0.11
0.18
0.36
0.03

8.42
4
0.03
-0.16
0.91
0.06
0.15
-0.1
0.39
-0.03
0.02
-0.06
-0.09
0.38
0.01
0
0.15
0.16
0.16
-0.12
-0.38
-0.08
-0.17
0.86
0.57
-0.11
0.02
-0.02
0.33
-0.15
0.24
0.05
0.28
0.14
0.35
0.47
-0.08

Factorsa
7.85
5
-0.03
0.05
0.08
-0.19
0.07
0.1
-0.24
0.52
0.02
0.01
-0.19
-0.02
0.21
-0.04
0.78
0.17
0.17
0.02
0.3
-0.06
-0.07
0.03
0.26
0.62
0.07
0.09
0.14
0.26
0.08
0.12
0.24
-0.43
0.05
0.3
0.38
6.29
6
0.04
-0.09
-0.01
-0.05
-0.04
0.89
0.65
0.17
-0.1
0.88
0.06
-0.04
0.51
0.24
0.06
0.01
0.53
0.08
0.28
0.23
-0.06
-0.3
-0.21
-0.14
-0.26
-0.4
-0.35
0
0.53
-0.07
-0.27
-0.02
0.47
0.32
0.03

6.21
7
-0.03
-0.13
-0.12
0.2
0.1
-0.11
0.29
0.05
-0.08
0.19
0.09
-0.12
0.17
0.06
-0.13
-0.23
-0.19
0.65
-0.03
0.03
0.86
-0.04
0.11
-0.31
-0.06
0.13
0.2
0.05
-0.1
-0.17
-0.29
0.56
0.17
-0.1
-0.07

6.01
8
0.04
0.22
0.07
0.34
-0.29
-0.15
-0.05
-0.15
0.03
0.17
0.07
-0.03
0.16
-0.03
-0.31
-0.22
0.26
-0.09
0.13
0.19
-0.11
0.27
0.11
-0.29
0.09
0.27
0.29
0.53
-0.12
-0.05
0.54
-0.43
0.3
0.15
0.17

5.96
9
-0.11
0.04
0.08
0.07
-0.03
-0.11
0.14
0.05
-0.07
0.01
0.01
-0.11
0.19
0.08
-0.14
0.08
0.12
0.15
-0.22
0.29
0.07
0.17
0.39
-0.18
0.82
0.15
0.18
0.14
0.26
0.27
0.06
-0.12
0.36
-0.24
0.64

a

51

Note:
Factors 1 to 9 are; (1) Diseases prevention; (2) Education and technology improvement; (3) Input of production; (4) Farm management; (5) Government support; (6) Risk sharing and insurance; (7)Financial; (8) Household adjustment; (9) Alternative income sources.
bThis number (in percentage) represents the total variance explained based on the results of Exploratory Factor Analysis.

Strictly manage water quality
Strictly feeding management
Applying better management practices
Prevent shrimp diseases by regular checking
Reduce brackish water pond size
Production contract
Contract for shrimp farms inputs
Partial Harvest
Attending workshop in shrimp farming
Sharecropping
Only buy shrimp fries that have SPF certificate
Reduce stocking density
Vertical integration
Only buy shrimp fries from reliable place
Request government support for technical assistantReallocated shrimp pond to designed area
Marketing contract with processor
Use informal loan
Develop brackish water treatment
Buying formulated feed from reliable brands
Make credit arrangement before production cycle
Hire technical assistant
Enforcing the shrimp pond dyke
Request social assistance after natural disaster
Farm diversification
Buying shrimp fries from public hatchery
Use large size shrimp fries
Change consumption pattern
Informal marketing contract with wholesaler
Apply new technology in shrimp production
Use family labor
Dissaving
Sharing machinery and paddle wheels
Follow the government policy and regulation
Off-farm work

Risk Management Strategies

Table 6. The Varimax Rotated Factor Loading for The Risk Management Strategies

4.3.4 Relationship between shrimp farmer’s characteristics and perception of risk
Based on Table 4, all socioeconomic variables had at least one significant relationshipwith the sources of risk. The regression results showed that the shrimp farmer characteristics,
such as; experience in shrimp farming, education level, and location had a significant impact
on their perception of input and pond preparation risks. Moreover, the result revealed that thesmall-scale shrimp farmers in the north coast of East Java were more concerned about input
and pond preparation risks. These results may be explained by the fact that the shrimp pondson the north coast are located close to an industrial area thus affecting the brackish water quality
and environmental conditions around the shrimp pond.
Table 7. Results of Multiple Regression for Risk Sources
Sources of Risk (Dependent variables)
Independent
variables
Age
Experience
Education levelaLand holding

Input and
Pond
Preparation

FinanceandCreditAccess

Production

Personal

HarvestingandMarketing

Weather andEnvironment

Policy andInstitutional

Business
Environment

0.017

0.005

*0.018-0.002*0.0030.015**0.011-0.001*0.0020.001*-0.001-0.003*0.001-0.001

0.000

0.002

**0.000-0.002-0.001***0.001

0.000

0.002

-0.0010.000-0.006-0.0110.001-0.002-0.008

0.005

0.010

***0.002

Off-farm income

b

0.015

*-0.008-0.0060.007-0.0050.014-0.002*-0.017

Dummy locationc***0.006

0.009***0.002

0.000

0.011

*0.019-0.005

0.012

0.312

0.237

0.482

0.252

0.256

0.202

0.147

0.261

Adj R2

Note:
Variables significant at * 0.1; **0.05; ***0.001.
aMeasured as total years formal education of shrimp farmers.
b
Measured as a dummy variable where 1 denotes the shrimp farmer who had off-farm income, and 0 denotes otherwise.
c
Measured as a dummy variable where 1 denotes the north coast of East Java, and 0 denotes otherwise (the south coast).

Among exploratory variables, only off-farm income variable has a significant impact on
their perception of finance and credit access risks with a negative sign. The sign implies thatthe shrimp farmers who do not have off-farm income tend to be more concerned about financeand credit access risks. Perceptions about production risks are significantly impacted by theage of small-scale shrimp farmers, experience in shrimp farming and location of shrimp pond.
The results showed that the older and the less experienced farmers are more concerned about
production risks compare to the younger and the farmers who have more experience in shrimp
farming. Lack of knowledge and experience of applying better aquaculture practices to prevent
production risks, such as high mortality due to diseases, water pollution, and feeding
management failure, makes their business riskier.
In the case of personal risks, only education level showed significant impact on theperception of personal risks. This might be explained by the fact that shrimp farmers withhigher educational attainment would make easier to adopt new technology in shrimp
52

production. Only such variables as the age of farmers and experience in shrimp farming havea significant impact on the perception of harvesting and marketing risks. It means that the older
and more experienced of shrimp farmer tend to be more concerned about harvesting andmarketing risks. This is probably because most of the small-scale shrimp farmers in East Java
face with the same market conditions. In general, the price of shrimp determined by middlemanor processing factories as price makers, while the farmers only act as the price taker. Moreover,the shrimp farmers in north coast perceived the weather and environment risks, such as floodand polluted brackish water sources, as the most substantial compared to the farmers in thesouth. This result was indicated by the positive sign in the coefficient regression of the weather
and environment risk factor in Table 4. The shrimp farmers’ perception of policy andinstitutional risks are impacted by the age of farmer and educational level. The older farmers
are more worried about policy and institutional risks, such as changes government regulationin shrimp farming, than younger farmers.
The regression results also showed that the farmers with land holding above the averagelevel are more concerned about the business environment risks. That might be explained by thefact that the impact of business environment risk, such as asymmetric information between
buyer and shrimp farmers, will hurt the farmers with large shrimp pond areas more seriously
than farmers with small areas. Last, the shrimp farmers who do not have off-farm income
revealed give more attention to business environment risk than those shrimp farmers with offfarm income activities
4.3.5 Relationship between shrimp farmers’ characteristics, the perception of risk, and risk
management strategies
The relationship between small-scale shrimp farmers’ characteristics, the perception ofrisk, and risk management strategies were determined using multivariate regression. The resultof regression coefficients and the goodness-of-fit (Adj R2) for each exploratory variable arepresented in Table 3. The results revealed that all the models are statistically significant, with
the Adj R2 varying from 0.287 to 0.759.
Two socioeconomic variables, off-farm income and dummy location, were revealed tohave a statistically significant impact on the perception of diseases prevention strategies. The
age of small-scale shrimp farmers has a substantial influence on the perception of the efficacy
of education and technology improvement strategies. Also, the regression coefficient (-0.023)

53

revealed that the younger shrimp farmers are more concerned with the education andtechnology improvement strategies as risk management strategy for their shrimp farms.
Moreover, only land holding variable does not have a significant impact on any risk
management strategies. The shrimp farmers in the northern coast of East Java rated the efficacy
of farm management strategies as significantly important compared to the shrimp farmers inthe south. The farmers who do not have off-farm income tend to be more concerned with thesehousehold adjustment strategies compare with the farmers who have off-farm income fromother activities. Next, the shrimp farmers that more experienced rated the efficacy of alternative
income sources strategies as significantly important compare to less experienced farmers.
The sources of risk were the last independent variables. As shown in the lower part ofTable 5, several sources of risk were found to be strongly associated with multiple risk
management strategies. Input and pond preparation risks, such as low quality of shrimp fries,
inappropriate pond location, and low quality of formulated feed, are connected with theperception of two risk management strategies, which are diseases prevention strategies and the
input of production strategies. Moreover, due to shrimp farming has been dramatically affectedby many pathogenic diseases during couple years ago. Thus, diseases prevention strategies,
such as strict management of water quality and feeding management, are considered the mostefficient way to prevent income loss due to the spread of shrimp disease.
Finance and credit access risks were related to risk sharing and insurance strategies.
However, the finance and credit access risks appear not significantly impact on the farmer’s
perception of financial strategies. Due to lack of collateral and access to credit, the shrimp
farmers tend to use risk sharing and insurance strategies to cope with finance and credit accessrisks. These strategies include production contract, sharecropping, contract for shrimp farms
inputs, and informal marketing contract with the wholesaler.
The result revealed that production risks strongly impact the farmers’ perception of
educational and technology improvement and farm management strategies. These strategies
include attending the workshop and applying recent technology in shrimp cultivation. Thosestrategies reflect that knowledge plays a significant role in successful shrimp farming.
Moreover, personal risks, such as lack of farmer’s knowledge about shrimp fries’ origin anddiseases, were found to be highly connected with the perception of farm management
strategies.

54

Table 8. Results of Multiple Regression for Risk Management Strategies
Risk Management Strategies (Dependent variables)
Diseasesprevention

Educationalandtechnology
improvement

Input ofproduction

Farmmanagement

Government
supportRisk
sharingandinsurance

Financial

Householdadjustment

Alternative
incomesourcesAge-0.018***-0.023

0.011-0.012

0.007

0.009

0.008

-0.002-0.008Experience-0.009

0.004

0.001

-0.002

0.002

0.000

0.000

0.000

*0.001

Education level

0.004

0.001

-0.002**0.003-0.001-0.001-0.001

0.000

0.001

Land holding-0.003

0.007

0.001

0.006

-0.003-0.009

0.007

0.009

0.007

Off-farm income*0.069-0.023

0.012

0.011

-0.002-0.0180.006**-0.002

0.007

Dummy location**0.0390.008-0.011***0.016

0.002

0.023

-0.007-0.006-0.011***0.399

0.223**0.555

0.127

0.057

-0.374-0.139-0.2150.099-0.0690.211-0.150

0.059

0.177

***0.472

0.111-0.118-0.053

Production risks

0.383**0.137

0.189*0.0300.052-0.4130.426-0.151-0.097

Personal risks-0.201

0.174-0.133**0.049-0.044-0.1820.090-0.009-0.056

0.460

0.163

0.143

-0.1350.290**0.068**0.017

0.330

0.043

0.101

-0.1580.376***0.288

0.133

0.026

0.029

0.026

-0.247-0.555

0.164

0.307

**0.215***0.003-0.5770.235-0.224-0.0480.788-0.361-0.233

0.211

0.137

-0.5660.030**0.166

0.049

.727

.356

.612

.759

.287

.494

.346

.394

0.269

Independent
variables
Socioeconomic
Characteristics

Risk Factors
Input and pond
preparation risks
Finance and credit
access risks

Harvesting andmarketing risks
Weather andenvironment risks
Policy andinstitutional risks
Business
environment risks
Adj R

2

Note:
Variables significant at *0.1; **0.05; ***0.001.
aMeasured as total years of formal education.
b
Measured as a dummy variable where 1 denotes the shrimp farmer who had off farm income, and 0 denotes otherwise.
c
Measured as a dummy variable where 1 denotes the north coast of East Java, and 0 denotes otherwise (the south coast).

Based on Table 5, two management strategies, risk sharing and insurance and financial,have been influenced by the farmers’ perception of harvesting and marketing risks, such as
shrimp price volatility. It may be related to the fact that oversupply of shrimp on peak season
push the shrimp price goes down. Previous studies also found that marketing risks wereconsidered as one of the most significant risks sources (Bergfjord, 2005; Ahsan and Roth, 2010;
Ahsan, 2011). Also, weather and environment risks, such as flood and polluted brackish water
sources, are significantly influenced the farmers’ perception of the efficacy of farmmanagement strategies.
Farm management strategies, such as applying better management practices and follow
the government regulation, are essential to response changes of policy in shrimp farming.
Therefore, the result found that policy and institutional risks were significantly impacted on
shrimp farmers’ perception of farm management and government support strategies. Last,
business environment risks shown to be significantly associated with the shrimp farmers’
perception of household adjustment strategies. The business environment risks, such as
55

asymmetric information between buyer and shrimp farmers, represent that degree of
uncertainty in shrimp farming are higher than others aquaculture activities. The efficacy ofhousehold adjustment strategies, including use family labor and changed household
consumption patterns strategy, rated as a very effective strategy to reduce losses due to businessrisks.
The results found that the relationships between the perceptions of risks significantly
impact on shrimp farmers’ perception of risk management strategies. However, these
relationships are multidimensional and represent characteristics of farm and shrimp farmers.
Also, the result found a mismatch between shrimp farmers’ perception and the risk
management strategies implemented to reduce the impact of finance and credit access risks.
The result revealed that financial strategies, such as use informal loan, make credit arrangementwith third parties to ensure sufficient capital during production cycle and dissaving strategies,
are not perceived as essential for reducing the impact of financial and credit access risks.
Eventually, there is no particular risk management strategy for the specific type of risk source.
The results showed that the shrimp farmers develop a range of strategies and conversely, a risk
management strategy can apply to mitigate different types of risk source.
4.4 Conclusions
This study aimed to provide empirical insights into small-scale shrimp farmer’s
perceptions of risk and risk management strategies, and the relationship of those perceptions
with farmer’s socioeconomic characteristics. The result revealed that the older shrimp farmers
are more concerned about production risks, harvesting and marketing risks, and policy andinstitutional risks than the younger shrimp farmers. The farmers with less experience tend tobe perceived the production risks as important. Input and pond preparation and personal risks,such as lack of knowledge to prevent shrimp diseases and pond preparation significantly impact
the farmers’ perception. Statistically, the farmers' perception of input and pond preparation andpersonal risks, such as lack of knowledge to prevent shrimp diseases and pond preparation, wassignificantly influenced by their education level.
The regression coefficient showed that the farmers with land holding above average levelconsider business environment risks as potential threats that can alter their farm earnings.
Based on the source of income, the result revealed that those farmers who do not have any offfarm income perceived that the finance and credit access and business environment risks are
the most likely source of risk in their shrimp farm. Moreover, we found that the shrimp farmers
56

in north coast perceived several risk factors, such as; input and pond preparation risks,
production risks, and weather and environment risks, as more important than the shrimp
farmers in the south.
The result revealed that shrimp farmers' characteristics and their perception of risks
significantly influence the risk management behavior. The findings of regression indicate thatthe small-scale shrimp farmers’ perceptions were influenced by various factors such as the ageof farmers, experience, formal education level, availability of off-farm income, and location ofa shrimp farm. Due to the environmental conditions, the shrimp farmers in north coast rated
the efficacy of diseases prevention and farm management strategies as significantly importantcompared to farmers in the south. Regarding the relationship of the perceptions of risk sourceon management strategies, several risk factors were found associated with multiple risk
management strategies. However, we found a discrepancy between risk perception andmanagement strategies. The result showed that financial strategies were not perceived as thenecessary strategies to reduce the impact of finance and credit access risks in shrimp farming.
Last, the small-scale shrimp farmers tend to use risk sharing and insurance strategies, such as
production contract, sharecropping, and contract for farm inputs as preventive actions to
mitigate impact from financial and credit access risks.
The government policies to improve the shrimp farmers’ ability to deal with the risks
should be considered. Based on our results, enhancing the farmer education level can help themto manage risk in pond preparation and personal risk. Encourage the shrimp farmers to haveoff-farm income can improve their ability to deal with several risks from finance and credit
access. Thus, this study suggests that the policy design of risk management at regional or
national level ought to be guided by a better understanding of the perceptions and risk attitudes
of farmers to be able to achieve the effectiveness and efficiency. Moreover, the findings suggest
a greater role for government in developing risks management framework and in providing theshrimp farmers with accurate information on the source of risks and proper risk management
strategies. If properly informed, the shrimp farmers would be able to adjust and be willing totake risks to increase their productivity and profitability. For the future study, risk perception
can be integrated into business process model to identify the sources of risk in each step of theshrimp production process.

57

Chapter 5
Developing Risk Management Framework for Small-scale Shrimp Farming

5.1 Introduction
This chapter aims to develop risk management framework for small-scale shrimp
farming in Indonesia. The following sub-chapter will describe seven steps of risk
management process based on AS/NZS ISO 31000:2009 risk management standard.
These steps include (1) Communication and consultation, (2) Establishing the context,(3) Risk identification, (4) Risk analysis, (5) Risk evaluation, (6) Risk treatment, and (7)Monitoring and review.
Business Process Model (BPM) method has been used specifically in the third stepto identify the sources of risk involved in small-scale shrimp farming. To determine therisk in detail, the shrimp farming processes were break into three main processes by BPM
method; the process starts with the preparation of shrimp pond and inputs of production.
The second process is a production of shrimp. In the second process, there are six subprocesses that the shrimp farmers have to take care of simultaneously throughout thewhole crop duration. Then, the last process is harvesting and marketing.
To develop the risk management framework for Indonesian small-scale shrimp
farming, the data were collected from small-scale shrimp farmers in East Java Province,
through face to face and in-depth interview. A sample has been selected randomly fromsouth and north coast of East Java. After data processing, 166 observations were usable
for analysis.
5.2 Risk Management Framework for Small-scale Shrimp Farming
The Figure 1 showing the general risk management processes of small-scale shrimp
farming based on the AS/NZS ISO 31000:2009 standard. The process begins with thecommunicate and consult both internal and external stakeholders in shrimp farming.
Establish the context is the second process. The criteria in which risk will be evaluatedshould be established in the second process. The third process, identify the risk, is the59essential compared to other processes. Activities in this process include identifying therisks, the areas of impact, and the potential consequences of risk. Once the risk in shrimp
farming has been identified, the next process is analyzing the risk. The fifth process isevaluating the risk. In this process, the shrimp farmers should decide whether the risk is
acceptable or unacceptable. Once the risk assessment in the previous process is complete,
the next process treats the risk. This process aims to develop the activities and implements
treatment to control the risk in shrimp farming. The last process is monitoring and review.
This process is to monitor, review and report the sources of risk. Given the dynamic natureof shrimp farming business, it is essential to be alert emerging risks as well as monitoring
the known risk in small-scale shrimp farming. All activities are done in each step will(5) Risk evaluation
No

Treat the risks?

Yes(6) Risk treatment

Figure 14. Risk Management Process (AS/NZS ISO 31000:2009)60

RISK MANAGEMENT(4) Risk analysis

RISK ASSESSMENT(3) Risk identification(7) Monitoring and review(1) Communication and consultation(2) Establishing the context

RISK ANALYSIS

describe in the following section.

5.2.1 Communication and Consultation
To improve understanding of stakeholders about risks and risk management
strategies in shrimp farming is the main purpose of this step. In the early stage of thisstudy, communicates and consults were done through the in-depth interview and focus
group discussion. The in-depth interviews were mainly conducted with the expertise in
shrimp farming, consist of shrimp farmers associations and extension officer. Then, focus
group discussions were organized with the small-scale shrimp farmers in study areas.
5.2.2 Establishing the Context
This step is intended to set the boundaries or scope of risk assessment and risk
management strategies in small-scale shrimp farming. In this step, in-depth interview andfocus group discussion used to establish the context for:a) The shrimp farm’s objective.
b) The criteria in which the risk will be measured.
c) The structure of risk identification, assessment, and process.
Based on the group discussions, the context of the risk management framework was
established as follows:a) The objective of shrimp farms was to maximize profit.
b) The economic criteria were used to measure the consequence of risks.
c) The level of risk was used to assess the risks. The higher degree of efficacy of risk
management strategies considers as a higher priority risk management strategy to
be used.
5.2.3 Risk Identification
This step aims to identify all risks and management strategies along the shrimp
production process. This study used Business Process Model (BMP) to identify all thepossibility of risks and risk management strategies involved in the shrimp production. In
general, business could define as a collection of activities or structure for action (Zott,
Amit & Massa, 2011; Wirtz, 2011; Sienou, Karduck & Pingaud, 2006). In a businessprocess, activities are the fundamental of the process. Karduck, Sienou, Lamine &61

Pingaud (2007) mention that each activity in the business process is performed with theidea to fulfill a particular transformation. Personal interview and focus group discussion
were organized to identify and verify the risk and risk management strategies in eachprocess.
The core business process of general shrimp farming is shown in Figure 15. The
overview of this process starts with the process preparation of shrimp pond and input for
production. The second process is production. Production is the most important among
all processes in shrimp farming. The process of production takes 110 to 130 days tocomplete, starting from stocking shrimp fries to harvesting. Shrimp farmers should
simultaneously take care of many managerial activities, such as finance and credit access,growing out of shrimp, personal risk, managing weather and environment. Moreover, theshrimp farmers deal with business process risks related to changes in government policies
and business environment. Then, the last process consists of two sub-processes, whichare; harvesting and marketing.
Sub Process 2a
Finance andCredit Access
Sub Process 2b
Growing out
Sub Process 2c
Sub Process 1a

Sub Process 1b

Shrimp Pond
Preparation

Preparation of
Inputs for
Production

Start
Process 1
Preparation of Shrimp Pond and Inputs for
Production

Personal
Sub Process 2d
Weather andEnvironment

Sub Process 3a

Sub Process 3b

Harvesting

MarketingEnd

Process 3
Harvesting and Marketing

Sub Process 2e
Policy andInstitutional
Sub Process 2f
Business
Environment

Process 2
Production

Figure 15. The Core Small-scale Shrimp Farming Business Process

62

The list of risks and risk management strategies related with each sub-process isprovided in the following sections.
5.2.3.1 The First Process: Preparation of Shrimp Pond and Inputs for Production
Preparation of shrimp pond and inputs for production is the first step in the entire
process of shrimp farming. This process consists of two sub-processes as follows;x Sub Process 1a: Shrimp Pond Preparation
The shrimp pond preparation is an activity that is regularly conducted before
starting a new crop. To provide a healthy and suitable environment for rearing the shrimp,
carefully preparation for brackish water pond is a significant activity.
Sources of Risk:x
Inappropriate shrimp pond locationx
Inappropriate shrimp pond designx
Shrimp farmers don't have brackish
water treatment facility

Sub Process 1a:
Shrimp Pond
Preparation
Start
Sub Process 1a:
Shrimp Pond
Preparation

Risk Management Strategies:xReallocated shrimp pond to designed
areax
Reduce brackish water pond sizexDevelop brackish water treatmentx
Attending workshop in shrimp
farming

Start
Sub Process 1b:
Preparation of
Inputs for
Production

Figure 16. Sub Process 1a: Shrimp Pond Preparation
As shown in Figure 16, the risk involved in the sub-process of shrimp pond
preparation consists of (1) inappropriate shrimp pond location, (2) inappropriate shrimp
pond design, and (3) unavailability of brackish water treatment facilities. Several risk
management strategies are available for these risks, including (1) relocating the shrimp
pond to suitable areas for shrimp farming, (2) reducing brackish water pond size, (3)developing brackish water treatment, and (4) attending a workshop in shrimp farming to
improve their knowledge and skill in managing water quality.

63x

Sub Process 1b: Preparation of Inputs for Production
The second sub-process is the preparation of inputs for production. The purpose ofthis sub-process is to ensure all inputs for production, such as shrimp fries, formulated
feed, capital, and labor, ready for production. In the study areas, the farmers used shrimp
fries at size PL (post-larvae) 8 – 10 that produced artificially at hatcheries. The shrimp
fries should be healthy and good quality, not infected by any diseases. However, thesupply of shrimp fries from private and public hatcheries does not fulfill the demand dueto the fast-growing of the shrimp industry.As the results, the farmers used low quality of
shrimp fries for production. Therefore, the risks involved in the preparation of inputs for
production consist of (1) low quality of shrimp fry, and (2) inappropriate shrimp fries
size. To reduce impact from these risks, the farmers applied several strategies, including:(1) only buying shrimp fries from the trusted hatchery and (2) only buying shrimp fries
from a hatchery that have Specific Pathogen Free (SPF) for their broodstocks.
Sources of Risk:x
Low quality of shrimp fryx
Not enough formulated feed supplyx
Increasing formulated feed pricex
Low quality of formulated shrimp
feedx
Inappropriate shrimp fries sizexNot enough labor supply

Sub Process 1b:
Preparation of Inputs
for Production
Start
Sub Process 1b:
Preparation of
Inputs for
Production

Risk Management Strategies:x
Only buy shrimp fries from reliable
placex
Only buy shrimp fries that have SPF
certificatex
Buying formulated feed from reliablebrandsx
Buying shrimp fries from publichatcheryxContract for shrimp farms inputsx
Use family labor

Start
Process 3:
Production

Figure 17. Sub Process 1b: Preparation of Inputs for Production
Most of the shrimp farmers apply the intensive system in their cultivation. Thissystem highly depends on formulated feed for growing out the shrimp fries. The shrimp
requires good quality of feed and nutritionally balanced for healthy growth. The
64

formulated feed should be contained nutrient like fat, protein, fiber, vitamins, and mineral
for faster growth. However, the price of formulated feed is often high and not stable.
Thus, some of the shrimp farmers used low quality of formulated feed in their shrimp
cultivation to reduce production cost. They often face the risks as follows: (1) lack ofsupply of formulated feed from the factory, (2) rise of feed price, and (3) low quality of
formulated shrimp feed. To manage these risks, shrimp farmers conducted risk
management strategies, such as; (1) buying formulated feed from trusted brands, and (2)contract for shrimp farm inputs.
5.2.3.2 The Second Process: Production
The next step is the process of production of shrimp. Regarding time required tocomplete, the process of production is the longest step. This process requires 110 to 130
days to complete. The process of production can be broken into six sub-process andhappen simultaneously throughout the whole crop duration. Moreover, the following
section will describe these sub-processes and identify the risks and management strategies
in each sub-process.
x

Sub Process 2a: Managing Finance and Credit Access
Shrimp farming, especially intensive system, requires a significant amount of

capital for pre-production activities and during operation of shrimp farms. In the normal
condition, the shrimp farming duration could last up to four months (from preparation
until harvesting), during which operation expenses for formulated feed, labor, medicines,
electricity, and fuel take place throughout the shrimp cultivation. Lacking capital for
operation can damage sustainability of their shrimp farm, which can affect the farmer’s
income and their livelihood. Moreover, limited access to credit from the formal financial
institution (i.e., bank or cooperatives) is the main risk to shrimp farmers. Hence, theyneed to give more attention on financial arrangement for their farms. Financial risks thatshrimp farmer's face is (1) increasing formulated feed price, (2) lack of capital to operate
shrimp farms, (3) lack of collateral for loan, (4) high-interest rate for loan, and (5) highwages for hired labor. The following financial risk management strategies are effective
to mitigate impact of lacking capital for shrimp farm: (1) contract for shrimp farm inputs,(2) use informal loan, (3) make production arrangement before production cycle, (4)65dissaving, (5) use family labor, (6) sharing machinery and paddle wheels, and (7) offfarm work. Figure 18 summarizes the risk and management strategies related to financeand credit access of shrimp farms.
Sources of Risk:x
Increasing formulated feed pricex
Not enough capital to operating
shrimp farmsx
Lack collateral for loanxHigh interest rate for loanxHigh wages of hired labor

Sub Process 2a:Managing Financeand Credit AccessStart
Sub Process 2a:Managing Financeand Credit Access

Risk Management Strategies:x
Contract for shrimp farms inputsx
Use informal loanx
Make credit arrangement before
production cyclexDissavingx
Use family laborxSharing machinery and paddle wheelsxOff-farm work

Start
Process 3:
Harvesting andMarketingFigure 18. Sub Process 2a: Managing Finance and Credit Accessx Sub Process 2b: Managing Growing Out of Shrimp
Growing out of shrimp is the most significant management activity in the processof production. Diseases infection, feed and feeding preparation, and managing brackish
water quality are the main farmer’s concern in this step. In the recent years, Indonesian
shrimp farming has had problems with several shrimp diseases. These diseases reduce
shrimp growth hence decrease both output and quality of the harvest.
Moreover, shrimp diseases cause from both inside and outside brackish water pond.
First, inside sources are incriminated as brackish water quality in shrimp pond and qualityof shrimp fries’ problems. Second, outside sources of shrimp diseases come fromenvironmental issue around the shrimp pond. Hence, in the growing out process, theshrimp farmers may face the risks as follow: (1) high mortality due to diseases, (2) waterpollution due to excessive formulated feed, (3) feeding management failure, (4) excessive
stocking density, and (5) brackish water quality. To manage these sources of risk, theshrimp farmers conduct several risk management strategies, such as (1) strictly managing
66

water quality, (2) strictly feeding management, (3) conducting partial harvest, (4)reducing stocking density, (5) reducing brackish water pond size, (6) preventing shrimp
disease by regular checking, (7) developing brackish water treatment, (8) attending
workshop in shrimp farming, (9) applying new technology in shrimp production, (10)applying better management practices, and (11) requesting government support fortechnical assistant.
Sources of Risk:x
High mortality due to diseasesx
Water pollution due to excessive
formulated feedx
Feeding management failurex
Excessive stocking densityxBrackish water quality

Sub Process 2b:
Managing Growing
Out of Shrimp
Start
Sub Process 2b:
Managing Growing
Out of Shrimp

Risk Management Strategies:x
Strictly manage water qualityx
Strictly feeding managementx
Partial Harvestx
Reduce stocking densityx
Reduce brackish water pond sizexPrevent shrimp diseases by regularcheckingxDevelop brackish water treatmentx
Attending workshop in shrimp
farmingx
Apply new technology in shrimp
productionxApplying better management
practicesx
Request government support fortechnical assistantStart
Process 3:
Harvesting andMarketingFigure 19. Sub Process 2b: Managing Growing Out of Shrimpx

Sub Process 2c: Managing Personal Risk
Figure 20 summarizes the risk and risk management strategies related to personalrisk in shrimp farming. Besides technical aspect that is directly related to shrimp farming,
the farmers also need to consider their personal risks that are associated with theircapabilities (knowledge, experience, infrastructure, management, etc.). In general, theshrimp farmer's face two groups of risk. The first group related to the shortage of facility
such as; (1) shrimp farmers don’t have brackish water treatment facility and (2) lack of67

labor knowledge about shrimp farming. Then, the second group consists of risks related
to the lack of facilities, such as (3) lack of knowledge to prevent shrimp diseases, (4) lackof information about shrimp fries origin, (5) lack of knowledge for pond preparation.

Sources of Risk:x
Shrimp farmers don't have brackish
water treatment facilityxLack of knowledge to prevent shrimp
diseasesx
Lack of information about shrimp
fries originxLack of knowledge of pond
preparationx
Lack of labor knowledge

Sub Process 2c:
Managing PersonalStart
Sub Process 2c:
Managing Personal

Risk Management Strategies:x
Develop brackish water treatmentx
Attending workshop in shrimp
farmingxHire technical assistantxApplying better management
practicesx
only buy shrimp fries from trusted
hatcheryx
only buy shrimp fries from a hatcherythat have Specific Pathogen Free
(SPF) for their broodstocksx
Request government support fortechnical assistantStart
Process 3:
Harvesting andMarketingFigure 20. Sub Process 2c: Managing Personal Risk
In order to manage personal risk, the shrimp farmers adopted certain strategies, suchas (1) to develop brackish water treatment facility, (2) attend workshop in shrimp farming,(3) to hire technical assistants, (4) to apply better management practices, (5) buy shrimp
fries only from trusted hatchery and (6) only buy shrimp fries only from a hatchery thathave Specific Pathogen Free (SPF) for their broodstocks, and (7) to request government
support for technical assistant.
x Sub Process 2d: Managing Weather and Environment
Shrimp farming is a biological process that highly depends on environmental
condition. This condition should maintain shrimp pond environment, hence affect the
shrimp growth. In the study area, some of the shrimp ponds were located near the river68and close to the coast. Therefore, the flood is one of the primary risks during the rainyseason. Water overflows or breaks the shrimp pond dyke. As a result, the shrimp may
freely escape to the environment and thus makes a loss of income for the shrimp farmers.
Sources of Risk:x
Polluted brackish water sources
x
Flood

Sub Process 2d:
Managing Weatherand Environment
Start
Sub Process 2d:
Managing Weatherand Environment

Risk Management Strategies:x
Develop brackish water treatmentx
Apply new technology in shrimp
productionx
Request government support fortechnical assistantx
Request social assistance after natural
disasterStart
Process 3:
Harvesting andMarketingFigure 21. Sub Process 2d: Managing Weather and Environment
In this sub-process, the risks involved in the managing weather and environmentare (1) polluted brackish water sources and (2) flood. To reduce impact of these risks, thefarmers applied the following strategies: (1) developing brackish water treatment, (2)applying new technology in shrimp production, (3) requesting government support fortechnical assistant, (4) enforcing the shrimp pond dyke, and (5) requesting social assistantafter natural disaster.
x Sub Process 2e: Managing Policy and Institutional
Changing the government policies related to environmental protection and standard
for food safety and hygiene are also faced the shrimp farmers in the study area. Figure 22
presents the policy and institutional risks in shrimp farming and the risk management
strategies to mitigate the impact of those risks. Recently, strict requirements derive from
customers, not only in domestic market but also in the foreign markets in developed
countries. For the small-scale farmers, strict regulations for food safety andenvironmental protection can be big challenges that should be managed.

69

Sources of Risk:x
Change government policy andregulationx
Low level of awareness from
community

Sub Process 2e:
Managing Policy
and InstitutionalStart
Sub Process 2e:
Managing Policy
and Institutional

Risk Management Strategies:

x
x
x
x

Follow the government policy
and regulation
Applying better management
practices

Start
Process 3:
Harvesting andMarketing

Apply new technology in shrimp
production
Request government support fortechnical assistantFigure 22. Sub Process 2e: Managing Policy and Institutional
Moreover, the intensive system in shrimp farming releases a significant amount ofbrackish water waste from the shrimp pond into water bodies around the ponds. Waste
water could affect other shrimp pond and other users, such as agriculture and domestic
uses. However, not all shrimp farmers concern to these issues and make shrimp farming
riskier. Hence, in the managing policy and institutional activity, the shrimp farmers faced
the risk as follows: (1) changeable government policy and regulation, and (2) low levelof awareness from the community about the environmental condition. Furthermore, thefollowing risk management strategies are effective to mitigate the impact of policy andinstitutional risks: (1) following the government policy and regulation, (2) applying better
management practices, (3) applying new technology in shrimp farming, and (4)requesting government support regarding technical assistant.
x Sub Process 2f: Managing Business Environment
Shrimp farming is a dynamic business, which depends on not only biology aspect
but also economic aspects. Regarding economic aspect, two main factors are affecting theshrimp industry. First, market power in both input and output sides strongly influences
the business stability of shrimp industry. Secondly, the number of actors along the supply
chain in both input and output is enormous. Hence, asymmetric information between
70

buyer and seller becomes the main obstacle while managing the business environment in
the shrimp industry. To overcome this risk, the possibility of risk management strategies
are (1) vertical integration, (2) contract-based production (3) marketing contract with theprocessor and (4) informal marketing contract with the wholesaler.
Sources of Risk:x

Asymmetric information between
buyer and farmers

Sub Process 2f:
Managing Business
Environment
Start
Sub Process 2f:
Managing Business
Environment

Risk Management Strategies:

x
x
x
x

Vertical integration
Production contract
Marketing contract withprocessor
Informal marketing contract withwholesaler

Start
Process 3:
Harvesting andMarketingFigure 23. Sub Process 2f: Managing Business Environment
5.2.3.3 The Third Process: Harvesting and Marketing
Harvesting and marketing are the most important sub-process in the entire shrimp
farming business process. The outcome, such as income or profit, of the whole process isrealized at this stage.
x Sub Process 3a: Harvesting
Shrimp can reach marketable size after 110 to 130 days of rearing in a brackish
water pond. However, harvesting time and size of shrimp can be harvested mainly dependon two factors, that is, stocking density and feeding management. In the intensive system,
the farmers can cultivate shrimp with stocking density more than 100 shrimp fries permeter2. Nevertheless, to get optimum growth rate, they should conduct partial harvest
after 60 or 90 days of rearing the shrimp.

71

Sources of Risk:x
Inappropriate harvesting methodxHarvesting without grading

Sub Process 3a:HarvestingStart
Sub Process 3a:Harvesting

Risk Management Strategies:x
Applying better management
practicesx
Attending workshop in shrimp
farming

Start
Sub Process 3b:
MarketingFigure 24. Sub Process 3a: Harvesting
Figure 24 depicts the risks and risk management strategies in the harvesting activityof shrimp farming. There are two sources of risk involved in this sub-process, consist of
inappropriate harvesting method and harvesting without grading. To reduce the impact ofthese risks, the shrimp farmers applied the following strategies, which are (1) applying
better management practices and (2) attending a workshop in shrimp farming.
x Sub Process 3b: Marketing
The last sub-process in the whole shrimp farming business process is marketing.
All activities in the previous stage result in this sub-process. Moreover, the outcome (i.e.,
income or profit) of the whole shrimp farming process is realized in sub-process ofmarketing.
Two sources of risk were identified in marketing, which are (1) shrimp pricevolatility and (2) shrimp size variability. The shrimp price volatility is the most importantfor Indonesian shrimp farming. Usually, the buyers set a price at harvesting time, and thefarmers have little bargaining power in setting the shrimp price. Even if they have acontract, there is no guarantee for them to get a high price for their product. The farmers
only got a market guarantee from the contractor. To minimize impact of marketing risk,
they could apply the following strategies; (1) production contract, (2) sharecropping, inwhich the owner of the brackish water pond allows a tenant to use the pond in return fora share of the crops produced on their portion of pond, (3) informal marketing contract
with wholesaler, (4) vertical integration, in which the shrimp farmers tried to link theirbusiness with the shrimp feed supplier and processors, (5) marketing contract with72

processor, (6) conducting partial harvest to reduce biomass at the shrimp pond in the
middle of production cycle, (7) reducing brackish water pond size, and (8) reducing
stocking density.
Sources of Risk:x
Shrimp price volatilityx
Shrimp size variability

Sub Process 3b:
MarketingStart
Sub Process 3b:
MarketingEnd
Risk Management Strategies:

x
x
x
x
x
x
x
x

Production contract
Sharecropping
Informal marketing contract withwholesaler
Vertical integration
Marketing contract withprocessor
Partial Harvest
Reduce brackish water pond size
Reduce stocking density

Figure 25. Sub Process 3b: Marketing
5.2.3.4 Summary the Sources of Risk based on Business Process Model (BPM)
The summary of all risk sources along the shrimp farming business process waspresented in figure 26. Refers to the figure below, the majority of risk sources wereconcentrated in the second of shrimp business process, which is production. In the shrimp
farming, particularly production phase, the duration of growing out the shrimp fries isfrom 110 to 130 days. During this period, the shrimp fries are exposed with almost all
sources of risk that can affect their growth. The results of Business Process Model (BPM)
revealed that 20 of 32 sources of risk were identified in the second process.
The first process, which is preparation of shrimp pond and inputs of production,
had the second largest number of risk sources (8 of 32 sources of risk). Last, four risk
sources were identified in the third process, harvesting and marketing.

73

Startx

Process 2
Production

Asymmetric information between buyer and farmers

Process 3
Harvesting and Marketing

Sources of Risk:x
Inappropriate harvesting methodxHarvesting without gradingx
Shrimp price volatilityx
Shrimp size variability

74

Figure 26. Summary the Sources of Risk based on Business Process Model (BPM)

Process 1
Preparation of Shrimp Pond and Input for Production

Sources of Risk:x
Inappropriate shrimp pond locationx
Inappropriate shrimp pond designx
Low quality of shrimp fryx
Not enough formulated feed supplyx
Increasing formulated feed pricex
Low quality of formulated shrimp feedx
Inappropriate shrimp fries sizexNot enough labor supply

Sources of Risk:x
Not enough capital to operating shrimp farmsx
Lack collateral for loanxHigh interest rate for loanxHigh wages of hired laborxHigh mortality due to diseasesx
Water pollution due to excessive formulated feedx
Feeding management failurex
Excessive stocking densityxBrackish water qualityx
Shrimp farmers don't have brackish water treatment facilityxLack of knowledge to prevent shrimp diseasesx
Lack of information about shrimp fries originxLack of knowledge of pond preparationx
Lack of labor knowledgex
Polluted brackish water sources
x
Flood
x
Change government policy and regulationx
Low level of awareness from communityEnd5.2.4 Risk Analysis
The objective of this step is to measure the level of risks that already identified in theprevious section. Based on AS/NZS ISO 31000:2009 standard, the level of risk is the resultsof consequence and likelihood of risk. In other words, the level of risk could be defined as thefunction of risk consequence and risk likelihood. In the next three sub sections, willconsecutively describe the consequence, likelihood and the level of risk for Indonesian smallscale shrimp farming.
5.2.4.1 Measuring the Consequence of Risk
Thirty-two sources of risk were presented to the small-scale shrimp farmers to measure
their perception about the potential impact of risk sources. The farmers were asked to rate theconsequences of the sources of risk on the five-point Likert scale. In this study, the range varies
from 1 to 5, which 1 representing neglibigle impact, and 5 representing severe impact.
Regarding the consequence of risk, Table 9 below shows the mean scores of consequence
and rank of the sources of risk. Thirteen risk sources were categorized into the first group withthe average scores of 4.09 to 4.92 (ranked from 1 to 13). This group was label as severe impact
or the most damaging sources of risk on shrimp farmers’ income. High mortality due todiseases was ranked as the top of risk source (4.92 of 5.00). This risk reflecting that the farmers
in study area were more concerned with shrimp diseases to prevent income losses. Taukhid &Nur'aini (2009) stated that the main constraint of shrimp farming in Indonesia encountered was
the diseases outbreaks since the last two decades. Kilawati, Maimunah, & Ekawati (2015)
reported that various kind of diseases, such as Infectious Myonecrosis Virus (IMV), White
Spot Syndrome Virus (WSSV), and White Faces Disease (WFD) led to significant losses forIndonesian shrimp farming since the 2000s. Those shrimp diseases can reduce the survival rateof shrimp below 30% (Anderson, Valderrama, & Jory, 2017).
In the second group, more than a half of the risks sources were categorized as major
impacts, with the consequences range from 3.03 to 3.95. These risks have the ranked from 14
to 31 in Table 1. This finding showed that business environment in Indonesian shrimp farming
was risky and need serious attention. Besides diseases, several scholars mentioned that theavailability of inputs for shrimp production, product rejection from imported countries due tolack of farmers’ knowledge were some of the few issues that affected Indonesian shrimp
production (FAO, 2016; Sustainable Fisheries Partnership, 2013; Undercurrent News, 2014).

75

Last, only one risk source was categorized as moderate, which is a low level of awarenessamong shrimp farmers about environmental condition around the shrimp farms.
Table 9. The Consequence of the Sources of Risk
Sources of Risk
Consequence

Risk ID

Rank

PR1

High mortality due to diseases

4.93

1

HM1

Shrimp price volatility

4.92

2

IN1

Low quality of shrimp fries

4.92

3

IN3

Low quality of formulated shrimp feed

4.90

4

PL1

Shrimp farmers do not have brackish water treatment facility

4.84

5

WE1

Polluted brackish water sources

4.65

6

FC1

Increasing formulated feed price

4.64

7

PR2

Water pollution due to excessive formulated feed

4.56

8

PR3

Feeding management failure

4.50

9

PI1

Changed government policy and regulation

4.25

10

IN4

Inappropriate pond location

4.25

11

PL4

Lack of knowledge of pond preparation

4.22

12

FC2

Not enough capital for operating shrimp farms

4.09

13

PL5

Lack of labor knowledge

3.98

14

PL3

Lack of information about the origin of shrimp fries

3.96

15

IN2

Not enough formulated feed supply

3.90

16

PL2

Lack of knowledge to prevent shrimp diseases

3.89

17

FC3

Lack collateral for loan

3.76

18

IN5

Do not conduct treatment before stocking shrimp fries

3.71

19

PR4

Excessive stocking density

3.59

20

MH4

Harvesting without grading

3.54

21

HM3

Inappropriate harvesting method

3.52

22

BE1

Asymmetric information between buyer and farmers

3.48

23

IN6

Inappropriate pond design

3.42

24

FC4

High interest rate for loan

3.39

25

HM2

Shrimp size variability

3.38

26

IN8

Not enough labor supply

3.18

27

IN7

Inappropriate shrimp fries size

3.14

28

FC5

High wages of hired labor

3.04

29

WE2

Flood

3.03

30

PR5

Brackish water quality

3.02

31

PI2

Low level of awareness among shrimp farmers

2.72

32

5.2.4.2 Measuring the Likelihood of Risk
In this study, the likelihood of risk source was measured on a five-point Likert scale,
which 1 point is representing rare occurrence to 5 points representing almost certain
occurrence. Table 10 shows the mean scores and rank of the likelihood of 32 risk sources.

76

Table 10. The Likelihood of the Sources of Risk
Risk ID

Likelihood

Rank

HM1

Shrimp price volatility

Sources of Risk

4.45

1

PR1

High mortality due to diseases

4.43

2

FC1

Increasing formulated feed price

4.04

3

IN2

Not enough formulated feed supply

3.53

4

PR2

Water pollution due to excessive formulated feed

3.49

5

PR4

Excessive stocking density

3.40

6

PR5

Brackish water quality

3.39

7

FC2

Not enough capital for operating shrimp farms

3.31

8

PL2

Lack of knowledge to prevent shrimp diseases

3.26

9

HM2

Shrimp size variability

3.13

10

IN6

Inappropriate pond design

3.08

11

IN1

Low quality of shrimp fries

3.04

12

IN5

Do not conduct treatment before stocking shrimp fries

2.97

13

PR3

Feeding management failure

2.93

14

PL3

Lack of information about the origin of shrimp fries

2.90

15

IN7

Inappropriate shrimp fries size

2.90

16

FC3

Lack collateral for loan

2.89

17

PI1

2.86

18

2.84

19

HM3

Changed government policy and regulation
Shrimp farmers do not have brackish water treatment
facility
Inappropriate harvesting method

2.75

20

IN3

Low quality of formulated shrimp feed

2.71

21

WE1

Polluted brackish water sources

2.71

22

PL5

Lack of labor knowledge

2.70

23

MH4

Harvesting without grading

2.70

24

PI2

Low level of awareness among shrimp farmers

2.70

25

BE1

Asymmetric information between buyer and farmers

2.69

26

PL4

Lack of knowledge of pond preparation

2.69

27

IN4

Inappropriate pond location

2.65

28

FC4

High interest rate for loan

2.64

29

IN8

Not enough labor supply

2.63

30

WE2

Flood

2.58

31

FC5

High wages of hired labor

2.56

32

PL1

Three sources of risk have been classified into the first group that has the average scoreabove 4 points. The first group consists of shrimp price volatility, high mortality due todiseases, and increasing formulated feed price. These sources of risk expected to occur
regularly (high probability) during shrimp cultivation in study areas.
In the top three of risk sources, two of them closely related to output and input sides ofshrimp farming, which are shrimp price volatility and increasing formulated feed price. In
general, markets for output and input are beyond the control of small-scale shrimp farmers due
77

to set by shrimp processors and shrimp feed factories. Both of output and input markets areimperfect markets regarding price mechanism. Thus, the shrimp farmers often must face withthe unstable output and input prices.
Nine sources of risk have been classified into the second group. These risks had aprobability of occurrence between 3.0 to 4.0. The second group consisting of (1) not enoughformulated feed supply, (2) water pollution due to excessive formulated feed, (3) excessive
stocking density, (4) brackish water quality, (5) not enough capital for operating shrimp farms,(6) lack of knowledge to prevent shrimp diseases, (7) shrimp size variability, (8) inappropriate
pond design, and (9) low quality of shrimp fries. These risks were considered as having thepotential to occur in shrimp farming with relatively high probability. The third group includes
the rest of sources of risk in shrimp farming. These sources of risk have an average score of
likelihood between 2.0 to 3.0. Twenty sources of risk in this group might occur at some timein shrimp production.
5.2.4.3 Measuring the Level of Risk
As already mentioned above, this study used the concept of the level of risk to measure
the risk in Indonesian small-scale shrimp farming. Refers to AS/NZS ISO 31000:2009
standard, the level of risk is defined as the result of the consequences of risk and the likelihoodof risk. Based on this concept, thirty-two source of risk in Indonesian shrimp farming were
calculated and the result presented in Table 11.
The result showed that two sources of risk, shrimp price volatility and high mortality due
to diseases, were classified as a very high risk with the potential of having the most severe
impact on shrimp farmers' income. The second level consists of two sources of risk, increasing
formulated feed price and water pollution due to excessive formulated feed were classified asa high. The remaining 28 sources were classified as moderate with ratings between 10.0 and
14.9. These indicators need serious attention for risk management in Indonesia small-scale
shrimp farming.

78

Table 11. The Level of Risk Sources
Sources of Risk
Shrimp price volatility
High mortality due to diseases
Increasing formulated feed price
Water pollution due to excessive formulated feed
Low quality of shrimp fries
Not enough formulated feed supply
Shrimp farmers do not have brackish water
treatment facility
Not enough capital for operating shrimp farms
Low quality of formulated shrimp feed
Feeding management failure
Lack of knowledge to prevent shrimp diseases
Polluted brackish water sources
Excessive stocking density
Changed government policy and regulation
Lack of information about the origin of shrimp fries
Lack of knowledge of pond preparation
Inappropriate pond location
Do not conduct treatment before stocking shrimp
fries
Lack collateral for loan
Lack of labor knowledge
Shrimp size variability
Inappropriate pond design
Brackish water quality
Inappropriate harvesting method
Harvesting without grading
Asymmetric information between buyer andfarmers
Inappropriate shrimp fries size
High interest rate for loan
Not enough labor supply
Flood
High wages of hired labor
Low level of awareness among shrimp farmers

Risk
ID
HM1
PR1
FC1
PR2
IN1
IN2

Consequence

Likelihood

4.92
4.93
4.64
4.56
4.92
3.90

4.45
4.43
4.04
3.49
3.04
3.53

Risk
Level
21.90
21.84
18.73
15.92
14.96
13.75

PL1

4.84

2.84

13.75

7

FC2
IN3
PR3
PL2
WE1
PR4
PI1
PL3
PL4
IN4

4.09
4.90
4.50
3.89
4.65
3.59
4.25
3.96
4.22
4.25

3.31
2.71
2.93
3.26
2.71
3.40
2.86
2.90
2.68
2.65

13.53
13.29
13.19
12.67
12.60
12.21
12.17
11.49
11.31
11.25

8
9
10
11
12
13
14
15
16
17

IN5

3.71

2.97

11.04

18

FC3
PL5
HM2
IN6
PR5
HM3
MH4

3.76
3.98
3.38
3.42
3.02
3.52
3.55

2.90
2.70
3.13
3.08
3.39
2.75
2.70

10.87
10.73
10.57
10.53
10.23
9.69
9.56

19
20
21
22
23
24
25

BE1

3.48

2.69

9.36

26

IN7
FC4
IN8
WE2
FC5
PI2

3.14
3.39
3.18
3.03
3.04
2.72

2.90
2.64
2.63
2.58
2.56
2.69

9.12
8.95
8.37
7.79
7.76
7.34

27
28
29
30
31
32

Rank
1
2
3
4
5
6

5.2.5 Risk Evaluation
The goal of this step is to build a list of risk sources that give detail information, whichrisks will be accepted, and which risks need treatment by shrimp farmers. The shrimp farmers
have two options for each risk source, treat the risk or accept the risk. The risk could be
accepted for several reasons, such as the cost of managing the risk outweighs the benefit or thelevel of risk is low. List of the levels of risk calculated in step 4 will be sorted and listed in two
dimensional matrix. This matrix consists of two dimensions, with consequences variable on
horizontal axis and the likelihood variable on the vertical axis.

79

A scale was assigned to measure the magnitude of all risk source on both the consequenceand the likelihood. Regarding the consequence of risk, the scale consists of (1) negligible, (2)minor, (3) moderate, (4) major, and (5) severe. Similarly, the likelihood was measured on fivescales representing the probability of occurance, which are (I) rare, (II) unlikely, (III) possible,(IV) likely, and (V) almost certain. The interpretations of the two-dimensional matrix are as
follows: (1) the sources of risk with the very high level are listed in cells 5-V, 5-IV, and 4-V;
(2) the risks with high level are located in cells 2-V, 3-V, 3-IV, 4-IV, 4-III, 5-III, and 5-II; (3)the sources of risk with moderate level are listed in cells 1-V, 1-IV, 2-IV, 2-III, 3-III, 3-II, 4-II,
4-I, and 5-I; (4) the risk sources with the low level are located in cells 1-III, 1-II, 2-II, 2-I, and3-I; and the last (5) the risks with very low level are listed in cells 1-I.
Refers to AS/NZS ISO 31000:2009 standard, this study used the “As Low As Acceptable
Risk” (ALAAR) criteria to determined which risks are going to accepted or which risks aregoing to be treated. Based on ALAAR criteria, there are no sources of risk located in the lowlevel cell, either the risk consequence or risk likelihood (See Table 11). Hence, all source ofrisk should be a treat in the next step.

80

Negligible
(1)

Note:
5 : Very high-risk level

Likelihood

AlmostCertain(V)

Likely(IV)

Possible(III)

Unlikely
(II)

Rare
(I)

4

3

Moderate
(3)

81

2

: Low risk level

Major
(4)

High interest rate for loan
Not enough labor supply
Flood
High wages of hired labor
Low level of awareness among shrimp
farmers

Low quality of shrimp fries
Not enough formulated feed supply
Shrimp farmers do not have brackish
water treatment facility
Not enough capital for operating shrimp
farms
Low quality of formulated shrimp feed
Feeding management failure

Increasing formulated feed priceConsequence

x
x
x
x
x

x
x

x

x
x
x

: Moderate risk level

Lack of knowledge to prevent shrimp
diseases
Polluted brackish water sources
Excessive stocking density
Changed government policy andregulation
Inappropriate harvesting method
Harvesting without grading
Asymmetric information between
buyer and farmers
Inappropriate shrimp fries size

: High risk level

Minor
(2)

x

x
x
x

x
x
x

x

x

Table 12. Two-dimensional Matrix of Risk Levels

1

x
x
x
x

x
x
x

x

x

x
x

: Very low level

Severe(5)Lack of information about the origin of
shrimp fries
Lack of knowledge of pond preparation
Inappropriate pond location
Do not conduct treatment before
stocking shrimp fries
Lack collateral for loan
Lack of labor knowledge
Shrimp size variability
Inappropriate pond design

Water pollution due to excessive
formulated feed

Shrimp price volatility
High mortality due to diseases

5.2.6 Risk Treatment
This step aims to determined treatment for the sources of risk that identified as “to betreated risk” in the previous step. In other words, this step linked to the risk management
strategies and the risk that were identified as “to be treated risk”. In this study, each risk source
matched with all risk management strategies for that risk. Then, risk management strategies arelisted according to the degree of efficacy in reducing the risk. Moreover, the higher degree of
efficacy of risk management strategies considers as a higher priority risk management
strategies to be used. The following sub-sections will describe all process to treat the risks indetail.
5.2.6.1 Measuring the Efficacy of Risk Management Strategies (RMS)
In this study, the degree of efficacy of risk management strategies was rated on a fivepoints Likert scale. The scale ranged from 1 (not effective at all) to 5 (very effective). The
average scores of efficacy and rank of risk management strategies in descending order arepresented in Table 12.
The results revealed that 16 management strategies were rated as very effective to
mitigate the impact of risks in shrimp farming. The average scores of these strategies varying
between 4.11 to 5.00. The top five strategies in this category were the strict management ofwater quality, strict feeding management, applying better management practices, preventing
shrimp diseases by regular checking, and reducing brackish water pond size.
The second category, which is effective strategies, consists of ten risk management
strategies This category had an average score that ranged between 3.1 and 4.0 withcorresponding ranks from 17 to 26. The next six risk management strategies, such as change
consumption pattern, use of large-sized shrimp fries, informal marketing contract with thewholesaler, applying new technology, using family labor, and dissaving, were classified as
average effective. Last, only three strategies were categorized as little effective (ranges
between 1.1 and 2.0), which included sharing machinery and paddle wheel, follow thegovernment policy and regulation, and off-farm work.
Regarding risk management strategies, the second column in Table 5 presented the ninefactors of management strategies (called RMS ID) from the exploratory factor analysis (SeeTable 2 in Chapter 4). The factors 1 to 9 were identified as diseases prevention (DP); educationand technology improvement (ET); input of production (IP); farm management (FM);government support (GS); risk sharing and insurance (RS); financial (FN); household
82

adjustment (HA); and alternative income sources (AI). These factors will be used to match thesources of risk with particular risk management strategies in the next step.
Table 13. The Risk Management Strategies
Risk Management Strategies
Strictly manage water quality
Strictly feeding management
Applying better management practices
Prevent shrimp diseases by regular checking
Reduce brackish water pond size
Production contract
Contract for shrimp farms inputs
Partial Harvest
Attending workshop in shrimp farming
Sharecropping
Only buy shrimp fries that have SPF certificate
Reduce stocking density
Vertical integration
Only buy shrimp fries from reliable place
Request government support for technical assistantReallocated shrimp pond to designed area
Marketing contract with processor
Use informal loan
Develop brackish water treatment
Buying formulated feed from reliable brands
Make credit arrangement before production cycle
Hire technical assistant
Enforcing the shrimp pond dyke
Request social assistance after natural disaster
Farm diversification
Buying shrimp fries from public hatchery
Use large size shrimp fries
Change consumption pattern
Informal marketing contract with wholesaler
Apply new technology in shrimp production
Use family labor
Dissaving
Sharing machinery and paddle wheels
Follow the government policy and regulation
Off-farm work

RMS ID
DP1
DP2
DP7
RS1
DP6
FM2
GS2
FM1
ET1
FM3
DP5
DP4
IP4
IP2
IP3
RS3
IP5
RS4
DP3
RS5
ET2
RS6
FN1
FN2
FM4
IP1
GS1
FN3
AI1
RS2
RS7
HA2
HA1
DP8
AI2

Degree of Efficacy
5.00
4.99
4.91
4.79
4.78
4.77
4.69
4.67
4.55
4.52
4.41
4.22
4.21
4.14
4.14
4.11
3.80
3.72
3.54
3.50
3.45
3.44
3.43
3.29
3.29
3.02
2.76
2.76
2.52
2.38
2.11
2.09
1.96
1.22
1.2

Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35

5.2.6.2 Selecting Risk Management Statagies based on Degree of Efficacy
This sub-section aims to match the risk and their corresponding risk management
strategies that already identified in the previous sub-section. To achieve the objective, twostages have been used in this study. In the first stage, the identified risks in shrimp farming andtheir corresponding risk management strategies are matched into a two-dimensional table. This
table consists of two dimensions, including the sources of risk listed in vertical dimension andrisk management strategies listed in the horizontal dimension. The matching process between
83the risk and corresponding risk management strategies is based on the results of Business
Process Model (BPM) in the previous sub-section.
Table 13 presents a result of matching the sources of risk and their risk management
strategies. The results showed that there is no particular risk management strategy for the
specific type of risk source. The shrimp farmers in the study areas develop a range of strategies
and conversely, a risk management strategy can apply to mitigate different types of risk source.
In the second stage, the sources of risk and risk management in Table 13 are rearrangedby the level of risk and the efficacy of risk management strategies. Specifically, we break thesource of risk in the vertical dimension and rank the risks into descending order. Regarding
risk management strategies in the horizontal dimension, we ranked the strategies in descendingorder based on their the efficacy to cope the particular risk. Table 14 presents the results ofrearranging the source of risk and risk management strategies. Given that arrangement, thesource of risk listed at the top of Table 14 (in the vertical dimension) received higher priority
in treating because of their higher risk exposure. In case of the source of risk was selected fortreatment, the particular risk management strategies (in the horizontal dimension) toward thisrisk might be implemented. The order of implementing the risk management strategies is fromleft to right as shown in the last six columns in Table 14. It means that the risk management
strategies on the left have the higher effectiveness and should be received higher priority.

84

FC

PR

PL

HM

Finance andCredit Access

Production

Personal

Harvesting andMarketingBusiness
Environment

BE

PI

WE

IN

Input and
Pond
Preparation

Weather andEnvironment
Policy andInstitutional

Code

Source of Risks

PI1 – ET2

WE1 – ET2

HM3 – ET1

HM2 – DP2
HM2 – DP4
HM2 – DP5

WE1 – DP8

PL3 – FM1
PL4 – FM1

PL1 – ET1
PL2 – ET1
PL3 – ET1
PL4 – ET1
PL5 – ET1

PL1 – DP4
PL1 – DP7
PL1 – DP885

PI1 – FM4
PI2 – FM1

HM3 – FM1
HM4 – FM1

PR1 – FM1
PR3 – FM1

IN5 – FM1

PR1 – ET1
PR1 – ET2
PR4 – ET2
PR5 – ET1

PL3 – IP1
PL3 – IP2

IN1 – IP1
IN1 – IP2
IN1 – IP4
IN3 – IP3IN7 – IP1
IN7 – IP4IN7 – IP5IP

Input of
Production

PI1 – GS1

WE1 – GS1
WE2 – GS2

PL2 – GS1
PL4 – GS1
PL5 – GS1

PR1 – GS1
PR4 – GS1
PR5 – GS1

BE1 – RS1
BE1 – RS3
BE1 – RS4
BE1 – RS5

HM1 – RS1
HM1 – RS2
HM1 – RS4
HM1 – RS5
HM1 – RS6

FC1 – RS3

IN2 – RS3

Risk Management Strategies
Risk Sharing
Farm
Government
andManagement
SupportInsurance
FMGS
RS

PR1 – DP1
PR1 – DP6
PR2 – DP1
PR2 – DP2
PR2 – DP8
PR3 – DP2
PR4 – DP3
PR4 – DP5
PR5 – DP1
PR5 – DP4
PR5 – DP8

IN4 – DP7IN6 – DP7DP

DiseasesPrevention

Education andTechnology
Improvement
ET

Table 14. Matching the Risks and Risk Management Strategies

PL2 – FM2

FC1 – FN1
FC1 – FN2
FC1 – FN3
FC2 – FN2
FC3 – FN1
FC3 – FN3
FC4 – FN1
FC4 – FN3

FN

Financial

FC2 – HA2
FC5 – HA2

IN8 – HA2

HAHousehold
Adjustment

FC2 – AI2

Alternative
IncomeSourcesAISource of Risk
Rank
Risk Level
1
21.90
2
21.84
3
18.73
4
15.92
5
14.96
6
13.75
7
13.75
8
13.53
9
13.29
10
13.19
11
12.67
12
12.60
13
12.21
14
12.17
15
11.49
16
11.31
17
11.25
18
11.04
19
10.87
20
10.73
21
10.56
22
10.53
23
10.23
24
9.69
25
9.56
26
9.36
27
9.12
28
8.95
29
8.37
39
7.79
31
7.76
32
7.34

HM1
PR1
FC1
PR2
IN1
IN2
PL1
FC2
IN3
PR3
PL2
WE1
PR4
PI1
PL3
PL4
IN4
IN5
FC3
PL5
HM2
IN6
PR5
HM3
MH4
BE1
IN7
FC4
IN8
WE2
FC5
PI2

Risk ID
First Priority
RS1 (4.79)
DP1 (5.00)
RS3 (4.11)
DP1 (5.00)
IP2 (4.14)
RS3 (4.11)
DP1 (5.00)
FN2 (3.29)
IP3 (4.14)
DP2 (4.99)
ET1 (4.55)
ET2 (3.45)
DP5 (4.41)
ET2 (3.45)
FM1 (4.67)
FM1 (4.67)
DP7 (4.91)
FM1 (4.67)
FN1 (3.43)
ET1 (4.55)
DP2 (4.99)
DP7 (4.91)
DP1 (5.00)
FM1 (4.67)
FM1 (4.67)
RS1 (4.79)
IP1 (3.02)
FN1 (3.43)
HA2 (2.09)
GS2 (4.69)
HA2 (2.09)
FM1 (4.67)
GS1 (2.76)
GS1 (2.76)
DP8 (1.22)
ET2 (3.45)
GS1 (2.76)
IP2 (4.14)
GS1 (2.76)
FN3 (2.76)

FM1 (4.67)
FM2 (4.77)
GS1 (2.76)
DP3 (3.54)
FM4 (3.29)
ET1 (4.55)
ET1 (4.55)
FN1 (3.43)
FN3 (2.76)
GS1 (2.76)
DP5 (4.41)
DP4 (4.22)

RS4 (3.72)

ET1 (4.55)
ET1 (4.55)
RS3 (4.11)
IP4 (4.21)
FN3 (2.76)

86

ET1 (4.55)
AI2 (1.20)

DP7 (4.91)
HA2 (2.09)

DP4 (4.22)

Third Priority
RS5 (3.50)
FM1 (4.67)
FN2 (3.29)
DP8 (1.22)
IP1 (3.02)

Second Priority
RS4 (3.72)
DP6 (4.78)
FN1 (3.43)
DP2 (4.99)
IP4 (4.21)

RS5 (3.50)

GS1 (2.76)

IP1 (3.02)

DP8 (1.22)

Fourth Priority
RS6 (3.44)
ET1 (4.55)
FN3 (2.76)

Options for Risk Management Strategies

Table 15. Prioritizing Mitigation Strategies of Identified Risks

DP8 (1.22)

Fifth Priority
RS2 (2.38)
ET2 (3.45)
GS1 (2.76)

Sixth Priority

5.2.7 Monitoring and review
The monitoring and review are an important part of the risk management options toensure the options is still relevant concerning internal and external changes. The monitoring
and review are an ongoing review of the risk management framework to ensure the options isstill relevant concerning internal and external changes. However, since the risk management
framework in this study still on developing process, the monitoring and review cannot be done.
5.3 Conclusions
This chapter developed risk management framework for Indonesian small-scale shrimp
farming by combining the Exploratory Factor Analysis (EFA), Business Process Model(BPM), and the AS/NZS ISO 31000:2009 risk management process. Specifically, Business
Process Model (BPM) employed to break the shrimp farming process into three sub-process,which are (1) pond preparation and inputs for shrimp production, (2) production, and (3)marketing and harvesting. In each sub process, all shrimp business activities were identified.
Then, we identified the sources of risk and risk management strategies at the business activity
level. As the results, thirty-two sources of risk and thirty-five risk management strategies wereidentified throughout the shrimp farming production process.
Next, the sources of risk and management strategies applied to develop the framework
through the AS/NZS ISO 31000:2009 risk management process. As a result, a complete list ofrisks and risk management strategies with six risk management options (See Table 7). Basedon this result, the shrimp farmers could make their own decision on choosing the management
strategies that best meet their risk mitigation objectives.
The risk management framework in this chapter allows the shrimp farmers to manage thesources of risk and management strategies systematically and efficiently. Specifically, theframework allows the shrimp farmers to measure, rank, analyses, and priorities the risk fortreatment in their shrimp farms. Moreover, the framework allows the farmers to choose theoptimal risk management strategies based on the degree of efficacy of management strategies.
Last, the framework developed in this chapter is aimed at managing the risk in Indonesian
shrimp farming. However, the risk management framework could be adopted to otheraquaculture activities due to the similarities in characteristics of their business.

87Chapter 6
Conclusion and Recommendations

6.1 Conclusions
Recently, there are many sources of risk involved in the shrimp farming process due touncertainty business environment. Hence, activities to identify the risk sources and theappropriate management strategies are essential to avoid a significant loss to shrimp farmers.
In more detail, the shrimp farmers need a framework that allows them to measure, rank,
analyses, and priorities the risk for treatment in their shrimp farms. By this framework, theshrimp farmers will enable to manage the sources of risk systematically and efficiently. Thus,
the developed risk management framework will provide them with a tool to choose the optimalrisk management strategies based on the degree of efficacy of management strategies.
Moreover, the developed risk management framework in this study provides the criticalguidance and tools for Indonesian shrimp farmers to select specific strategies on risk reduction,
thus reducing the impact of risks in their shrimp farming.
The main purpose of this study is to develop the risk management framework for smallscale shrimp farming. Two research objectives were proposed, consist of (1) to examine therelationship between shrimp farmer’s characteristics and their perception of risk and risk
management strategies, and (2) to develop risk management framework Indonesian small-scale
shrimp farming. Several statistical methods were applied to address the objectives, include
descriptive statistic, exploratory factor analysis, and multivariate regression. Moreover,Business Process Modeling (BPM) method was used to identify the sources of risk andmanagement strategies in shrimp farming systematically. Then, the sources of risk andmanagement strategies applied to develop the framework through the AS/NZS ISO 31000:2009
risk management process. The following sub-chapter is composed of two conclusions forsmall-scale shrimp in East Java, Indonesia.
6.1.1 The Perception of Risk and The Small-scale Shrimp Farmers’ Attitudes Toward Risk
This study has identified 32 sources of risks on small-scale shrimp farming in East Java,
Indonesia. In general, production, harvesting and marketing risks, such as high mortality due
to shrimp diseases and shrimp price volatility, were perceived as the most important risk
sources. Then, risk sources were reduced using varimax rotation factor analysis to gain a deeper
89

understanding of shrimp farmers’ perception regarding sources of risk. Hence, the 32 sourcesof risk were reduced to eight factors, consist of (1) Input and pond preparation, (2) Finance andcredit access (3) Production, (4) Personal, (5) Harvesting and marketing, (6) Weather andenvironment, (7) Policy and institutional, and (8) Business environment.
Besides the sources of risk, the study found 35 risk management strategies. Nearly a halfof those strategies were classified as very effective in coping with the risk in shrimp farming.
Strict management of water quality, strict feeding management, applying better management
practices, preventing shrimp diseases by regular checking, and reducing brackish water pond
size were the top five strategies in this category. However, this study found some mismatch
between the source of risk and the risk management strategies taken by shrimp farmers. For
example, shrimp price volatility was perceived as the most damaging source of risk, but therank of risk management strategy to cope with this risk, such as production contract, was notrecognized as the most effective strategy. Rather than choosing production contract strategy,
the shrimp farmers prefer applied several strategies, such as strictly managed water quality,
strict feeding management, and applying better management practices in their business. Hence,
this study concludes that the small-scale shrimp farmers preferred to rely on the daily activities
to cope with the risks and maximize their income. The factor analysis with varimax rotation
was applied to reduce many risk management strategies. Thus, nine factors loadings wereobtained for risk management strategies in study areas. The factors 1 to 9 were identified as (1)Diseases prevention, (2) Education and technology improvement, (3) Input of production, (4)Farm management, (5) Government support, (6) Risk sharing and insurance, (7) Financial, (8)Household adjustment, and (9) Alternative income sources.
Moreover, the finding of regression analysis suggests that the characteristics of shrimp
farmers significantly influence their perception of risks and risk management strategies. The
results indicated that several factors, such as the age of farmers, experience, formal educationlevel, availability of off-farm income, and location of a shrimp farm, were influenced the smallscale shrimp farmers’ perceptions of risks and their management strategies. This study
highlights that the farmers in the north coast of East Java rated the efficacy of diseases
prevention and farm management strategies as significantly important compared to the shrimp
farmers in the south coast. The findings support the fact that the shrimp farmers in the northcoast of East Java have been more severely affected by the spread of shrimp disease during thelast several years. Despite the study found that the relationships between the perceptions ofrisks significantly impact on shrimp farmers’ perception of risk management strategies.
90However, these relationships are multidimensional and represent characteristics of farm andshrimp farmers. Based on the findings, this study concludes that there is no particular risk
management strategy for the specific type of risk source. The results showed that the shrimp
farmers develop a range of strategies and conversely, a risk management strategy can apply to
mitigate diverse types of risk source.
6.1.2 Developing Risk Management Framework for Small-scale Shrimp Farming
In regard to developing the risk management framework for shrimp farming, this study
has used Business Process Model (BPM) to identify the sources of risk and associated the risk
management strategies. Then, the seven steps of risk management process by AS/NZS ISO
31000:2009 standard was applied to develop the risk management framework. These steps
consist of (1) Communication and consultation, (2) Establishing the context, (3) Risk
identification, (4) Risk analysis, (5) Risk evaluation, (6) Risk treatment, and (7) Monitoring
and review. Those steps enabled the farmers to manage the sources of risk and management
strategies in their farms systematically and efficiently.
Based on the results, this study found that the farmers had six risk management options
to deal with the risks in their shrimp farms. The framework allows the farmers to choose theoptimal risk management strategies based on the degree of efficacy of management strategies.
Specifically, the framework allows the shrimp farmers to measure, rank, analyses, andpriorities the risk for treatment in their business.
6.2 Recommendations
The study found that the farmers could hardly adequately cover their farms business bykinds of insurance to cope with input and pond preparation risks, production risks, andharvesting and marketing risks. This fact was implying that the small-scale shrimp farmers are
the risk-seeking. Although the Indonesian government has developed the business insurance
scheme for shrimp farmers since 2017, it only covered farms business from shrimp diseases
and natural disaster risks. Thus, the farmers are strongly suggested to diversifying their income,
especially from off-farm income sources to improve welfare and reduce the income fluctuationfrom shrimp farming. Moreover, policies that enhance access to ensuring shrimp farms
activities should be put in place.
To improve welfare and reduce the fluctuation of farmers’ income from shrimp farming,
diversifying the income sources by off-farm investments should be encouraged. Off-farm91

income strategies can reduce risks by offsetting the seasonal nature of shrimp farming income.
Moreover, expanding the income sources should be promoted due to the shrimp farmers arewilling to trade-off their income or use their saving as a form of self-insurance. Furthermore,
the local government should enhance and support the credit access that includes in-farm andoff-farm investments as represent of rural development.
The results of the study in Chapter 4 revealed that harvesting and marketing risks
significantly impact on the farmers’ perception of risk sharing and insurance strategies. In orderto maintain sustainability in shrimp business, the farmers are highly recommended to spreadthe risks in their shrimp farms to the third parties through production contract, sharecropping,marketing contract or vertical integration. In addition, policies that enhance the opportunities
to share the risk with the third parties should be encouraged. Last, this study has shown thatrisk in shrimp farming can be systematically managed as long as there are guidelines for
managing those risks. Thus, policies that encourage availability the risk management
framework are needed to maintain shrimp farmers' livelihood and sustainability of small-scale
shrimp industry.
6.3 Recommendations for Future Studies
During the last decades, the risk management has been widely applied to manage therisks and uncertainties in the manufacture, finance, and agricultural sectors. However,developing and implementing the risk management framework in aquaculture that provides
comprehensive information about the source of risk and management strategies is limited.
Hence, this study tried to develop the framework that allows the shrimp farmers to manage
their risk systematically.
Several recommendations have been prepared for potential future studies. First, the risk
management framework in this study specifically developed for small-scale shrimp farming.
In general, this framework could be adopted for other aquaculture businesses. However, thesources of risk and risk management strategies might have different scope and scale. Thus, thesources of risk and management strategies may need to examine using process and framework
created in this study.
Second, to capture the real effectivity of risk management strategies, applying theadvanced method, such as benefit-cost analysis, should be considered. Although all farmers
did not implement the same risk management strategies in the same way, capturing the impact

92

of strategies in economic terms could give valuable information regarding the degree of
efficacy of risk management strategies.

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106Appendix
Appendix 1: The field survey questionnaire
Name
Date
Place

: …………….…………….
: ..…………..……………..
: …………….…………….

Developing Risk Management Framework for Small-scale
Shrimp Farming in Indonesia
The objectives of this research are:
1. To explore the sources of risk (on-farm and risk sharing) and risk management strategies
in small-scale shrimp farming
2. To assess the potential impact and probabilities of risk and risk management strategies
in small-scale shrimp farming
3. To evaluate risk management strategies in small-scale shrimp farming
4. To develop risk management framework for small-scale shrimp farming
Researcher : Riski Agung Lestariadi
Supervisor : Prof. Masahiro Yamao
Food Production Management, Graduate School of Biosphere Science
Hiroshima University, Japan

This questionnaire is a tool for collecting data used for the thesis research. This questionnaire
was divided into three sections, which are:
Section 1
Section 2
Section 3: Questions related to shrimp farmers characteristics: Questions related to sources of risks in shrimp farming: Questions related to risk management strategies in shrimp farming

107Section 1.
Shrimp Farmers Characteristics
1. Sex / Gender:(a) Male(b) Female
2. Age (year):
3. Education Levels:
4. Marital Status:
5. How many your family members do you have?
(a) Male:(b) Female:
6. In what activities your family members are involved in the production process?
Activities
FamilymembersLand
preparationPre
cultivation

Operation(i.e. feeding,health check,
etc)

Post
Cultivation

Harvesting

Marketing

7. Shrimp farmer is your main occupation? Yes / No
8. If Yes, do you have secondary occupation?
If No, what is your main occupation?
9. Please explain about your shrimp farms:
No. of Ponds Hectare
Status of your shrimp farms
1. Private 2. Rent
3. Sharing

4. Others

10. On average, how much input did you use in the last crop?
Input
Unit
AmountPrice per Unit
Formulated Feedkg per ha
Shrimp Fry
head per ha
Fertilizer
kg per ha
Labor
Man days
11. What was the actual yield per hectare and the selling price for the last crop
Ponds
Yield (kg per ha)
Price (IDR per kg)

12. Please indicated the largest fluctuation on your shrimp farms
Check (X)
Item
< 25%
25% - 49% 50% - 75%
Annual yield per ha
Annual average shrimp priceProfit13. Do you have any technical support from outside?
(a) Yes(b) No14. If Yes, which ones of the following are the sources of support?
(a) Local extension service(d) Relatives / Communities(b) Feeding company(e) Others(c) Processors
108

> 75%

15. How did you sell your shrimp in the last production cycle(a) Directly to processors under contract(d) Contract farming with others(b) Directly to processors without contract(e) Others(c) Wholesalers
16. Related with shrimp farming, is there any kinds of contract farming in your location?
(a) Yes(b) NoIf the answer is NO, please move to Section 2
17. Do you have any kind of contract farming related with your shrimp farms?
(a) Yes(b) NoIf the answer is NO, please move to Question number 20
18. If Yes, what kind of contract farming do you have?
(a) Share cropping(d) Insurance(b) Production contract(e) Others(c) Marketing contract
19. If Yes, which whom?
(a) Processors(d) Shrimp farmers group(b) Feeding companies(e) Others(c) Wholesalers
20. If Yes, can you explain the right and duty from both parties on your contract farming?
Right
Duty

21. Why you do not want to join with contract?

109

Section 2.
Sources of Risks in Shrimp Farming and Shrimp Farmers’ Perception of those Risks
In the following questions, please indicate the significant and the frequency of the following risks
factors improve your income from shrimp farming
Note:

To measure the significant level of risks, we use 5 points Likert scale as follows:
1: Least significant
2: Slightly significant
3: Moderately significant
4: Significant
5: Most significant
To measure the frequency of risks occur, we use 5 points Likert scale as follows:
1: Almost always
2: Often
3: Moderately
4: Slightly
5: Never1. The significant and frequency of risk factors related to pond preparation and stocking shrimp fries
Significant
Frequency
No
Risk Factors(1 – 5)(1 – 5)
1
Inappropriate pond design
2
Inappropriate pond location
Lack of information about shrimp
3
fries origin
Low quality of shrimp fries (doesn’t
4have certificate / SFP)
Do not conduct treatment before
5
stocking shrimp fries
6
Excessive stocking density
7
Inappropriate shrimp fries size
8
2. The significant and frequency of risk factors related to production
Significant
No
Risk Factors(1 – 5)
Low quality of formulated shrimp
1
feed
Water pollution due to excessive
2
formulated feed3
Feeding management failure
4110Frequency(1 – 5)

3. The significant and frequency of risk factors related to harvesting and marketing
Significant
Frequency
No
Risk Factors(1 – 5)(1 – 5)
1
Harvesting without grading
2
Inappropriate harvesting method
3
Shrimp size variability
4
Shrimp price volatility
5
4. The significant and frequency of risk factors related climate and diseases
Significant
Frequency
No
Risk Factors(1 – 5)(1 – 5)
1
High mortality due to diseases
2
Climate change impact
3
Flood
4
Water polluted
5
5. The significant and frequency of risk factors related to finance and credit accessSignificant
Frequency
No
Risk Factors(1 – 5)(1 – 5)
1
High interest rate for loan
2
Lack collateral for loan
Not enough capital to operating
3
shrimp farms
4
6. The significant and frequency of risk factors related to internal factors
Significant
No
Risk Factors(1 – 5)Lack of knowledge to prevent shrimp
1diseases
Shrimp farmers doesn’t have2
brackish water treatment facility
Lack of knowledge of pond3
preparation
4

Frequency(1 – 5)

7. The significant and frequency of risk factors related to policy and institutional
Significant
Frequency
No
Risk Factors(1 – 5)(1 – 5)
Low level of awareness from shrimp
1
farmers(community)
about
environmental protection
Change government policy and2regulation
3111

8. The significant and frequency of risk factors related to external factors
Significant
No
Risk Factors(1 – 5)
Asymmetric information between
buyer and farmers (price, supply,1
demand, quality, etc)2
Not enough labor supply
3
High wages of hired labor4
Not enough formulated feed supply
5
Increasing formulated feed price6
Lack of labor knowledge
7112Frequency(1 – 5)

Section 3.
Risk Management Strategies in Shrimp Farming
In the following questions, please evaluate the effectiveness of applying risk management strategies inprotecting your shrimp farms
Note: To measure the effectiveness of applying risk management strategies, we use 5 points Likert
scale as follows:
1: Not effective at all
2: Of little effective
3: Of average effective
4: Effective
5: Very effective
1. The significant and frequency of risk factors related to pond preparation and stocking shrimp
fries
Effectiveness
No
Risk Factors
Risk Management Strategies(1 – 5)
Add water pumping and paddle
wheel
1Inappropriate pond design

2

3

4

5

6

Inappropriate pond location

Lack of information about
shrimp fries origin

Low quality of shrimp fries(doesn’t have certificate / SFP)

Do not conduct treatment before
stocking shrimp fries

Excessive stocking density

Located brackish water pond indesignated area
Change to other activities
Selected good shrimp fries
Only buy shrimp fries fromreliable places
Pay attention the shrimp fries
when buying
Only buy shrimp fries that haveSpecified Pathogen Free (SFP)
certificate
Only buy shrimp fries fromreliable places
Strictly treat the pond before
stocking shrimp fries
Following better management
practices in shrimp farming
Attending workshop in shrimp
farming
Attending workshop in shrimp
farming
Following better management
practices in shrimp farming
Reduce stocking density of
shrimp fries
113

7

Inappropriate shrimp fries size

Following better management
practices in shrimp farming
Use large shrimp fries
Attending workshop in shrimp
farming

2. The significant and frequency of risk factors related to production
No

1

2

3

Risk Factors
Low quality of formulated
shrimp feed

Water pollution due to excessive
formulated feed

Feeding management failure

Risk Management Strategies

Effectiveness(1 – 5)Checking the contents offormulated feed
Buying formulated feed fromreliable brands
Strictly feeding management
Following better management
practices in shrimp farming
Attending workshop in shrimp
farming
Following better management
practices in shrimp farming
Strictly feeding management

3. The significant and frequency of risk factors related to harvesting and marketing
Effectiveness
No
Risk Factors
Risk Management Strategies(1 – 5)
Production contract
1
Harvesting without grading

2

3

4

Inappropriate harvesting method

Shrimp size variability

Shrimp price volatility

Following better management
practices in shrimp farming
Attending workshop in shrimp
farming
Production contract
Following better management
practices in shrimp farming
Partial harvested
Attending workshop in shrimp
farming
Production contract
Sale contract to processor
Vertical integration
Cooperation marketing114

4. The significant and frequency of risk factors related climate and diseases
No

Risk Factors

1High mortality due to diseases

2

Climate change impact

3

Flood

4

Water polluted

Risk Management Strategies

Effectiveness(1 – 5)

Strictly manage brackish water
quality
Following better management
practices in shrimp farming
Reduce shrimp fries density
Hire technical assistance
Reduce brackish water pond size
Enforcing the brackish water
pond dyke
Develop brackish water treatment

5. The significant and frequency of risk factors related to finance and credit access
Effectiveness
No
Risk Factors
Risk Management Strategies(1 – 5)Use informal loan
1High interest rate for loan
23Lack collateral for loan

Not enough capital to operating
shrimp farms

Use informal loan
Make credit arrangement before
production cycle
Reduce brackish water pond size
Share ownership of equipment
Sharecropping

6. The significant and frequency of risk factors related to internal factors
No

Risk Factors

1

Lack of knowledge to prevent
shrimp diseases

2

Shrimp farmers doesn’t havebrackish water treatment facility

3Lack of knowledge of pond
preparation

Risk Management Strategies
Strictly manage brackish water
quality
Following better management
practices in shrimp farming
Attending workshop in shrimp
farming
Developtreatment

brackishwater

Following better management
practices in shrimp farming
Attending workshop in shrimp
farming

115

Effectiveness(1 – 5)

7. The significant and frequency of risk factors related to policy and institutional
No

1

2

Risk Factors

Low level of awareness fromshrimp farmers (community)
about environmental protection

Change government policy andregulation

Risk Management Strategies

Effectiveness(1 – 5)Develop
brackishwater
treatment
Following better management
practices in shrimp farming
Attending workshop in shrimp
farming
Followthegovernment
development(policy,
regulation, etc) that related toshrimp farming

8. The significant and frequency of risk factors related to external factors
No

Risk Factors

1

Asymmetric information
between buyer and farmers(price, supply, demand, quality,
etc)

2

Not enough labor supply

3

High wages of hired labor4

Not enough formulated feed
supply5

Increasing formulated feed price6

Lack of labor knowledge

Risk Management Strategies
Collect information related toshrimp price, demand, supply,
quality, etc
Sale contract to processor
Family labor
Family labor
Contract farming
Strictly feeding management
Following better management
practices in shrimp farming
Attending workshop in shrimp
farming

116

Effectiveness(1 – 5)

Appendix 2: Documentation of the field survey

Shrimp pond preparation

Releasing the shrimp fries

117

Feeding preparation

Feeding the shrimp

118Checking the shrimp growth

Checking the shrimp growth119Checking brackish water qualities

Maintenance the equipments

120

Harvesting the shrimp

Grading the shrimp

121