Financial Viability of Hatchery Rearing of Oreochromis niloticus at Dera District, Amhara Region, Ethiopia
Erkie Asmare*
Citation: Asmare E (2017) Financial Viability of Hatchery Rearing of Oreochromis niloticus at Dera District, Amhara Region, Ethiopia. J Fish Aqua Dev: JFAD-107. DOI:10.29011/JFAD-107/100007
1.
Abstract
1.
Introduction
for fish which is growing in Ethiopia [5]. Early investigations by FAO
as cited in [6], have indicated that the national per capita fish consumption is
0.21 kg/person/yr and in fish producing areas of Ethiopia is estimated at 8.5
kg/person/yr. Catches from natural
ecosystem has declined over time due to increased anthropogenic activities,
climate change and illegal, unreported and unregulated fishing [1]. One of the ways to bridge
the gap between the reduced fish supply and increased world fish food demand is
through aquaculture [7]. Therefore,
the current increase in the market demand for fish protein in Ethiopia can be
met only when the capture fishery is supplemented by culture fishery [8,9].
Dera
district is bordered on the South by the Abay River, which separates it from
the West Gojjam zone, on the West by Lake Tana, on the North by Fogera, on the
Northeast by East Estie, and on the East by West Estie.
The study area is situated 48km far from the Southeast of Bahir Dar Town. The rainfall is characterized by a
bimodal distribution with the major rainy season occurring from June to August
(locally called “Kermit”) and the short rainy season extends from March to May (“Belg”). The
annual average rainfall varies between 1000 and 1500 mm, while the annual average
temperature ranges from 13 to 27°C [14].
NPV=∑_(t=0)^n▒((Bt-Ct))/(1+r)t..................(i)
Where, n is the number of years for which the project will
operate, r is the proportionate financial or economic discount rate; Bt and Ct
are the project benefits and costs at period t respectively. In addition, Internal
Rate of Return (IRR) that makes NPV equal to zero was calculated by using a
formula:
IRR=((B0-C0))/(1+r)0+ (((B1-C1))/(1+r)1) +((B2-C2))/(1+r)2 + … +((Bt-Ct))/(1+r)t = 0……… (ii)
Where, IRR is the discount rate that makes the present value just
equal to zero. The viability of the hatchery rearing was also tested using the
Benefit Cost Ratio (BCR) criterion. The formula used for the Benefit - Cost
Ratio was as follows:
BCR= (∑_(t=0)^n▒((Bt))/(1+r)t)/(∑_(t=0)^n▒((Ct))/(1+r)t)………………………… (iii)
Moreover,
Return On Investment (ROI) was calculated to know the percentage
returns from operating hatchery rearing. jt86496i05
ROI=(Discounted benefit-Discounted cost)/( Discounted cost)* 100 ………………...…….
(iv)
To know how much value, we receive
per each ETB (Ethiopian Birr) invested, Profitability Index (PI)
have been calculated by dividing the present value of future cash flows by the
initial investment required for the hatchery rearing.
PI = (Present Value of Future Cash Flows)/(Initial Investment Required)………………… (v)
Sensitivity analysis: NPVs are estimated based on
the calculations of future costs and benefits that are not, and cannot, be
known with certainty. To reduce this uncertainty, a
detailed sensitivity analysis was carried out to test the net
present value using acceptable ‘Pessimistic’ and ‘Optimistic’ assumptions about
key variables that determine costs and benefits. The sensitiveness of the NPV
and other decision-making criteria (Table 1) for
a unit change in selected variables (Table 2) were
calculated by using Sensitivity Index (SI) as used
by [15].
SI = ((NPVb – NPV1)/NPVb)/((Xb – X1) / Xb)……………… (vi)
Where: SI is the sensitivity index Xb-value
of variable in the base case X1-value of the variable in the sensitivity test.
NPVb is value of NPV in the base case, while NPV1 is value of the variable in
the sensitivity test.
3. Results
and Discussion
Qualitative data collected during the field day and from focus group
discussion has shown that hatchery rearing has numerous benefits, besides its
direct benefits. Among the indirect benefits, pond based hatchery rearing help
to: conserve the over exploited fish at a private level, reduce pressure in
capture fisheries, improve the values of the site, assist the re-establishment
of trees and other vegetables around the ponds, good source of organic
fertilizer from pond water and nutrient recycles when it integrates with
agricultural activities.
Hatchery rearing plays a significant role as a means of income generation (net benefit of ETB 3057 was gained at first year), source of seed for aquaculture, and food source (matured male fish). It has also served as a water bank (water hole) by facilitating water management and water conservation for supplementary irrigation at smallholder farmer level. The net benefit from the hatchery rearing increased at an increasing rate up to the second year and then starts to increase at decreasing rate up to the third year (Figure 3).
This increment in yield might have a strong association with: increase
in pond and water productivity; the parent stock becomes mature with high
fertility or fecundity rate; fishes
adapt the new environmental condition including the breeding grounds; and stocks in the
pond become increased. Generally, hatchery rearing is economically and
environmentally sound with a remarkable profit (NPV= 60137 per 340m2 pond) (Table 4).
Even though the discounted benefits are above the discounted costs, the discounted benefits of the investment start to decrease after the third year. Based on the findings of the study, discounted return might start to decline as the pond becomes old and needs intensive management. Hence, the benefits started to decrease due to increase in labour cost, feed requirement and its price and other variable costs such as, maintenance costs for fishing nets, black polyethylene geo-membrane, fence and other equipment’s. When the fish population of the pond is beyond the ponds’ carrying capacity, there would be high competition for feed, oxygen, and breeding ground or place. These congestions and competition highly affect both growth and reproductive performance negatively.
NPV
is an indicator of how much value an investment in hatchery rearing accrues
benefit to the smallholder farmers. The NPV equals to 60,137 which is positive enough, this indicates
that the estimated earnings generated from hatchery rearing investment exceed
the anticipated costs. In addition, hatchery rearing
is only worth when percentage return to the money invested in it is greater
than the interest rate paid to borrow the money. Hence, the IRR that can
be compared with the current interest rate for borrowing the capital required
is greater than the discount rate (r= 12.5%). This shows that, the money
invested in hatchery rearing generates exactly 43% return. Based
on the two criteria, investing in hatchery rearing would generate enough
income to repay if it was started on the loan and still provide profits.
The viability of hatchery rearing is based on IRR and NPV criteria. However, the net present values are estimated based on estimates of future costs and benefits that are known certainly. Due to the presence of uncertainties in the quantification of costs and benefits using decision making criteria such as; NPV, BCR, and IRR may not be comprehensive. Making sensitivity analysis using acceptable ‘Pessimistic’ and ‘Optimistic’ assumptions about key variables that determine costs and benefits is essential. It is also useful to identify the sensitiveness of NPV with change in variables like, price, amount caught, labour and fish feed. (Table 5)
4. Conclusions and Recommendations
The study area has the potential to develop aquaculture that can
play an important role in ensuring food security and support for livelihood
improvement when practiced at large scale. To make aquaculture more effective,
hatchery rearing play substantial role by solving the problem of
fingerling scarcity at a time of demand. Hatchery
rearing is also the only means which provide seed for aquaculture development,
this makes hatchery rearing a rewarding business for subsistence small holder
farmers. It also serves as a
means of livelihood diversification and water bank (water hole) by facilitating
water management and water conservation for supplementary irrigation at
smallholder farmer level. For every slight change in the price for
fingerlings and fish feed the net present value changes exceedingly, but the
NPV still remains positive.
We can conclude that, hatchery rearing is
viable and
have a remarkable profit for farmers. If the
hatchery rearing is expected to play its role, the following issue requires due
attention:
·
Use locally available feed staffs
such as, poultry excreta, animal manure, wastes after human consumption and
others to cutoff feed costs.
·
Transfer fingerlings to fish
production ponds to reduce feed competition and over population.
·
The profit from hatchery rearing is
too sensitive to price change, therefore, promotion, market linkage and
stabilizing fingerling price will attract farmers and guarantee its future
sustainability.
·
The interest in investing in hatchery
rearing is based on demand for fingerlings. Therefore, expansion of pond fish
production will increase fingerlings price and makes hatchery rearing
attractive to fingerling suppliers.
Figure 1: Map of the study area.
Figure 2: Constructed hatchery rearing pond at Momoshta
nursery site.
Figure 3: Discounted benefit, cost
and cash flow.
|
Decision
Rule |
|
||
Decision
making criteria |
Accept |
Reject |
Indifferent |
|
NPV |
NPV > 0 |
NPV < O |
NPV = 0 |
|
IRR |
IRR > r |
IRR < r |
IRR = r |
|
BCR |
BCR > 1 |
BCR < 1 |
BCR = 1 |
|
PI |
PI > 1 |
PI < 1 |
PI = 1 |
|
ROI |
ROI > 0 |
ROI< 0 |
ROI =0 |
|
Decision Rule |
|||
Decision making criteria |
Accept |
Reject |
Indifferent |
|
NPV |
NPV > 0 |
NPV < O |
NPV = 0 |
|
IRR |
IRR > r |
IRR < r |
IRR = r |
|
BCR |
BCR > 1 |
BCR < 1 |
BCR = 1 |
|
PI |
PI > 1 |
PI < 1 |
PI = 1 |
|
ROI |
ROI > 0 |
ROI< 0 |
ROI =0 |
Table 1: Decision Making Criteria.
Assumptions |
Percentage Increment/ Decrement |
Sensitivity to Increase in Costs |
|
|
|
Labour cost increased by |
10% |
Feed required increased by |
10% |
Yield declined by |
10% |
Price decreased by |
10% |
Both changed at once* |
10% |
Sensitivity to increase in yield and price of harvest |
|
Yield increased |
10% |
Price of catch increased |
10% |
Both changed at once** |
10% |
* Both labour cost, amount of feed required become increased by 10% and the yield declined by 10%. ** When both catch and price of harvest increased by 10%.
|
Table 2: Sensitivity to analysis under different assumptions.
Fixed Costs |
Costs in ETB |
Geo-membrane |
7865 |
Construction |
4900 |
Fishing net |
1500 |
Opportunity costs of land |
1480 |
PVC and digging equipment’s |
800 |
Total fixed cost |
16545 |
Variable inputs |
Annual cost in ETB |
Labour for fertilizing and feeding |
304.1667 |
Fingerlings |
394 |
|
|
Glue for maintenance |
200 |
Feed |
1800 |
Fuel to fill the pond |
160 |
Pump rent cost per year |
2400 |
|
|
Fencing the pond |
1000 |
Maintenance* |
0 |
Disinfectant |
120 |
Labour for stocking and harvesting |
507.8571 |
|
|
Fish died during stocking |
39.4 |
Fish died during harvest |
800 |
Labour for drain in and out |
315 |
TVC per 340m2 |
8040.42 |
*Note: Maintenance costs are consisting of costs for maintenance of fishing nets, black polyethylene geo-membrane and fence. |
Table 3: Initial investment cost and annual operational costs at the first year.
Year
|
Cash flow
|
@12.5% discounted rate Discounted Flow Discount factor |
cash
|
0 |
-16545 |
1 |
-16545 |
1 |
3057.543 |
0.8889 |
2717.82 |
2 |
14131.41 |
0.7901 |
11165.56 |
3 |
12738.92 |
0.7023 |
8946.95 |
4 |
15487.46 |
0.6243 |
9668.75 |
5 |
15860.38 |
0.5549 |
8801.38 |
6 |
14092.11 |
0.4933 |
6951.22 |
7 |
17952.94 |
0.4385 |
7871.69 |
8 |
17589.66 |
0.3897 |
6855.47 |
9 |
20765.64 |
0.3464 |
7194.04 |
10 |
21137.93 |
0.3079 |
6509.34 |
NPV 60137 |
|||
IRR 0.43 |
|||
IP 3.63 |
|||
BCR 1.82 |
|||
PBP 2.11 |
|||
ROI 81. 96 |
|||
|
Table 4: Financial Cash Flow.
Assumptions |
Decision Tools |
||||
Sensitivity to increase in costs
|
NPV |
IRR |
BCR |
PBP |
SI |
Wage rate increased by 10% |
59400.21 |
42% |
1.8 |
2.12 |
12.3% |
Feed price increased by 10% |
58688.09 |
42% |
1.78 |
2.14 |
24.1% |
Yield declined by 10% |
49733.37 |
37% |
1.7 |
2.33 |
173% |
Price decreased by 10% |
49873.76 |
37% |
1.7 |
2.33 |
170.7% |
Sensitivity to increase in yield and price of harvest
|
|||||
Yield increased by 10% |
70393.53 |
49% |
1.94 |
1.94 |
170.5% |
Price of catch increased by 10%
|
70400.66
|
49%
|
1.9
|
1.9
|
170.70%
|
Both changed at once** |
81574.42 |
55% |
2.06 |
1.8 |
- |
|
Table 5: Sensitivity Analysis.