CCDA Prawn Hatchery (Financial Feasibility)_20July2013_FinalDraft

Final Draft July 2013

CCDA Prawn Hatchery Project

FINANCIAL FEASIBILITY ANALYSIS SHAKIB

AHSAN KAMAL SADEK & CO. CHARTERED ACCOUNTANTS |

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Table of Contents List of Abbreviations ..................................................................................................................................... 3 Executive Summary....................................................................................................................................... 4 1

Introduction .......................................................................................................................................... 6

2

Objectives of the study ......................................................................................................................... 7

3

Industry Overview ................................................................................................................................. 8

4

3.1

Background ................................................................................................................................... 8

3.2

Basic Information .......................................................................................................................... 9

3.3

Economic Contribution ............................................................................................................... 12

CCDA Prawn Hatchery Project ............................................................................................................ 15 4.1

Conceptualization: ...................................................................................................................... 16

4.2

Background of establishment ..................................................................................................... 16

4.3

A brief snapshot of the prawn hatchery project in Daudkandi .................................................. 17

4.4

Success ........................................................................................................................................ 18

4.5

Challenges ................................................................................................................................... 18

4.6

Project Target.............................................................................................................................. 19

4.7

Project Implementation procedure and logic ............................................................................. 19

5

Hatchery Processes and Technical know-how .................................................................................... 20

6

Demand Analysis ................................................................................................................................. 27

7

Competition Analysis .......................................................................................................................... 30

8

9

7.1

Local competition........................................................................................................................ 30

7.2

External (Region) Competition.................................................................................................... 30

Financial Analysis ................................................................................................................................ 32 8.1

Capital Expenditure Estimation................................................................................................... 32

8.2

Revenue Forecast ........................................................................................................................ 34

8.3

Expenses Forecast ....................................................................................................................... 37

8.4

Income Statement....................................................................................................................... 38

8.5

Important Income Statement Ratios .......................................................................................... 39

8.6

Feasibility Analysis ...................................................................................................................... 40

8.7

Feasibility Analysis under Different Scenarios ............................................................................ 42

Scope for Expansion ............................................................................................................................ 43 1

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’ 10

Risks & Mitigation ........................................................................................................................... 45

11

Social and Environmental impact of the CCDA Hatchery Project: .................................................. 47

12

Conclusion & Recommendation ..................................................................................................... 49

13

Annexure 1: Summary of Assumptions........................................................................................... 51

14

Annexure 2: Revenue Projection .................................................................................................... 52

15

Annexure 3: Expense Projection ..................................................................................................... 53

16

Annexure 4: Income Statement ...................................................................................................... 54

17

Annexure 5: Output (Prawn) ........................................................................................................... 55

18

Annexure 6: Output (Prawn and Carp) ........................................................................................... 56

2

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

List of Abbreviations BB BD BDT BFFEA BRAC CCDA DoF DSCR EBITDA EBT FAO FSYB GoB GDP IRR LRT LLCR MARR MBDT MIRR MOFA NBR NPV PKSF PL PPT ROE ROI TPM

Bangladesh Bank Bangladesh Bangladeshi Taka Bangladesh Frozen Foods Exporters Association Bangladesh Rural Advancement Committee Center For Community Development Assessment Department of Fisheries Debt Service Coverage Ratio Earnings Before Interests, Taxes, Depreciation and Amortization Earnings Before Taxes Food and Agriculture Organization Fisheries Statistical Year Book Government of Bangladesh Gross Domestic Production Internal Rate of Return Larva Rearing Tank Loan Life Coverage Ratio Marginal Attractive Rate of Return Million Bangladeshi Taka Modified Internal Rate of Return Ministry of Fisheries and Agriculture National Board of Revenue Net Present Value Palli Karma Shayak Foundation Post larva Part Per Thousand Return on Equity Return on Investment Three Point Method

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Executive Summary ‘CCDA Prawn hatchery project’ project was primarily conceptualized as a Value Chain Development project for the enhancement of the income of the floodplain1 aquaculture farmers residing at Daudkandi (Upozilla of Comilla District). CCDA started the ‘Value Chain Development’ project in 2010 with the help of PKSF. Under the ‘Value Chain Development’ project Prawn was included along with other fishes to increase the income of the farmers. 175 farmers were trained in order to conduct the farming of these newly included Prawns and also to overlook the management of the nurseries under this project. All these farmers were successful in producing ‘juveniles’2 (T.B.Bagenal & W.Nellen, 2010) and also in selling those in the market for fish farming. The Prawn Farming requires very less care and food, and that is the reason why considering the low price/investment required buying PLs, the Prawn Farming has turned out to be a very fruitful one. Primarily the project objective has been to increase the income of fish farmers by enhancing and expanding the Prawn/shrimp production/farming in Comilla floodplains. In order to accomplish this task the availability of PL locally is essential. By ensuring supply of quality PL locally, we can avoid the cost of long distance delivery and transportation along with decreasing or even eradicating the number of dead PL and thus ensuring low cost of Prawn production cost. This will not only increase production quantity but also encourage farmers get more and more involved in this business. Currently as there is no hatchery in this region, all PLs are brought in from various other places (especially from Khulna region). CCDA can sell the entire PL that is produced in the hatchery just by fulfilling the demands of PL in the floodplains of Daudkandi, Titas and Muradnagar Upazilla.

1

Floodplain: A floodplain or flood plain is an area of land adjacent to a stream or river that stretches from the banks of its channel to the base of the enclosing valley walls and experiences flooding during periods of high discharge 2 Juvenile: From the time the fish becomes scaled and morphologically resembles the adult until it migrates to sea if it is an anadromous species, or if not, until it is one year old, and provided it is also sexually immature, we call it a juvenile.

4

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

The comprehensive analysis of the project’s business model, market demand and financials demonstrate that the project is feasible under the base case and best case scenario. Notably, although the worst case scenario gives completely negative picture of the project performance, it is highly unlikely for the market forces to behave according to those assumptions. The expansion plan adds to the project’s baseline performance, hence is feasible to undertake. However, the additional value is virtually insignificant. The project’s payback period is quite long, minimum 6 years under base case and minimum 4 years under the best case. On an average it would take around 9 years to recoup the total investments, 7 years to recoup CCDA’s investments if CCDA invests BDT 19.94 million (no external fund support for the extra expenses), and 5 years to recoup CCDA’s investments is CCDA invests only what they have already made available for the project i.e. BDT 12.83 million.

5

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

1 Introduction Today, fishery, including marine shrimp farming3, has been able to establish itself as not only a successful medium of livelihood but also a technology en route for economic solvency based on its continuously increasing contribution in gross domestic production. The respective industry provides a dynamic source of nutrition along with creating employment opportunities, recreation and most importantly immense economic benefits for the current scenario persisting immense potential to sustain for the future generation as well. Commercial shrimp farming began in the 1970s, and production grew steeply, particularly to match the market demands of the United States, Japan and Western Europe. The total global production of farmed shrimp reached more than 1.6 million tons in 2003, representing a value of nearly 9 billion U.S. dollars. About 75% of farmed shrimp is produced in Asia, in particular in China and Thailand. The other 25% is produced mainly in Latin America, where Brazil, Ecuador, and Mexico are the largest producers. The largest exporting nation is Thailand. Shrimp farming has changed from traditional, small-scale businesses in Southeast Asia into a global industry. Technological advances have led to growing shrimp at ever higher densities, and stock shipped worldwide. Virtually all farmed shrimp are of the family Penaeidae. According to FAO nomenclature, freshwater paleomonids are referred to as ‘prawn’; marine penaeids, metapenaeids and paleomonids are called ‘Shrimp’. The following two species comprise roughly 80% of all farmed shrimps (FAO, 2003-2005)4 

Penaeus vannamei (Pacific white shrimp) and



Penaeus monodon (giant tiger prawn)

3

Marine shrimp farming is an aquaculture business for the cultivation of marine shrimp or prawns for human consumption. 4 FAO: Food and Agriculture organization

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

2 Objectives of the study The main objectives of this study were to: 

To abstract the operational subject matter of the ‘CCDA PRAWN HATCHERY’ Project,



assess the factors impacting on the growth and distribution of hatcheries including brood stock strategies, transportation of PL, and pre-grow-out management policies,



Demonstrating technical knowhow of operation.



Conducting holistic financial projection of the project in hand to extract the true financial feasibility and operational sustainability.



Over viewing possible expansions and accompaniments.



Review opportunities to involve poor people in hatchery operations, specifically in nursing and grow-out of PLs.

This review forms part of the Shrimp Action Plan developed jointly by DFID and representatives of Fourth Fisheries Project, Department of Fisheries in February 2002. The report describes the measures needed to improve farming and hatchery management practices to ensure a more sustainable and equitable shrimp aquaculture in Bangladesh.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

3 Industry Overview 3.1 Background Prawn5 (Species of Macro Brachium) found across the country, particularly in the running river, canal and the paddy field, prawn was abundance. In the 60’s when the food campaign of –‘grow more food’ started, the HYV from IRRI, Philippines was initiated in our agricultural fields (CCDA, 2011). Because of that insecticides were introduced in the paddy fields for Application to control the harmful pests. Prawn belongs to the class crustacean, which is the very precise reason why prawns were mostly affected by the initiation of pesticides. Along with prawn other indigenous fish species spawn was also damaged. Because of that the prawn abundance in natural water was reduced and paddy field prawn was entirely eradicated. In the 1980’s it was felt that for the preparation of prawn it is necessary to establish prawn hatchery, and thus experiments were conducted in both public and private sectors. The result was not enthusiastic. From FAO a group of scientist was given responsibilities to explore prawn/shrimp6 hatcheries in Bangladesh. But unfortunately that study gave negative results. So there was a pause in the prawn and shrimp sector. Later through development project of Fisheries Department experimented Prawn and Shrimp Hatcheries positive results started to creep in. But many of the reputed scientists did not agree with the results. We all know necessity knows no laws and boundaries. It was evident in the fact that the shrimp hatchery parameters were successfully prevailing in the Cox’s bazaar area in the 1990’s. So in the private sector the shrimp hatchery developed in full scale during that period. About 44 hatcheries were established in the Cox’s Bazaar Area (Kalatoly, Teknaf). Each of the Hatcheries was able to produce 1.5 to 2 crore P7L in a season.

5

Prawn= Fresh Water (All species present in the fresh water)

6

Shrimp= All marine and coastal Species PL= Post Larva

7

8

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Due to many other unavoidable reasons the establishment of the prawn hatchery industry in national level was delayed in spite the experimentation and even the setting of prawn decision were completed in 1988. Later in 1993 BRAC came forward for learning the technologies. The FRI Chandpur trained some technicians of BRAC about the prawn hatchery technology and that was followed by BRAC establishing a small prawn hatchery project in Comilla BRAC Center. Now at present time a staggering number of 130 both big and small shrimp hatcheries are operating all over the nation. Some of them are not in operation for the lack of technical manpower and constrain of fund.

3.2 Basic Information By 2007-08, the shrimp farming area occupied nearly 2, 17,877 hectors; the main fresh water shrimp farming districts are Khulna, Bagerhat, Jessore, Narail, Gopalganj, Pirojpur and Noakhali. More or less 80% of the shrimp farming areas are in the southwestern region of Bangladesh while the rest are in the southeastern part. Shrimp is the second most important export item in Bangladesh. The following statistical upshot regarding the basic infrastructural and source based upshot has been constructed in accordance with information released by ‘Bangladesh Frozen Foods Exporters Association (BFFEA)8 : A. a)

b)

Inland Fisheries Closed Water body 1. pond 2. Oxbow Lake 3. Coastal Shrimp farm Zone 4. Fresh Water Shrimp Farm Zone Total of closed Water Body Open Water body 1. River, Canal, Depressions etc 2. Beel, Haor 3. Kaptai Lake 4. Flood Plain Total open Water Body

151,916 Ha 5,488 Ha 170,000 Ha 4,017,064 Ha 4,344,468 Ha 1,031,563 Ha 114,161 Ha 68,800 Ha 2,834,008 Ha 4,048,532 Ha

8

BFFEA: Bangladesh Frozen Foods Exporters Association; BFFEA was established in 1984 and )is the only trade body for about the members of Fish processing Plants in Bangladesh

9

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’ B.

Marine Fisheries (Industrial & Artisan Fisheries) Grand Total Water Area

16,607,000 Ha 25,000,000 Ha

Table 01: Bangladesh Fisheries Resources: (BFFEA, 2009)

01. 02. 03. 04. 05. 06. 07. 08.

No of Fish Processing Plants Plants Licensed by the GOB Fish Processing Plants Approved by the EU Quantity of Frozen Food Exported in 2009-2010 Shrimp Exported in 2009-2010 Fish Exported in 2009-2010 Processing Capacity in the Total Plant Export Earnings from Shrimp 2009-2010

09. 10. 11. 12. 13.

Export Earnings from Fish 2009-2010 No. of Shrimp Hatcheries Production of Shrimp Fly Shrimp Cultured land Unutilized land for Shrimp Culture

148 88 74 129.81million (Lbs) 108.84 (Lbs) 20.97 million (Lbs) 300,000 M. Tons Tk. 2,409.40 Crore (348.28 Million US $) Tk. 616.53 Crore (89.12 Million US $) 130 1200-1500 Crore 170000 Hectare 170000 Hectare for Brackish9 Water Shrimp

Table 02: BASIC INFORMATION ON FROZEN FOOD INDUSTRIES IN BANGLADESH, 2010 (BFFEA, 2009) 1.

Shrimp

Shrimp are swimming crustaceans, decapods classified in the infraorder Caridea, found widely around the world in both fresh and salt water. Adult shrimp are filter feeding benthic animals living close to the bottom.

2.

Bagda Shrimp

3.

Galda Shrimp

Bagda farms are mostly rice fields converted into shrimp ponds varying in size from 0.4 to 200 hactres. Most of the shrimp farmers are not permanent residents of the areas in which their ghers are situated, even the local big landowners typically lease their land to outside entrepreneurs, though it requires saline water throughout the entire process. There are about 105,000 freshwater prawn farms in Bangladesh “Shrimp Region”. Galda farming has increased quite rapidly in recent years because it can be farmed on a smaller scale. The prawns are grown in freshwater that can often be re-used three or four times, the environmental impact is much less than in Bagda farming. Galda shrimp are cultured in ponds and ghers.

Table 03: Classifications of Shrimp

9

Brackish water or briny water is water that has more salinity than fresh water, but not as much as seawater

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Bangladesh is endowed with diversified fisheries resources. These are divided into three groups-

Fisheries Resources (Bangladesh)

Inland Capture

Marine Capture

Aquaculture

Figure 1: Fisheries resources of Bangladesh Inland fisheries cover an area of about 4.6 million hectares of which aquaculture comprises more than 0.5 million hectares (DOF, 2010). However, inland capture fisheries have been under heavy pressure as a result of worsening environmental conditions; siltation in river beds; water pollution from agricultural, industrial and municipal wastes; construction of embankments for flood protection; irresponsible and destructive fishing practices; and loss of natural breeding grounds through habitat degradation. Therefore, Bangladesh has focused its attention on aquaculture, which has a high potential for development (Hussain & Mazid, 2005). The country aquaculture contributes more than 39% (Figure 2) to total fish production in 2008-09 (FSYB, 2010).

19% 39%

42%

Aquaculture

mainland Capture

Marine-Capture

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Figure 2: Sector-wise fisheries production in Bangladesh in 2008-2009 (FSYB, 2010)

Carp aquaculture is rising sharply in Asia. Carp production from Asia contributed 95% to the world total carp production in 2001. In this region, there are more than 20 main inherent carp species, contributing to about 80% of the total freshwater fish production. The most carp production in Asia is contributed by China, India, Bangladesh and Indonesia. Carps are basically the most important species to aquaculture in Bangladesh. In 2001, carp production was estimated as 89% of the total freshwater fish production in the country (Dey, 2005)The proportion of freshwater carps in total fish production is about 35% (Figure 3) in 2008-09 followed by small indigenous species, hilsha, marine fish, shrimp and prawn, and cat fish (FSYB, 2010).

Freshwater Carp 35% Hilsha 11%

marine Fish 9%

Small Indigenous 24% Shrimp and Prawn Cat Fish 9% 12%

Small Indigenous

Shrimp and Prawn

Cat Fish

marine Fish

Hilsha

Freshwater Carp

Figure 3: Contribution of different fish groups in national production in 2008-09 (FSYB, 2010)

3.3 Economic Contribution Shrimp farming and related activities contribute significantly to the national economy of Bangladesh. The main areas of contribution are export earnings and employment generation for on and off farm activities. Fisheries sector contributes 4.57% to the Gross Domestic Product (GDP) and over 22% to the agricultural GDP. Bangladesh earned more than 32 billion BDT by

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

exporting about 73 thousand mt of fish and fish products and contributed over 3% to the country’s total export earnings in 2008-09. The average growth rate of Bangladesh fisheries is 5.4%. Per capita annual fish intake is about 17.5 kg supplementing about 60% of the animal protein of the daily national diet. About 10% of the total population is directly or indirectly employed in the fisheries sector (DOF, 2010). In 2009-10, Bangladesh earned about Tk 45000 million by exporting shrimp (SHAB, 2010) and shrimp alone contributes about 0.07% of total export earnings (BER, 2010 ). Year 1997-1998 1998-1 999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Item Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish Shrimp & Fish

Qty (Million Lbs) 60.85 58.35 74.23 76.70 88.36 75.57 84.48 96.11 107.86 112.15 111.35 117.31 129.81

Value(Million $) 293.84 270.32 343.82 363.23 276.11 321.81 390.25 420.74 459.11 515.32 534.07 454.53 437.40

Taka Crore 1333.13 1316.16 1722.52 1957.79 1585.25 1863.27 2300.92 2587.90 3200.00 3558.78 3663.70 3127.16 3025.93

Table 04: Frozen Shrimp & Fish Exports from Bangladesh (1995-1996 to 2009-2010) (BFFEA, 2009) 4000

VALUES IN CRORE (TK)

3500 3000 2500 2000 1500 1000 500 0 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Figure 04: Frozen Shrimp & Fish Exports from Bangladesh (1999-2000 to 2009-2010) (BFFEA, 2009)

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

4 CCDA10 Prawn Hatchery Project Project Name

CCDA Prawn hatchery Project, Comilla, Bangladesh

Relevant Organization name and Centre For Community Development Assistance Address

(CCDA), Adampur,

Raipur,

Daudkandi,

Comilla

,

Bangladesh Administrative Office: 109 (first Floor) Park Road, New DOHS, Mohakhali, Dhaka-1206 Mailing Address: Box No- GPO-2265, Dhaka-1000 Phone: +88-02-8711215, +88-02-8713137; Cell: +880-1714166125 Website: www.ccdabd.org Project period

Implementation

Period:

2

years

(already

completed) Operational Period: 5 years (incepting from the completion of implementation procedures) Cost of Project

Total:

(In BDT)

In words: Two Crore and Seven Lakh Taka Only

CCDA: PKSF11:

10 11

: 20,700,000.00 Taka

: 6,900,000.00 :13,800,000.00

CCDA: Center For Community Development Assistance PKSF: Palli Karma Shayak Foundation

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

4.1 Conceptualization The aforementioned project was primarily conceptualized as a Value Chain Development project for the enhancement of the income of the floodplain12 aquaculture farmers residing at Daudkandi (Upozilla of Comilla District). Among all the perceived development projects, the prawn nursery was activated in full strength. The nursery result was extremely positive and enthusiastic, passing even international survival percent. The highest survival rate was at best managed state 95%. In a floodplain project, from 30,000 juvenile prawns that weighed 601 kg in total were harvested. The survival rate was 55%, which is 50% higher than the normal survival rate. It was the positive results that led to the idea of proposing the establishment of the aforementioned prawn hatchery project and the extension of the prawn polyculture.

4.2 Background of establishment Daudkandi, Muradnagar and Titas are Upazilla of Comilla district that are adjacent to Titas-Gomti River. These areas along with some other low areas of Comilla district stretch from the banks of the river’s channel to the base of the enclosing valley walls and experience flooding during periods of high discharge. Thus floodplains are created. These aforesaid areas remain under water on an average of 5-6 months in a given year. Following our liberation struggle in 1971, due to the construction of many roads, culverts etc, and many partially secured water area was created. Currently the area of these floodplains in Daudkandi comprises of nearly 6 thousand Acre (2500 hector) of land. No crop is farmed in these areas in times of flooding. Land owners along with other interested local group of people form small organizations and capitalize on this flooded situation by farming various fishes in these flooded lands. CCDA has been helping these entrepreneurial activities by providing training, technical assistance and even financial assistance through PKSF. CCDA through the financial support of PKSF has already planted a ‘Water testing Center’ to measure and ensure the water quality of the nursery ponds.

12

Floodplain: A floodplain or flood plain is an area of land adjacent to a stream or river that stretches from the banks of its channel to the base of the enclosing valley walls and experiences flooding during periods of high discharge

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Along with local species Carps, silver carp, glass carp, Tilapia etc fishes are also farmed in these ponds. CCDA started the ‘Value Chain Development’ project in 2010 with the help of PKSF. Under the ‘Value Chain Development’ project Prawn was included along with other fishes to increase the income of the farmers. 175 farmers were trained in order to conduct the farming of these newly included Prawns and also to overlook the management of the nurseries under this project. All these farmers were successful in producing ‘juveniles’13 (T.B.Bagenal & W.Nellen, 2010) and also in selling those in the market for fish farming. The Prawn Farming requires very less care and food, and that is the reason why considering the low price/investment required buying PLs, the Prawn Farming has turned out to be a very fruitful one.  The project under the ‘Value Chain Development’ scheme, which started in March, 2011, has been able to obtain 3000 KG prawn/shrimps from the first 60 acres of land. o Due to the intensive depth of certain deep floodplains, it was not possible to obtain prawn/shrimps. But it is estimated that a further 100 kg amount of prawn/shrimp will be obtained in near future.  It should be mentioned that, in the first year production in almost 10000 acre of land was not up to the mark.  Farmers are gradually gaining experiences and expertise. It is expected that in future production of prawn/shrimp per acre would be between 100-150 kg, which is an excepted amount in mixed fish farming.

4.3 A brief snapshot of the prawn hatchery project in Daudkandi 

Total area of these floodplains in Daudkandi comprises of nearly 6 thousand Acre (2500 hector) of land.



There 200 flood lands in the respective area.

13

Juvenile: From the time the fish becomes scaled and morphologically resembles the adult until it migrates to sea if it is an anadromous species, or if not, until it is one year old, and provided it is also sexually immature, we call it a juvenile.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’



70 floodplains are developed, comprising 1125 hectors of land( Approximately 45% of total area)(eligible for farming all kinds of fish)



Among these 70 floodplains, Prawn farming is performed successfully in 30 floodplains comprising an area around 200 hectors.

4.4 Success a) Under this project a successful nursery has been constructed and is being operated functionally. They can and have been successfully creating ‘juveniles’ from PLs. b) The farmers who are working under this project and scheme are gradually developing skills and growing interests to farm prawn/shrimp along with other fishes. c) Without expending extra money on food and caring, farmers are being bale to create an extra edge in income level by just bearing the PL expense and learning the technical and operational aspects. d) There is a new enthusiasm building up among the farmers regarding prawn and shrimp farming from both inside and outside of the project undertaken by CCDA. e) A new window of opportunity has been created for not only farmers but also for interested entrepreneurs. f) All these private and public endeavors are fostering local economy as well as national economy by enhancing and diversifying an already established industry of Bangladesh.

4.5 Challenges a) It’s not possible to obtain PL on a local basis. There are prawn PL producing hatcheries in ‘Khulna’ and ‘Nouga’ area. But due to insufficient supply of A-grade PL in proper time, in spite of pre-arranged orders, it was possible to supply only farmers with PL in the second year. b) Due to lack of local supply it will not be possible to supply adequate amount of PL to farmers against high demand. c) Due to long distance transportation and supply, the number of damaged and even dead PL has been increasing. This is seriously damaging the desired production outcome.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

4.6 Project Target The main target of this project is to make PL easily available to farmers in order to enhance and increase the Prawn/shrimp farming and production in floodplain areas of Comilla. Project objectives: i.

Increase the income of fish farmers by enhancing and expanding the Prawn/shrimp production/farming in Comilla floodplains. In order to accomplish this task the availability of PL locally is essential. This is the main objective and target for the ‘CCDA PRAWN HATCHERY PROJECT’

ii.

By ensuring supply of quality PL locally, we can avoid the cost of long distance delivery and transportation along with decreasing or even eradicating the number of dead PL and thus ensuring low cost of Prawn production cost. This will not only increase production quantity but also encourage farmers get more and more involved in this business.

iii.

Diversifying the aquaculture industry in local area. Enhancing Prawn farming will diversify the local fisheries unit.

4.7 Project Implementation procedure and logic The hatchery has been established in CCDA’s own land as an income increasing activity. The nominated land has already been upgraded to the quality of hatchery operation. The site has been developed according to the declared policies and instruction of the Public Works department of Bangladesh government. After the construction was finished salt water (Brine water) with the capacity of 150-200 PPT14 had been collected from salt production fields. Berried Shrimp along with all necessary food items have been collected in due time.

14

PPT: Part Per thousand. PPT is the base unit used to express the salinity of water

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

5 Hatchery Processes and Technical know-how Table 5: Capacity and Production Cycle: Cycle

Duration

Amount

1st Cycle

Last week of March to Last week of April (1 2,000,000 PL (20 Lakh) month)

2nd Cycle

Last week of April to Last week of May (1 month) 2,000,000 PL (20 Lakh) Total

4,000,000 PL (40 Lakh)

Description of the facility: Nursery and reserve pond: 2 ponds measuring 150 decimal and 2 other ponds measuring 30 decimal have been leased in Adampur area for the usage of nursery and reserve. Land description: The land is adjacent to kacha road of Putia Adampur, which is north of Dhaka-Chittagong highway. The land is 150 meter distanced from the highway and falls in east of the kacha road. 

The land is 200 feet in length and 100 feet wide, therefore total 20,000 square feet. The position of this land is 200 feet on east-west and 100 feet on north-south. The eastern portion is 12 feet down from the Putia, Adampur Road and measures 100 feet* 25 feet. Rest of the land is ¾ feet lower from the road on an average.

Hatchery Room: 

The hatchery facility has been developed in east-west portion consisting of (500*100) feet land area. The walls of the main facility building are made of concrete and have necessary ventilations for sun light.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’



The walls are also equipped with sufficient windows comprised of thai aluminum glasses with air tight boundaries. The connection of the rood and wall has been carefully made so that no outside air passes through.



The tin roofs have been connected with terrace in such a way so that the heat from the sun can be absorbed in an environmental friendly manner. There are also pipes for water exhaustion.

Hatchery room (main) tank and other tanks: a. Holding Tank: 3 tanks, each with the capacity of holding 3 tons of water; Mature berried shrimps will be collected from external sources and be kept in these tanks. b. Larva release tank: 3 tanks, each with the capacity of holding 3 tons of water; the selected berried shrimps will be kept for larva release. c. Larva care tank: 20 tanks, each with the capacity to hold 3 tons of water; the larva is taken care off in these tanks. d. Mixing tank: 1 tank with the capacity of holding 30 tons of water; in this tank salted water and fresh water are converted into 10-12 PPT water. e. Treatment tank: 2 tanks, each with the capacity of holding 20 tons of water; after mixing the water is purified in this tank using bleaching powder. f. Brine Water reserve tank: 1 tank with the capacity of holding 30 tons of water; In this tank the collected salt water is preserved. g. Broodstock tank: The broodstock of freshwater prawn can be easily obtained with a steady supply either from farms or natural broodstock. The tank is mainly designed to keep the broodstock before and/or after they spawn. The minimum requirement of the water depth of brood-stock tank is 0.50 m with various shapes. h. Spawning tank: The egg of the freshwater prawn is already fertilized. The berried females can be hatched in aquarium, jar, bucket and/or pail. There is no limitation of the depth of water, and the size.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

i.

Larval rearing tank: The freshwater prawn can be reared from larval stage to juvenile stage in the tank with water depth of 0.20 m. For successful operation the larval rearing tank should be designed to have a water depth at least 0.50 m.

Figure 7: Brood stock holding tank j.

Figure 8: Larva Rearing tank

Phytoplankton tank: This tank is not necessary for the hatchery that is designed for operation with the clear water system. But for those who prefer to use the green water system, or combined green water — clear water technique, the phytoplankton tank is required. To utilize the sunlight with maximum efficiency, and management, the tank should have a water depth of not more than 0.50 m. The shape of the tank can be circular, square or oval.

k. Artemia Hatching Bottle: Standard- 4

22

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Figure 9: Layout of a small scale Prawn hatchery Management Rooms Room type Meeting Room Resting/recreation Room Laboratory Food preservation and reserve PL Packing Resting and sitting room for farmers

position West to the hatchery facility West to the hatchery facility West to the hatchery facility West to the hatchery facility South to the hatchery facility

Number 1 2 1 1 1 1

Pump and machinery house: 1; It is constructed for holding blower, generator and water pump. High water reservoir: a high water reservoirs is placed to hold water up o 2 ton weight Fresh water reservoir underground: The fresh required for shrimp has to be free of all chemical elements. That is the reason why instead of using water from underground, fresh water from rain is collected and preserved in this tank, which is in size 50*25*10= 200 ton in capacity.

23

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Supply and Distribution Channels Supply of salted water: 

Salted water/Brine is usually collected from salted fields. The production of salt is usually done in fields adjacent to Cox’s Bazaar and Maheshkhali Upazilla. The salt is created in the winter season.



Usually 30-35 PPT salted water is brought to the fields for production. This amount wter is then dried under the sun and thus the salinity is increased.



When the salinity level of the water hits 150-175PPT, the water is collected and supplied to Prawn hatcheries.



Rate of per liter salted water is around 3 to 4 BDT15.

Supply and agriculture of Berried shrimp 

Primarily the berried shrimp is collected from the following areas: o Kocha river of Pirojpur, o Andhar manic river of Patuakhali and o Chittagong’s Shakha river, which is adjacent to Halda river



On an average 25 to 30 thousand Larva can be obtained from a shrimp. To produce 40 Lakh/ 4 million PL, at least 3 times Larva is required.



One thing is noteworthy that the PL mortality rate of 65% is considered normal.



To produce 1.23 crore larvas, 600 mother shrimp is required. An approximated amount of 200 BDT is required on an average.



In the initial stage the berried/mother shrimp has to be bought from outside sources. In near future these shrimps will be produced in CCDA’s own ponds.

15

BDT: Bangladesh taka

24

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Distribution and potential buyers 

The total floodplain in Daudkandi is almost 2500 hector or 6000 acre. Just to fulfill the demand of local farmers a staggering amount of 1.2 crore juvenile is required. And to produce 1.2 crore juveniles, at least 3 crore PL is required.



Other than this expand in the proposed 5 districts an additional 3 to 3.5 crore PL will be required.



CCDA can sell the entire PL that is produced in the hatchery just by fulfilling the demands of PL in the floodplains of Daudkandi, Titas and Muradnagar Upazilla.

MANAGEMENT AND OPERATIONS The management and operations of shrimp/prawn hatcheries in the region basically follow similar lines. However, they differ in detail, often depending on local conditions. 

Broodstock development and spawning: o For prawn, berried females are readily available from the wild or under captive conditions.



Larviculture water management and monitoring: o For prawn, green water, clear water as well as a combined green water/clear water rearing system is used. For clear water, the rearing water is usually changed partially (20–60 percent) each day, except in the recirculation system, where only the water lost by siphoning is replaced by freshwater. Water change is carried out after the daily siphoning of bottom wastes. o The rearing tanks are covered to reduce temperature fluctuation and to provide shade for the larvae. o Daily monitoring includes observation of larvae for mortalities, disease and feeding behavior and excess of food on the tank bottom which is siphoned together with other sediments.

25

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’



Warning systems o Some hatcheries are equipped with warning sirens in the event of power breakdown. Most hatchery operators keep a close and continuous watch of their hatchery systems.



Feeds and feeding o

For prawn larvae, feed used include Artemia nauplii, egg custard, or egg custard mixed with fish flour, shrimp meal, mussel or clam meal, screened fresh fish or cockle, but for the first 5 days, usually only Artemia nauplii are used. Feeding is carried out 3–6 times, with Artemia given as the last feed in the evening. The feed is spread throughout the tank, usually with the aeration stopped temporarily to facilitate observation of the feeding. Sometimes, an extra feeding is given during the night.



Diseases and their control o Preventing disease through proper nutrition and maintenance of good water quality is more important than control. However, occurrence of Lagenidium and other fungal diseases is controlled by application of 0.01 ppm malachite green or treflan, bacterial disease by 1 ppm chloramphenicol and 3 ppm oxytetracycline, and Zoothamnium by 10 percent formalin at 5 ppm. o For disease prevention, all rearing tanks and utensils are properly cleaned, and in some cases totally sterilized by chlorination.



Predators and other enemies and pests: These are not major problems but occasionally some aquatic insects are found in prawn larval tanks. These pests can usually be removed by dipping them out.



Harvest methods: Harvest is done by partial draining, then scooping out the post larvae. In bigger tanks, water is siphoned down to 1/3 total volume and the post larvae are gradually drained into a bagnet.

26

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’



Transport methods: In short-distances, the fry are placed in a tank with aerated seawater but for long-distances, the fry are packed in plastic bags in oxygenated seawater of 20– 24°C. Stocking density depends on size and age of fry and transport time

6 Demand Analysis The forecast of demand for prawn PLs has been conducted under the following assumptions: Harvest area and productivity Total area of flood land Developed area of flood land

45%

Developed flood land with prawn harvest Historically observed prawn harvest

2,500

hectare

6,178

Acre

200

No.

1,125

hectare

2,780

Acre

70

No.

200

hectare

494

Acre

30

No.

60

Acre

3,000 50

Expected prawn harvest in future

kg kg/acre

100-150 kg/acre [Base case: 100]

Initial demand estimates according to CCDA 2011

500,000

2012

1,200,000

2013

1,500,000

Survival rate

Min

Max

PL production

25%

35%

Juvenile production

50%

70%

Prawn harvest

45%

60%

Harvest area growth Historical prawn harvest floodplain growth rate Prawn harvest floodplain growth rate

Number of prawns per kg

83% Base

Best

Worst

15%

41.3%

-13%

10

Table 6: Demand Forecast Assumptions The methodology used to forecast demand using these assumptions is explained below. The methodology comprises 3 basic steps: 1. Forecasting the area of flood land utilized to cultivate prawn: Currently 494 acres of flood land is being used by the local farmers to harvest prawn. The core demand for PLs 27

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

comes from the expectation of the final total harvest over this area. The first step to determine the demand involves forecasting the area to be used to cultivate prawn in the next 5 years 2. Back-calculating the number of PLs to be required for the expected harvest: Once the land area to be used for prawn-culture is quantified, total amount of expected harvest of prawns is found using an average productivity estimate [base case: 100 kg/acre]. Subsequently, the standard minimum survival rates at each level of production i.e. survival of juveniles (45%) and survival of PLs (50%) are used to calculate the number of PLs required to realize the production expectation.

3. Scenario analysis using conservative and optimistic approaches: Various combinations of assumptions are then maneuvered to come up with demand figures in optimistic, neutral and pessimistic scenarios. The set of assumptions for the scenarios developed here is as follows: Parameter Flood land area growth rate Rationale

Base case 15% Nominal

Rationale

100 kg/acre CCDA estimate

Prawn harvest productivity

Number of prawns per kg Survival of juveniles in final harvest Survival of PLs in nursery

10 45% 50%

Best case 41.3% Assuming that the entire 2,780 acre of area currently being used for carp culture will come under prawn culture program in 5 years 100 -> 150 kg/acre Assuming the initial harvest results will encourage the farmers to increase target production to 150 kg/acre in the later years 10 45% 50%

Worst case -13% Assuming that the farmers will slowly move away from prawn farming due to unavailability of raw materials and the area will decline to half 100 -> 50 kg/acre Assuming the initial harvest results will discourage the farmers and they would decrease target production to 50 kg/acre in the later years 10 45% 50%

Table 6: Various Assumptions under Various Scenarios

28

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

The demand forecast turns out to be as the following chart illustrates Base case

Best case

Worst case

16,000,000

Reqiured Number of PLs

14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 -

2014

2015

2016

2017

2018

Base case

2,526,013

2,904,915

3,340,653

3,841,751

4,418,013

Best case

2,526,013

3,568,290

6,300,785

10,680,717

15,087,765

Worst case

2,526,013

2,199,022

1,435,770

833,274

725,407

Figure 10: Demand Forecast (see annex for detailed calculation)

29

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

7 Competition Analysis 7.1 Local competition The total floodplain in Daudkandi is almost 2500 hector or 6000 acre. Just to fulfill the demand of local farmers a staggering amount of 1.2 crore juvenile is required. And to produce 1.2 crore juveniles, at least 3 crore PL is required. Other than this expand in the proposed 5 districts an additional 3 to 3.5 crore PL will be required. 

Currently as there is no hatchery in this region, all PLs are brought in from various other places (especially from Khulna region).



CCDA can sell the entire PL that is produced in the hatchery just by fulfilling the demands of PL in the floodplains of Daudkandi, Titas and Muradnagar Upazilla.

From a business point of view and in consideration of the increasing local demand, the setup of CCDA Prawn Hatchery Project seems like an inevitable success. So it can be said that apart from the possibility of problems arising from technical in-efficiency or managerial issues, there is literally no hurdle in-terms of competition from a local regional stand point.

7.2 External (Region) Competition 

Currently all required Pl to produce juveniles in Comilla region comes from areas outside of Comilla that are mainly Khulna, Nouga and even sometimes from Cox’s bazaar.



Many Prawn farmers have good relationship with many hatchery owners of these areas. So they might not feel the urge to destroy a good trading relationship.



Many of the farms have prior deals with hatcheries. Many of them have advance payment deposited, so at least for a certain period they would not be able to buy PL from the CCDA project even if they want to.



‘BRAC Fresh Water Prawn Hatcheries’ situated in Khulna region are the largest supplier of PL in Comilla. So the uppermost distinctive competition may come from the prawn hatcheries of BRAC that are situated in those regions. A general snap shot of the current scenario of BRAC’s fisheries department: (BRAC, 2010)

30

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’ Fisheries16

Number

Carp Hatcheries

04

Fresh Water Prawn Hatcheries

08

Marine Fish Breeding Centre

01

Tilapia Fish Hatchery

01

16

BRAC Fisheries has produced 18 million larvae for freshwater prawn, 6,125 million carp spawn, and 6 million tilapia fry respectively (2008)

31

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

8 Financial Analysis 8.1 Capital Expenditure Estimation The actual capital expenditure has exceeded the budgeted figure by a great deal. Below, the capex budget and actual expenses are illustrated. Total projected budget at the inception

BDT

16,936,500

CCDA Contribution

BDT

6,657,000

PKSF Contribution

BDT

10,279,500

The projected budget at the inception of the project was BDT 16,936,500, of which CCDA committed to provide 39.3% and PKSF committed to provide 60.7%. The breakdown of the budget is as follows. Breakdown of the projected budget Construction and others

BDT

10,956,000

BDT

5,980,500

(responsibility of the contractor) Other Land

BDT

3,000,000

Salary and allowance

BDT

714,000

Working capital

BDT

1,310,000

Pond lease

BDT

150,000

Contingency

BDT

806,500

Total

BDT

16,936,500

After the construction of the facility was complete, there was a cost overrun. The final bill submitted by the contractor amounted BDT 20,792,975. This, combined with the materials costs and Other Initial Capital requirements, sums up to the amount BDT 29,354,300. Corrected budget Bill submitted by the contractor

BDT

20,792,975

Materials

BDT

2,580,825

Other

BDT

5,980,500

(on 25 May 2013)

Land

BDT

3,000,000

Salary and allowance

BDT

714,000

Working capital

BDT

1,310,000

Pond lease

BDT

150,000

Contingency

BDT

806,500

Total

BDT

29,354,300

32

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’ The breakdown of the bill submitted by the contractor is as follows. Notably, the quotation for “Remaining Work” (marked in red below) is no more valid as construction cost has gone up to BDT 2,000,000 by now. Hence while considering the initial expenses, the latest cost estimate for “Remaining Work” has been taken into account. Breakdown of the bill submitted by the Contractor Tender wise bill

BDT

11,802,000

Group A

BDT

4,550,000

Group B

BDT

4,520,000

Group C

BDT

2,732,000

Tender wise extra work bill

BDT

2,760,540

Group A

BDT

1,365,000

Group B

BDT

1,395,540

Other work

BDT

5,091,935

Remaining work

BDT

1,138,500

Hatchery Boundary Wall

BDT

112,500

Connecting road

BDT

745,000

Balcony finishing

BDT

281,000

Materials

BDT

2,580,825

Total

BDT

23,373,800

Contractor's bill

BDT

11,666,528

Materials

BDT

2,580,825

Total

BDT

14,247,353

Of this amount, BDT 14,247,353 has been already paid as shown below. Amount of the bills paid

So far, BDT 18,129,110 has been received as fund, of which PKSF provided BDT 5,299,286 as the first installment of the fund disbursement. The remaining amount (BDT 12,829,824) has been brought on the table by CCDA. Fund inflows From PKSF (till 25 May 2013)

BDT

5,299,286

From CCDA

BDT

12,829,824

Contractor's bill and working capital

BDT

9,829,824

Land

BDT

3,000,000

Total

BDT

18,129,110

33

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

8.2 Revenue Forecast Based on the demand analysis, the required production will be as below: Table 7: Cycle-wise Production Requirement Scenario

Base Case

Best Case

Worst Case

Cycle 1

Cycle 2

Total required production

2,000,000

576,534

2,576,534

2,000,000

963,014

2,963,014

2,000,000

1,407,466

3,407,466

2,000,000

1,918,586

3,918,586

2,000,000

2,000,000

4,000,000

2,000,000

576,534

2,576,534

2,000,000

1,639,656

3,639,656

2,000,000

2,000,000

4,000,000

2,000,000

2,000,000

4,000,000

2,000,000

2,000,000

4,000,000

2,000,000

576,534

2,576,534

2,000,000

243,003

2,243,003

1,464,485

-

1,464,485

849,939

-

849,939

739,915

-

739,915

The sales forecast has been conducted using a rather conservative approach. Based on the total demand, the production during the 2 cycles has been distributed. If demand exceeds the singlecycle capacity of the hatchery i.e. 2,000,000 PLs, the remaining PLs would be cultured and sold in the next cycle. Pricing varies for the outputs of the 2 cycles: the second batch is usually priced lower to compensate for the lower demand after the peak of the season i.e. the first cycle.

34

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

To account for the PL wastage/mortality during transportation from hatchery to the consumer end (nursery), 2% extra PLs are included in the final packaging. Hence, the price of this excess amount of PL is not realized through sales. Globally, hatchery operations are subject to the risk of complete washout of one cycle of production every certain cycle. For instance, the CCDA Prawn Hatchery project has experienced such a production loss in its first-ever production attempt, due to the carbon produced by the generators penetrating the air blower machine and intoxicating the oxygen provided in the tanks. The sales forecast has taken into consideration such production losses. The frequency of the washouts varies under different scenarios. Since it is not possible to forecast the exact cycle to face such damage, the loss has been equally distributed to all the forecasted production cycles. Table 8: Sales Assumptions Extra PLs to account for mortality during transportation

2%

of the actual sales quantity

Price/PL (Current) – peak time Expected maximum price/PL – high demand Expected minimum price/PL – off-peak time

2.5 4 1.5

BDT/PL BDT/PL

Juvenile production Price/Juvenile

1.25% 8

of total production BDT/Juvenile

Resale value of Berried prawn Production risk assumptions

1 every 7 cycles will be completely damaged under base scenario

The hatchery would also generate additional revenue from the sale of berried prawn after extracting eggs from them and also the sale of juveniles from the adjacent nursery.

The set of assumptions for the scenarios developed here is as follows: 35

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Box 3: Various Assumptions under Various Scenarios Parameter Price (Cycle 1) – BDT/PL Price (Cycle 2) – BDT/PL Rationale

Base case 2.5 1.5 CCDA estimates

Production loss (1 every __ cycles) Average production per cycle Loss distribution per cycle

7 1,686,560

Best case 2.5 -> 4 1.5 -> 2.5 Assuming that high demand will drive the price up to BDT 4/PL during peak time and BDT 2.5/PL during offpeak time 10 1,821,619

Worst case 2.5 -> 1.5 1.5 Assuming that low demand will push the price down to BDT 1.5/PL during peak time and keep it flat during off-peak time 4 1,124,839 281,210

The final revenue forecast is illustrated in the following figure. Base case

Best case

Worst case

14,000,000

Projected Revenue (BDT)

12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 -

2014

2015

2016

2017

2018

Base case

5,092,584

5,769,789

6,534,893

7,402,866

7,540,252

Best case

5,360,156

7,171,398

10,047,650

12,319,948

12,319,948

Worst case

4,909,243

4,302,005

2,551,076

960,186

781,287

Figure 11: Revenue Forecast (see annex for detailed calculation)

36

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

8.3 Expenses Forecast Expenses for the project have been forecasted very conservatively, considering high cost inflation for most of the components. The following table summarizes the cost components and their growth assumptions. Table 9: Cost Components Item of expenditure

Unit number

Price per unit

Total (BDT)

Growth

(BDT) Berried prawn Artimia Cyst Transportation cost for berried Brine Fuel for generator Generator capacity Time Total required electricity PBS Commercial tariff Electricity Bill Expected electricity supply Manpower time Hatchery Manager H. Technician Mechanics Guard Maintenance of hatchery Unseen expenditure Pond lease

1000 8 dozen 2 50 MT 1000 hr*4 ltr/hr = 4000 24 kW liters 1000 hour 24000 kWh/cycle 7.79 BDT/kWh 12 months 50% of total time required 0 1 4 1 2 L/S L/S 2 ponds

300 70,000 20,000 5,000 68.12

300,000 560,000 40,000 250,000 272,480 per cycle

2,000

24,000

40,000/month 10,000/month 20,000/month 6,000/month

520,000 520,000 260,000 156,000 100,000 50,000 150,000

10% 15% 10% 5%

5% 5% 5% 5% 5% 5% 5%

Larva obtainable from Berried Prawns

10,000

Notably, expenses from the purchase of berried prawn, Artmia cyst, fuel and power supply are the variable cost components. The remaining items are fixed expenses. In determining fuel and power cost, it is considered that 50% of the required power will be obtained from Palli Bidyut Samiti connection at 7.79 BDT/kWh (flat rate for commercial entities. The remaining will be produced by the generators.

37

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

8.4 Income Statement The income statement for the project is constructed as below. It is to be noted that depreciation has not been accounted in the statement as the project’s income is not subject to taxation, therefore no significant tax advantage will be gained from considering depreciation. Base case

Best case

Worst case

10,000,000

Net Income (BDT)

8,000,000 6,000,000 4,000,000 2,000,000 -2,000,000 -4,000,000

2014

2015

2016

2017

2018

Base case

1,833,960

2,261,931

2,648,649

3,066,424

2,877,730

Best case

2,101,532

3,413,223

5,982,795

7,970,502

7,657,427

Worst case

1,650,619

969,688

-453,027

-2,017,644

-2,344,161

Figure 12: Net Income Projection (see annex for detailed calculation)

38

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

8.5 Important Income Statement Ratios In analyzing the financials, it is important to look at various ratios. The following table summarizes the key Income Statement components as a percentage of total revenue. Table 10: Key Income Statement Ratios 2014

Component as percentage of sales 2015 2016 2017

2018

Expected revenue Sale of berried prawn Sale of juveniles Total Revenue

94% 1% 5% 100%

94% 1% 5% 100%

93% 1% 5% 100%

93% 1% 5% 100%

93% 1% 5% 100%

Berried prawn cost Artimia Cyst Fuel for generator Electricity Bill Total Variable Costs

6% 8% 5% 4% 24%

7% 8% 5% 4% 24%

8% 10% 4% 3% 25%

8% 12% 4% 3% 26%

9% 13% 4% 3% 29%

Contribution Margin

76%

76%

75%

74%

71%

Transportation cost for berried Brine Manpower Maintenance of hatchery Unseen expenditure Pond lease Total Fixed Cost

1% 5% 29% 2% 1% 3% 40%

1% 5% 26% 2% 1% 3% 37%

1% 4% 25% 2% 1% 3% 35%

1% 4% 23% 2% 1% 2% 32%

1% 4% 23% 2% 1% 2% 33%

Net Income Margin

36%

39%

41%

41%

38%

The above box reveals that Salary Expenses is the single most important expense account for the project. It suggests that the manpower is subject to their best utilization throughout the year, in order to sustain the viability of the project. Another observation is that the cost for procuring Berried Prawn and Artimia Cyst is expected to go up in the coming years, especially the anticipated hike in the price of Artimia Cyst (from 8% to

39

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

13% of revenue in 5 years) may be very a crucial obstacle on the way to survival. It is important to ensure spontaneous and cost-effective sourcing to cope with the price hike of these items.

8.6 Feasibility Analysis The financials projected and shown in the preceding sections are used to test the project’s financial feasibility. The Net Income figure has been used as a proxy to Free Cash Flow, as the Net Income figure omits Depreciation and the hatchery transactions are completed on cash basis, therefore leaving no accruals to account for. The following assumptions have been undertaken for discounting purpose. Discount rate:

12.50%(1-year FDR rate: opportunity cost of fund)

Terminal growth rate:

5%

The following tables summarize the project’s feasibility under various scenarios: Table 11: Feasibility under Base Case Base case 2013

Total initial outlay

30,215,800

Cash flow profile (a)

30,215,800

2014

1,833,960

2015

2,261,931

2016

2,648,649

2017

3,066,424

Terminal cash flow (b) Total cash flow (a+b) Net Present Value

2018

2,877,730 40,288,227

30,215,800

1,833,960

2,261,931

2,648,649

3,066,424

43,165,957

826,858

Payback period

10.22

IRR

13.3%

years

40

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

Remarks: The project is deemed feasible, as the Net Present Value (BDT 0.83 mn) is positive and IRR (13.3%) is more than the opportunity cost of capital. However, the payback period is poor at 10.22 years, meaning CCDA and PKSF needs to be involved in the project for at least 11 years to recoup the investments. If the project’s feasibility is measured considering CCDA’s investments only, the following 2 scenarios are obtained. 1. CCDA bears the entire amount except for PKSF’s committed fund of BDT 10,279,500: The initial outlay is BDT 19,936,300, of which CCDA has already made available BDT 12,829,824. CCDA needs to disburse BDT 7,106,476 more in order to implement the project. The project’s feasibility becomes: Net Present Value: BDT 9,964,192 Payback Period: 7.32 years IRR: 24.6% The project’s viability picture improves significantly and the payback period comes down to around 8 years. 2. CCDA bears only the amount that has been made available till date: The initial outlay in this case is BDT 12,829,824, the amount CCDA has already made available to the project. CCDA needs to arrange for BDT 12,086,690 more from donor funds like PKSF, in order to implement the project. The project’s feasibility becomes: Net Present Value: BDT 16,281,059 Payback Period: 5.05 years IRR: 38.4% The project’s viability picture improves significantly and the payback period comes down to around 5 years. 41

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

8.7 Feasibility Analysis under Different Scenarios The project’s feasibility is compared under various scenarios in the following table. Table 12: Feasibility Comparison under Different Scenarios Tool Full

initial NPV

outlay:

Payback Period

BDT 30,215,800

IRR

CCDA

pays NPV

entire

extra Payback Period

amount:

IRR

Base Case

Best Case

Worst Case

BDT 826,858

BDT 42,014,993

BDT -43,620,292

10.22 years

5.38 years

NA

13.3%

38.5%

NA

BDT 9,964,192

BDT 51,152,326

BDT -34,482,959

7.32 years

4.06 years

NA

24.6%

52.5%

NA

BDT 16,281,059

BDT 57,469,194

BDT -28,166,091

5.05 years

3.17 years

NA

38.4%

69.5%

NA

BDT 19,936,300 CCDA pays no NPV more:

Payback Period

BDT 12,829,824

IRR

42

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

9 Scope for Expansion The hatchery will be producing prawn PLs in 2 cycles (April-May and May-June). The remaining portion of the year, the capacity in terms of manpower and facility would remain unutilized. Therefore, CCDA’s plan is to expand the operations to a carp and cat fish hatchery and generate additional revenue. The expansion would have the following incremental impact on the project’s cash flow: Table 13: Incremental Yearly Effect of Expansion Extra capital

BDT

3,000,000

expenditure

Additional expenses Brood for Major and Minor carp for 200kg spawn Stimulating hormone

2,000 40

Netting and other miscellaneous cost Cat fish

kg boxes

300 1,500

BDT/kg

600,000

BDT/box

60,000

L/S 20

kg

20,000 1,000

BDT/kg

20,000

Total

BDT

700,000

4000

BDT/kg

800,000

1

BDT/fry

200,000

Additional revenue Sale of Carp spawn

200

Sale of Cat Fish fry

200,000

kg

Total

BDT

1,000,000

The extra capital expenditure would involve building marketing office, guest room, extra bottles for hatchery operations etc. Feasibility Analysis The financials projected and shown in the preceding sections are used to test the project’s financial feasibility. The Net Income figure has been used as a proxy to Free Cash Flow, as the Net Income figure omits Depreciation and the hatchery transactions are completed on cash basis,

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

therefore leaving no accruals to account for. The following assumptions have been undertaken for discounting purpose. Discount rate:

12.50%(1-year FDR rate: opportunity cost of fund)

Terminal growth rate:

5%

The following tables summarize the project’s feasibility with the effect of additional carp hatchery operations: Table 14: Feasibility Comparison with Carp Hatchery Operations under Different Scenarios Tool Full

initial NPV

outlay:

Payback Period

BDT 30,215,800

IRR

CCDA

pays NPV

entire

extra Payback Period

amount:

IRR

Base Case

Best Case

Worst Case

BDT 1,181,411

BDT 42,369,546

BDT -43,265,739

10.14 years

5.55 years

NA

13.5%

37.0%

NA

BDT 10,318,745

BDT 51,506,879

BDT -34,128,406

6.54 years

4.29 years

NA

23.6%

49.3%

NA

BDT 19,302,279

BDT 60,490,413

BDT -25,144,872

4.57 years

3.05 years

NA

42.2%

71.8%

NA

BDT 19,936,300 CCDA pays no NPV more:

Payback Period

BDT 12,829,824

IRR

The feasibility analysis shows that the expansion very slightly increases the viability of the project compared to stand-alone prawn hatchery operations, due to high initial investments and low yearly value addition (BDT 300,000 only). However, considering the utilization of idle resources and the potential social impact of the expansion, the expansion may be undertaken.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

10 Risks & Mitigation There are mainly 4 types of risk that may affect the project operations. The risks are explained below along with possible mitigation measures. Risk

Details

Mitigation

Demand risk

The demand for locally cultured and

Proper marketing, capacity and

distributed prawn PLs may fall

awareness development programs for

unexpectedly due to –

farmers,

Consistent lack of adequate supply of

When demand would surpass the

PLs and other raw materials for

production capacity of the hatchery,

harvest,

capacity expansion would be required to sustain competitive position in the

Poor harvest compared to

market to stay ahead of possible local

expectations, and

competition.

Siphoning of required investments toward other profitable use of floodplains. Pricing risk

Lower demand, lower purchase power

Maintaining quality, commitment and

of the farmers may make incremental

sincerity in realizing the long-term

pricing unviable.

vision of the project.

In such cases, the project might need to Providing micro-credit to the farmers actually decrease the selling price of

may be a cushion for the project. This

the PLs.

way the pricing does not need to be redefined; rather CCDA’s micro-credit operations also get additional business.

Cost inflation

The cost of berried prawns, artemia

Cost-efficient and spontaneous

risk

cyst and salary of employees are the

sourcing is required for artemia cysts.

prime areas to look out for. The prices 45

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’ of berried prawns and artemia cyst are

Berried prawn may be sourced from

expected to rise at very high rates.

local farmers, in-house ponds etc.

Skilled manpower is hard to find for

There are no alternatives to paying the

such projects, hence the employee

employees a higher salary, however,

salary expenses contribute to a large

best use of the employee pool would

chunk of the total cost. Overall

be required to generate higher return

headline inflation would push the costs

on investments throughout the year.

up in the coming years.

Fuel cost and electricity tariff may rise in the coming years due to expected shortfall in gas production and power generation. Production risk

Any damage caused during production

This risk may be addressed through

by natural calamities, spreading of

increasing efficiency of the facility and

disease or pollution through air or

manpower. Cautious care and strict

water may wash away partial or a

health checking procedures may ensure

complete production cycle.

minimal exposure to any such risk.

In fat, the hatchery’s very first production cycle has been wiped away due to carbon pollution as the air blower caught the smoke of the generators. Later the generators have been separated from the air blower machine room by wall and other caution measures have been taken.

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

11 Social and Environmental impact of the CCDA Hatchery Project: Social Impacts: a) Every year a minimum number of 30 Lakh juvenile will produced from 40 Lakh PL. If 15 Lakh juveniles (15 per Kg) survive from that lot then 100 metric tons of prawn can be produced. If the retail price is set TK 600 per kg the earnings will amount to TK 6 crore. b)

By spending TK 60 Lakh on just flood plain PL and extra 20 Lakh BDT on food, a total of 80 Lakh BDT it is possible produce 6 crore or more shrimps/prawns.

c) Using this money extra loan can be disbursed among both nursery farmers and prawn farmers. By this the loan activity organization may earn almost 80 Lakh BDT through service charge. d) Circular Fund (fund cycle): The amount that will earned by selling the PL produced in the hatchery and the juveniles produced in the nursery, will be submitted in a circular fund. A fixed policy will developed to direct and manage that fund. If required, then this fund may be used in other value chain development projects by the permission of PKSF. Environmental effects: a) Fresh water prawn hatchery does not generally pose any sort of adverse effect to the environment. Chemical, anti-biotic or any other material that is harmful to the environment will not be used in this project. b) After using salt in the hatchery for multiple times, the water will be dried under the sun to convert it into salt, which will be used to fight diseases. c) The PL produced in the hatchery will be cultivated in the nursery to convert it into juvenile to preserve tem for further culturing. d) In every step cleansing will be done using bleaching powder of 60-65 % chlorine. That is why it is very unlikely for environmentally harmful substances to be fabricated.

47

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

e) Only 100 gram carbon is exhausted from 1 kg shrimp whereas 400 grams carbon is exhausted from 1 kg of beef. That is why prawn farming in fresh water is more like to contribute positively to ecosystem. f) In mixed aquaculture Prawn eats the wasted and rotten substances that are left over in the floor of the water body.

48

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

12 Conclusion & Recommendation The comprehensive analysis of the project’s business model, market demand and financials demonstrates that the project in hand is feasible under the following circumstances (noteworthy) Base case scenario and  Best case scenario. On the other hand although the worst case scenario gives completely negative picture of the project performance, it is highly unlikely for the market forces to behave according to those assumptions. The expansion plan adds to the project’s baseline performance, hence is feasible to undertake. However, the additional value is virtually insignificant. A summary of the different scenarios in terms of financial performances and its relationship with feasibility is as follows: Scenario

Feasible?

Best Case

Yes

Base case

Yes

Worst Case

No

Notes

The possibility of this scenario is highly unlikely to occur considering the high local demand and accord market forces

The Expansion

Yes

Plan adds to the project’s baseline performance. However the additional value is virtually insignificant.

49

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

The project’s payback period is quite long, minimum 6 years under base case and minimum 4 years under the best case. On an average it would take 

Around 9 years to recoup the total investments,



7 years to recoup CCDA’s investments if CCDA invests BDT 19.94 million (no external fund support for the extra expenses), and



5 years to recoup CCDA’s investments if CCDA invests only what they have already made available for the project i.e. BDT 12.83 million.

A few recommendations to ensure the project’s viability in real life would be: i)

Go for the operations expansion as soon as possible: The expansion plan would not only generate additional value (be it insignificant), it would also create shield for possible production losses of prawn hatchery operations. Shiftless human and idle material resources may further damage in skills and effectiveness if remained unused.

ii)

Arrange for external low-cost fund or grant to pay for the excess expenditure: In order to ensure quicker payback of investments, CCDA needs to minimize its financial exposure in this project. It would be of CCDA’s interest to arrange for additional external funding for the excess capital expenditures.

iii)

Active marketing: The best case scenario is neither easy nor impossible to achieve. The key is to intrigue the owners/farmers of the floodplains, who are yet not a part of the existing prawn culture industry, to begin prawn farming. It is important to carry out active marketing to motivate the people actively rather than passively waiting for the demand to be created inevitably.

iv)

Expansion of prawn PL production capacity: If the demand surpasses the production capacity of the hatchery permanently, increasing the PL production capacity would help keep up with the market, increase revenue stream, and shorten the payback period. a. Adding an extra cycle of production may help resolve this issue in the short-term (if not technically unviable).

50

Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

13 Annexure 1: Summary of Assumptions

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

14 Annexure 2: Revenue Projection

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

15 Annexure 3: Expense Projection

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

16 Annexure 4: Income Statement

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

17 Annexure 5: Output (Prawn)

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Financial feasibility analysis of ‘CCDA Prawn Hatchery Project’

18 Annexure 6: Output (Prawn and Carp)

56