Mekong River Commission
Financial analysis and risk assessment of selected
aquaculture and fishery activities in the Mekong Basin
MRC Technical Paper
No. 5
April 2002
Published in Phnom Penh in April 2002 by
the Mekong River Commission
This document should be cited as:
Hambry, John. Financial analysis and risk assessment of selected aquaculture and fishery activities in the
Mekong Basin. MRC Technical Paper No. 5, Mekong River Commission, Phnom Penh. 67 pp. ISSN: 1683-
1489
The opinions and interpretations expressed within are those of the authors
and do not necessarily reflect the views of the Mekong River Commission.
Editor: Ann Bishop
© Mekong River Commission
P.O. Box 1112, 364 M.V. Preah Monivong Boulevard
Phnom Penh, Cambodia
Telephone: (855-23) 720-979 Fax: (855-23) 720-972
E-mail: mrcs@mrcmekong.org
Website: www.mrcmekong.org
Acknowledgements
This project was undertaken with funding from the Danish government (through DANIDA). Local staff
provided substantial assistance in assimilating data, and undertaking preliminary analysis. Much useful
information was also provided in the informal workshops. The following actively contributed to the study:
Don Griffiths, READ Viet Nam, Cambodia
John Sollows, MRF Dak Lak
Wolf Hartmann, MRF Lao PDR
Pham Cu Thien, READ Viet Nam
Chweng Touch, READ Cambodia
Kaing Khim DoF Cambodia
Chhor Bunly, MRC READ Cambodia
Hav Viseth, AIT AARM Cambodia
Ouk Vibol, Aquaculture of Indigenous Mekong Fish Species, Cambodia
Truong Ha Phuong, MRF Dak Lak, Viet Nam
Vo The Dung, MRF Dak Lak
Nguyen Thi Nhung, MRF Dak Lak
Son Dak Lak Aquatic Products Hatchery No. 2, Viet Nam
Phoui Siksidao, MRF Lao PDR
Saleumphone Chanthavony, MRF Lao PDR
Mr. Somboon, LARReC
Sommano Phounsavath, LARReC, Lao PDR
Sola Simmalavong, LARReC, Lao PDR
Niklas Mattson, MRF/AIMS
Eric Meusch, AIT AARM
Daouieng; Souamh, Nam Ngum Reservoir
Most commonly-used acronyms
MRC
Mekong River Commission
READ
Rural Extension for Aquaculture Development Project
MRF
Management of Reservoir Fisheries project
AIMS
Aquaculture of indigenous species in the Mekong
OFT
On-farm trials
A-system
Pond aquaculture without the use of animal manure
VAC
`Vuon-Ao-Chuong' or Garden-Pond-Pigsty
LARReC
Lao PDR Aquatic Resources Research Centre
Contents
1 Summary ------------------------------------------------------------------------------------------------------------------------------------1
1.1
Overview ----------------------------------------------------------------------------------------------------------------------------- 1
1.2
Applications-------------------------------------------------------------------------------------------------------------------------- 1
1.3
Conclusions ------------------------------------------------------------------------------------------------------------------------- 2
1.4
Recommendations------------------------------------------------------------------------------------------------------------------ 2
2 Approach and methodology--------------------------------------------------------------------------------------------------------3
2.1
Logistics and focus----------------------------------------------------------------------------------------------------------------- 3
2.2. Measures of financial performance -------------------------------------------------------------------------------------------- 4
2.3
Sources of variation in financial estimates----------------------------------------------------------------------------------- 4
2.4
Capital costs and opportunity costs -------------------------------------------------------------------------------------------- 5
2.5
Surveys, case studies and models ---------------------------------------------------------------------------------------------- 5
2.6
Risk assessment--------------------------------------------------------------------------------------------------------------------- 6
2.7
Subjective risk assessment------------------------------------------------------------------------------------------------------- 8
3 Previous data collection and analysis ------------------------------------------------------------------------------------------9
4 Pond aquaculture and alternative activities in Tien Giang Province, Viet Nam------------------------ 11
4.1
Financial returns - baseline survey--------------------------------------------------------------------------------------------11
4.2
On-farm trials -----------------------------------------------------------------------------------------------------------------------15
4.3
Comparison with alternative activities ---------------------------------------------------------------------------------------17
4.4
Comparative evaluation of risk ------------------------------------------------------------------------------------------------20
4.5
Overall conclusions---------------------------------------------------------------------------------------------------------------23
5 Pond aquaculture and alternative activities in Cambodia--------------------------------------------------------- 25
5.1
Financial returns baseline survey-------------------------------------------------------------------------------------------25
5.2
Financial returns on-farm trials ----------------------------------------------------------------------------------------------25
5.3
Comparison with alternative activities ---------------------------------------------------------------------------------------28
5.4
Risk------------------------------------------------------------------------------------------------------------------------------------28
5.5
Overall conclusions READ Cambodia ------------------------------------------------------------------------------------30
6 Cage aquaculture and fishing in Lao PDR-------------------------------------------------------------------------------- 31
6.1
Typology of cage aquaculture systems --------------------------------------------------------------------------------------31
6.2
Culture of snakehead in cages in Nam Ngum Reservoir ----------------------------------------------------------------32
6.3
Culture of Tilapia in cages in the Mekong River--------------------------------------------------------------------------33
6.4
Cage culture of silver carp ------------------------------------------------------------------------------------------------------34
6.5
Pen culture of mixed species in Nam Ngum reservoir-------------------------------------------------------------------34
6.6
Fishing--------------------------------------------------------------------------------------------------------------------------------34
6.7
Overall conclusions cage aquaculture and fishing in Lao PDR-----------------------------------------------------34
7 Reservoir fisheries, cage culture of grass carp, and alternative enterprises in
Dak Lak, Viet Nam------------------------------------------------------------------------------------------------------------------- 37
7.1
The role and importance of reservoir fisheries in the Provincial economy -----------------------------------------37
7.2
The role and importance of reservoir fisheries in the local economy ------------------------------------------------38
7.3
Economic returns and employment in reservoir fisheries---------------------------------------------------------------39
7.4
Cage culture of grass carp-------------------------------------------------------------------------------------------------------41
7.5
Coffee production -----------------------------------------------------------------------------------------------------------------43
7.6
Rice production --------------------------------------------------------------------------------------------------------------------43
7.7 Risk------------------------------------------------------------------------------------------------------------------------------------43
7.8
Overview: rice, coffee, fishing and cage culture --------------------------------------------------------------------------43
8 Summary, conclusions and recommendations ------------------------------------------------------------ 45
8.1 Key elements of financial feasibility assessment -------------------------------------------------------------------45
8.2
Analytical risk assessment ------------------------------------------------------------------------------------------------------46
8.3
Subjective risk assessment------------------------------------------------------------------------------------------------------47
8.4
Accessibility to the poor---------------------------------------------------------------------------------------------------------47
8.5
Previous data collection and analysis ----------------------------------------------------------------------------------------47
8.6
Examples from READ Viet Nam: pond aquaculture and alternative activities in Tien Giang Province,
Mekong Delta ----------------------------------------------------------------------------------------------------------------------48
8.7
Examples from READ Cambodia pond aquaculture and alternative activities in three Provinces --------48
8.8
Examples from MRF Lao PDR cage culture of Tilapia, snakehead and silver carp; reservoir fishing-- 49
8.9
Examples from MRF Project, Dak Lak, Central Highlands of Viet Nam reservoir fisheries;
cage culture of grass carp; coffee and rice ----------------------------------------------------------------------------------49
8.10 Major conclusions---------------------------------------------------------------------------------------------------------------- 50
8.11 Recommendations-----------------------------------------------------------------------------------------------------------------51
9 References ------------------------------------------------------------------------------------------------------- 53
Annex 1:
Measures and indicators of financial performance --------------------------------------- 55
Annex 2:
Fish combination recommendations to farmers, READ on-farm trials,
Tien Giang province, Viet Nam--------------------------------------------------------------- 59
Annex 3:
Spreadsheet models of selected enterprises------------------------------------------------- 61
Annex 4 :
Economic approaches to assessing the aquaculture potential of
indigenous species ------------------------------------------------------------------------------- 63
Summary 1
1.1
Overview
The objectives of this study were:
? An assessment of the financial feasibility and risks for low income target groups of interventions in
aquatic resource development; interventions in resource/habitat protection and the enhancement
produced or proposed under the MRC fisheries programme; and
? Increased capacity of the implementing agencies in the monitoring of short/medium term financial
and economic feasibility of aquatic resource development interventions and related risks for target
groups.
Section 2 of the report describes the approach taken to financial and risk analysis in this study, and serves
as a simple guide for undertaking such analyses more generally. Section 3 provides a brief overview and
critique of previous financial data collection and analysis. Sections 4 to 7 provide examples of financial
and risk analysis related to the MRC Rural Extension for Aquaculture Development (READ) project, and
the MRC Management of Reservoir Fisheries (MRF) projects in the Lao People's Democratic Republic
(Lao PDR), Cambodia and Viet Nam. Section 8 provides a detailed technical summary of the report, and a
comprehensive set of conclusions and recommendations. The appendices provide various supporting
information, including a possible approach to financial appraisal of new aquaculture candidates (requested
by the AIMS project). A comprehensive spreadsheet incorporating all financial models used in the
analysis is available separately.
The study concludes that several different forms of pond and cage aquaculture are very financially
attractive, with acceptable levels of risk, and offer significant potential for poverty alleviation.
A major recommendation is to use financial analysis and risk assessment early on in the project cycle to
help identify and refine useful interventions, and provide essential information for those who may wish to
diversify into new activities in aquatic resource development and management.
1.2
Applications
The information and analysis will be useful to those engaged in aquaculture development and extension,
whether government, aid agencies, development banks, NGOs or commercial enterprises. It provides
simple, but vital, information on key financial and risk characterist ics of different activities, and especially
aquaculture. It emphasises, however, that these characteristics may change significantly according to local
conditions, and should be treated as examples.
Section 2, on approach and methodology, provides concise and simple advice on how to undertake
financial and risk analyses in support of research, extension or development projects.
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
1.3
Conclusions
1.
Aquaculture in ponds and cages has high potential in Lao PDR, Cambodia and Viet Nam, in terms
of both commercial development and small-scale family enterprises directed at poverty alleviation.
From a financial perspective, aquaculture compares well with alternative traditional enterprises such
as rice and fishing, and other new enterprises such as fruit and coffee production. Risk levels are
necessarily somewhat higher than traditional activities, but generally similar to, or lower, than other
new enterprise types.
2.
The high levels of variation in performance found in baseline surveys suggest both the opportunity
and the need to identify and extend a range of financially attractive production systems suited to
different household or enterprise types.
3.
There are significant differences in the returns from similar enterprises in different countries. This
suggests the need for a broader economic study to examine price and cost differences between
countries, and their implications for trade and future price trends.
4.
Stocking of small reservoirs generates very high returns, and can be organised as a managed
"enterprise" relatively easily. The financial benefits of stocking larger reservoirs are less clear, and
the social and economic issues, including resource access and allocation, are complex, requiring
much broader social and economic analysis than was possible in this study.
5.
Socio-economic surveys, and especially baseline surveys, have been ambitious and detailed, but
have not been used effectively as tools for identifying or refining interventions, especially extension
recommendations.
1.4
Recommendations
1.
Financial appraisal requires a thorough knowledge of both technologies and the development
context. Where possible it should be undertaken by local technical staff trained in the basics of
financial analysis appropriate to small-scale enterprises.
2.
Baseline surveys should be less detailed. They should be analysed prior to extension or advisory
interventions; followed up with more focused survey or case studies; used as the basis for financial
and production models; and linked to an evolving extension programme.
3.
Communicating the financial and risk profile of alternative enterprises and technologies should be a
key part of project and extension activity.
4.
Histograms and scatter graphs, rather than summary statistics, should be used to explore and present
the nature of variation in financial performance, and this should provide pointers for further analysis
and research, indications of levels of risk, and important information for extension advice.
5.
Where possible, returns to the enterprise or household, to land, to labour and to capital should all be
calculated, since these different returns are of greater or lesser importance, depending on local
conditions and individual needs and perspectives. An estimation of minimum start-up investment
and risk of failure should also be key components in the analysis, especially when assessing the
potential for poverty alleviation.
6.
Labour is a key resource and input to any new enterprise, and must be carefully accounted for in
financial analysis. Care must be taken to distinguish between actual labour input and minimum
necessary labour input; the latter is the critical measure in financial appraisal.
7.
Financial analysis, ideally undertaken by the same analyst and based on similar assumptions, should
be undertaken in respect to existing or possible alternatives to any proposed intervention.
2
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Approach and methodology 2
2.1
Logistics and focus
The consultant visited four Mekong River Commission (MRC) Fisheries Programme Field Stations over a
period of one month. These were the Rural Extension for Aquaculture Development (READ) project in
Phnom Penh, Cambodia; the READ project in Cai Be, Viet Nam; the Management of Reservoir Fisheries
(MRF) project in Ban Me Thuot, Viet Nam; and, the MRF project in Vientiane, Lao People's Democratic
Republic (Lao PDR). Three short (1/2 to 1 day) field trips were undertaken to gain a better understanding
of some of the key issues. These included visits to a hatchery in Dak Lak province in Viet Nam; to
government fishery staff, and a village on the Nam Ngum reservoir in Lao PDR; and to farmers
participating in the READ project in Cambodia.
Time was severely constrained, with four to six days spent at each field office. During this time the nature
of the MRC interventions, and the local development context were discussed; relevant reports and papers
reviewed; the nature and quality of data in project databases was explored; and, in close collaboration
with local staff, financial, economic, and risk analyses were undertaken.
In all cases, the production and financial performance of fishing, aquaculture, and alternative activities
were explored using the information available, supplemented with minor additions from field visits or
targeted phone calls. Financial assessment was made of the following activities:
1.
Small scale integrated pond culture, Tien Giang Province, Viet Nam
2.
Rice-fish culture, Tien Giang Province
3.
Rice cultivation, Tien Giang Province
4.
Fruit cultivation, Tien Giang Province
5.
Cage culture of grass carp in reservoirs, Dak Lak Province, Viet Nam
6.
Small scale reservoir fishing, Dak Lak Province
7.
Large scale reservoir management for fisheries, Dak Lak Province
8.
Rice cultivation, Dak Lak Province
9.
Coffee cultivation, Dak Lak Province
10. Cage culture of snakehead, Nam Ngum reservoir, Lao PDR
11. Cage culture of Tilapia in the Mekong River, Lao PDR
12. Pen culture of mixed species, Lao PDR
13. Small scale fishing, Nam Ngum reservoir, Lao PDR
14. Small scale integrated pond culture, Kandal, and Prey Veng Provinces, Cambodia
15. Rice cultivation, Takeo Province, Cambodia
In many cases, significant financial analysis had already been carried out, and this was developed and
built on where possible. However, the information available varied greatly, and some of the assessments
were much more detailed and thorough than others. This made comparisons between enterprises difficult.
The data analysis was followed up with one or two short informal workshops on "risks and returns" with
project staff and other interested professionals. Subjective scores related to financial structure and
performance, risk exposure and risk incidence were derived for project-related activities (such as
aquaculture and fishing) and actual or potential alternatives, such as rice cultivation, or vegetable
3
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
production. This not only supplemented the more formal analysis, but provided a tremendous amount of
information and understanding related to financial performance and the risk profile of alternative
activities.
2.2.
Measures of financial performance
Where possible, the following performance measures and financial characteristics were assessed for each
of the interventions:
? the profit or cash return to the enterprise or household (sometimes referred to as net revenue or net
income);
? the cash return on the factors of production (capital; land/water; labour); and the sensitivity of
these returns to changes in production parameters, input prices and product value;
? the variation in these returns between farmers/fishermen (related to location, management
practices etc.);
? the variation in returns for an individual farmer/fisherman, related to production risks (such as
crop loss) or market risk (e.g. falling price of product);
? the profit margin [(profit/sales revenue)*100 percent], which measures vulnerability to a fall in
product value or an increase in production costs.
The relative importance of simple measures of return on labour ($/person day1), land (profit/ha) and
capital (profit/capital investment) depend on the value or scarcity of these resources to different
households and the intensity of their use in the production process. This varies significantly both within
and between countries. For poor people engaged in relatively labour intensive activities, return to the
household or enterprise, return on land, and return on labour are commonly more relevant than return on
investment. The latter is, however, of concern to those who may lend money for modest investments.
Where possible, therefore, all of these measures were used when comparing activities, and their relative
importance discussed according to the local context.
There is some confusion surrounding the term "internal rate of return" (IRR) as a measure of return on
investment capital. Correctly speaking, IRR is the discount rate that reduces net present value (NPV) to 0
in a discounted cash flow (DCF) analysis. Such analyses are appropriate for investment appraisal of major
projects requiring a series of investments over several years and generating a varied inc ome stream and
erratic cash flow. The term is misused in several MRC reports as meaning the simple ratio of profit/total
investment for relatively short-term investments of the kind considered here. This ratio is more properly
termed Return on Investment (RoI).
A complete list of financial measures and ratios, with details of their meaning and derivation, is provided
in Annex 1.
2.3
Sources of variation in financial estimates
Figures quoted for actual and potential financial returns from farm level activities are tremendously
variable. This variation reflects both real and apparent variations in performance. Real variation may
reflect differences attributable to:
? natural conditions such as soil and water quality, climate through time and space;
? variations in production technology and intensity;
? knowledge, skill and management capacity;
? scale of enterprise;
? variations in market price related to variable marketing infrastructure;
? losses caused by disease or theft.
1 All figures given in dollars are US dollars
4
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Some of this variation in performance is predictable in theory; some (such as that related to disease or
catastrophic events such as flooding) may be more difficult to predict or analyse.
False variations relate to:
? Data inaccuracies arising from misinterpretations of farmer/fisher question naire responses and/or
subsequent errors in data handling (especially in large data sets);
? Different assumptions or methods of calculating financial ratios;
? Technical optimism, where figures are generated by technical specialists from production
parameter based financial models, typically based on best trial results, rather than on
commercially-realistic estimates.
In this study particular attention was paid to the presentation and analysis of variation in performance
between different households. Where possible, selected information was plotted in the form of scatter
graphs and histograms to provide an overview of the nature and distribution of financial performance.
These plots, rather than simple performance averages (which can be seriously misleading) were also used,
where possible, to compare different kinds of enterprise. They provide a sound basis for the analysis of
real and false variations of the kind described above. They also serve as a key starting point for the
assessment of risk.
2.4
Capital costs and opportunity costs
In calculating return to labour, the capital costs related to land preparation and pond digging, and
opportunity costs of using on-farm inputs, may or may not be included. Similarly, when calculating return
to land (e.g. profit/ha) and profit margin, these costs - and also those relating to the opportunity cost of
on-farm labour are sometimes excluded explicitly or implicitly from analyses.
If these costs are excluded, wholly or partially, it becomes impossible to make sensible comparisons
between different kinds of enterprise; and different analysts are likely to generate very different results.
Previous analyses of MRC interventions varied greatly in the extent to which information on these costs
had been collected, and in the way that they were accounted. This has been a significant constraint on the
analysis presented here.
In the following analysis, we have included all such costs where relevant, and where information was
readily available, except for initial land clearance and field creation for rice cultivation. This is because, in
most cases, the paddies are "given" in the sense that they have been existence for many years and their
creation no longer represents a real cost to target beneficiary farmers. Where this is not the case, as in
areas where land is being settled and cleared for agriculture, it should of course be included. In some
cases, where it was appropriate to exclude some costs to inform the discussion, this is explicitly stated.
2.5
Surveys, case studies and models
Where available, survey data were used as a starting point for financial analysis. Where performance was
near normally distributed, average values, and some measure of variation, were used to describe financial
performance and generate an empirical financial model. This was used, for example, for rice production,
where management practices and seed types are relatively consistent and standardised. This empirical
model could, in some cases, be transformed into a corresponding parameter -driven production-financial
model, allowing for the exploration the production system's sensitivity to changes in costs, prices, and
production parameters.
Where performance was highly variable (as for example in the baseline survey of pond culture in Tien
Giang Province) an attempt was made to identify and analyse sub-types, or at least to explain the wide
variation in terms of different stocking and management practices. Unfortunately, shortage of time limited
the extent to which this was possible.
5
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
In some cases, survey data were not available, and simple models were generated based on one or more
examples or case studies.
2.6
Risk assessment
Risk assessment requires a consideration of both exposure to risk and the likelihood of certain risk events
occurring.
Estimating risk exposure
Risk exposure has two components: the level of investment, and the time period over which the
investment is outstanding. The longer the lead time and the production cycle, and the higher the
investment, the greater the exposure to risk. In this study, several indicators of risk exposure were used:
? the total investment required before achieving a return;
? the time delay or "lead time" before the return occurs;
? the length of the cropping cycle;
? the working capital required for each cycle.
These also serve as indicators of the extent to which opportunities are available to the poor, since both the
amount of financing and the period over which it is available are limited for poor people.
Profit margin measures exposure to a fall in product price or an increase in input costs, and is therefore
also an index of risk exposure.
Risk exposure may be converted into an overall compounded index of exposure such as:
1. Lead time x enterprise investment/profit margin
2. Crop working capital x cropping cycle length/profit margin
Risks to the individual farmer/fisher over time
The probability of certain risk events taking place, and the financial consequences of such events (e.g.
complete crop loss), can sometimes be calculated. For example, climatic records may allow for a rough
estimate of the probability of flooding (e.g once in five years or 20 percent) and both overall returns, and
the frequency of particular levels of loss, may be calculated. Time and/or data were inadequate to
undertake such a rigorous analysis in this study.
It was particularly difficult to make rigorous assessments of the risk from disease, which tends to be
highly erratic and potentially catastrophic. In this study assessment of disease risk was largely subjective
and based on limited expert consultation. A more thorough study is required which would compare
disease and predation risks across different kinds of enterprise.
Risks in terms of overall performance of individual farmers/fishers
Performance of fishers and farmers varies tremendously related to scale, local conditions, skills etc. This
was analysed as described above using histograms and scatter graphs. Specific measures and indicators
were then derived, including:
? Proportion of farmers making a loss;
? Proportion of farmers achieving return on labour lower than the agricultural (casual) wage rate.
In practice, this was only possible on the basis of variation between farmers in any one year. Ideally the
variation in performance of individual far mers through time should also be examined.
6
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Sensitivity analysis and switching values
The sensitivity of a production enterprise to changes in input costs, market price, and production
parameters (relationships between inputs and outputs) is sometimes used to assess the risks or likelihood
of financial failure. It provides more specific and strategically useful information than profit margin.
Sensitivity can most easily be measured as the percentage change in a cost, value or parameter required to
reduce net revenue to zero, or reduce returns to land, labour and capital to unacceptable levels. The
likelihood or risk of such changes taking place can then be assessed.
In practice, this type of analysis is more
usually applied to well-established systems
with clear relationships between inputs and
outputs. Most of the systems studied here
were not clearly defined, and inputs were
dominated by labour. Only very simple
forms of sensitivity analysis were therefore
used. Wherever possible simple switching
values were estimated. These were critical
values of prices, costs or production
parameters that would reduce returns to
zero, or to below acceptable levels
generated by alternative activities such as
rice production.
Other measures of risk
The coefficient of variation (standard
deviation/mean) was used as a measure of
risk in the READ Tien Giang baseline
survey report. This measure is not
particularly meaningful when applied to
returns that are in any case highly variable
for a variety of reasons. While risk implies
variation in performance, variation in
performance does not necessarily imply
high risk. In the case of the baseline data,
variation was mainly attributable to the use
of different species, different stocking rates
etc. In any case, great care must be
exercised when comparing variation. In the
baseline survey, the data were separated
into three intensity categories based on
production/ha, and the coefficient of variation was calculated for each of these. An examination of the
frequency distribution of production shows no clumping of data corresponding to these categories
(Figures 1 and 2), but rather a continuum of production related to a wide range of factors. The definition
of the groupings was therefore arbitrary, and the corresponding variation therefore also arbitrary. In any
case, the three groups are non-comparable from a statistical perspective, since the first includes zero
values, and the third (intensive) group is unbounded (i.e. could theoretically rise to infinity). We would
therefore expect a higher coefficient of variation in the lower (extensive) group and the higher (intensive
group), with less variation in the intermediate (semi-intensive) group. Unsurprisingly, this is what was
found.
In practice, such an approach would be useful and meaningful if the categories being compared were
defined in terms of the production system (e.g. species, stocking density, or feed intensity) rather than the
production rate. The variation in production for each of these technically-defined systems could then be
compared, so long as production variation was near normally distributed, and the data were not bounded
in any way.
7
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
2.7
Subjective risk assessment
It is often not possible to quantify the risks, or the measures used may not allow for comparison between
activities. In such cases, a more subjective form of risk assessment can be undertaken closely related to
multi-criteria decision analysis (MCDA). This was done at each of the field stations visited, with the help
and involvement of technical staff. Ideally farmers, fishermen (as appropriate) and technical specialists
from different fields should be included.
Firstly, the major risks were identified and listed on a matrix against alternative development options. The
vulnerability of each option to each risk was then discussed, and scored on a scale of 1 to 5 or 1 to 10, as
agreed. The completed matrix provided an overview of the risk characteristics of different options, and
provided a basis and framework for overall comparison discussion, and organisation of information.
Scores were summed in some cases to summarise the results and to further stimulate discussion, although
this must be done with great care since the nature of risks may differ significantly. This problem can be
addressed to some ext ent by weighting the risks and applying the weighting to the score. Any aggregate
score of this kind is questionable, however, and should be used as a tool to stimulate discussion rather
than as a firm criterion for decision-making.
This vulnerability to external risk factors was then compared with financial risk exposure as described
above. High vulnerability, coupled with high financial exposure implies high risk.
Aggregated indices of risk
This process can be taken a step further by actually multiplying a score related to vulnerability by the
score derived for financial exposure described above. However, as noted elsewhere, such aggregate scores
are generally more useful as tools for discussion rather than as absolute criteria for decision-making and
strategy development, and they have not been used in this study.
8
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Previous data collection 3
and analysis
In all cases financial and economic data had been collected, analysed and reported to a greater or lesser
degree over several years. In the case of READ, substantial socio-economic studies had been undertaken,
including a major base-line study in Cai Be and a Master's research study in Phnom Penh.
Most of this work is thorough and of high quality. However, there are some limitations and problems with
the analyses. It should be emphasised that these inadequacies are common to the great majority of
development programmes:
1.
Where comprehensive financial and socio-economic analyses have been undertaken, this has
generally been too late to be of much strategic value to the projects. Financial and risk analysis
should be a key tool for analysing performance in practical terms, and for identifying appropriate
interventions and recommendations. Furthermore, the communication of simple financial and risk
profiles of alternative activities should be a key part of any extension activity not an end-of-
project exercise.
2.
The financial returns from enterprises are typically described and compared using a single average
figure (in some cases a range, or other measure of variation) derived from surveys, which does not
adequately address the nature of the variation in the returns, and the implications of this variation to
new entrants;
3.
Much of the information related to variation in performance (typically the "project database") is
compounded with apparent variation related to the nature of farmer responses and interviewer
interpretation. In some, possibly most, cases this "false" variation may swamp real variations;
4.
There has been inadequat e attention paid to identifying and analysing different "types" of enterprise
or management system (another major source of variation in the survey data), and then exploring in
more detail, the strengths and weaknesses of these using case studies and production/financial
models. Such analysis should be used to inform the adaptation and refinement of extension
strategies;
5.
While return on land (e.g. net revenue or profit/ha) and capital (percent return on investment) are
almost always calculated, return on labour, which is often of particular concern to small enterprises,
is less often reported. Also conventions for its calculation that are appropriate to small-scale rural
enterprises, are not well established.
6.
Approaches to accounting (or not) family labour and certain kinds of capital expenditure are varied,
and assumptions are not always clear in reported figures or database calculations. Variation in
approach between projects and field offices makes cross-regional comparisons difficult, and in
some cases, impossible;
7.
Thorough risk assessment is rarely undertaken, and there is no widely-adopted format or framework
for risk assessment which would allow for comparison between different kinds of intervention and
existing farmer/fisher activities;
9
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
8.
Financial performance is often reported for a particular intervention, without comprehensive
comparison with existing or possible alternative activities. Lacking any local reference point, these
figures may be meaningless. This is a particular problem where interventions imply changes in
resource use patterns;
The first of these is probably the most serious. A great deal of work has been undertaken by MRC staff
and others to provide information on socio-economic and financial issues related to aquatic resources
development. The focus of this work has been on collecting data and setting up databases. The analysis
has not been linked directly to extension activity, and has had limited strategic impact. A less ambitious
preliminary survey, analysed prior to extension or advisory interventions, followed up with more focused
surveys or case studies, and linked to an evolving extension programme, would be far more effective.
10
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Pond aquaculture and 4
alternative activities in
Tien Giang Province,
Viet Nam
4.1
Financial returns - baseline survey
READ undertook a comprehensive baseline
survey of 361 households engaged in pond fish
culture (integrated with animal husbandry
(VAC2); not integrated with animal husbandry
(A-system); rice-fish cultivation; and seed
production/nursing. A report based on this
survey has recently been produced
(Sethboonsarng et al. 1999). The analysis here
seeks to build on that work, and extend it with
examples of analysis of variation in
performance, risk and comparison with other
activities.
A-system
Pond culture is relatively new in the province, and a wide variety of species, stocking rates (Figure 3) and
feeding and fertilising strategies are practiced.
This variation in production systems is
reflected in huge variation in yield (Figure 4).
The yield histogram shows significant
numbers of farmers failed to achieve any
significant production. The reasons for this
were unclear, but warrant further investigation.
It also shows that many farmers achieved very
high rates of production, although some of the
more extreme figures may be unreliable.
Financial performance in terms of net revenue
per hectare was estimated, including a charge
for the value of on-farm feed and fertiliser
inputs, but excluding capital costs for pond
construction, which were not included in the
2 `Vuon-Ao-Chuong' or Garden -Pond-Pigsty
11
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
database (Figure 5). Performance was
correspondingly varied and rather poor
in many cases. A total of 36 percent of
farmers made a loss in real terms. These
figures would be significantly worse if a
charge were to be made relating to the
capital costs of pond construction. 3 On
the other hand, 50 percent made in
excess of $500/ha/yr, which is roughly
the return from rice farming (double crop
see below).
In order to explore the nature of the
variation and to provide some insights
into factors generating higher returns, the
relationship between net revenue and intensity (measured in terms of total seed, feed and fertiliser
economic costs) is plotted in Figure 6. It is clear from this chart that input intensity is not the main factor
delivering higher returns indeed it is
clear that very high returns can be
generated with very modest inputs. This
suggests great potential for extension
interventions building upon existing best
practice. The nature of this best practice
should be revealed by studying the
farms corresponding to the data points
in the upper left corner of the "data
cloud". It is also notable that the
proportion of farmers suffering a loss (in
real terms) does not appear to increase
with increasing intensity. Again, this
finding warrants further investigation.
Return on labour was not calculated for
the baseline A-system because of doubts about the accuracy and utility of the data. The figures for labour
utilisation are very varied and generally very high (Figure 7). This variation will have real and false
components. Information on
labour use on family farms is
notoriously inaccurate, and very
broad comprehensive surveys are
unlikely to allow for an accurate
and thorough appraisal. It is
probably best approached using a
few detailed case study
explorations of different types of
enterprise. This would also allow
for an estimate of the minimum
labour requirement for a particular
type or scale of enterprise the
key parameter for financial
analysis.
3 Pond construction costs were not included in any of the previous analyses, on the basis that many already existed (dug out to provide material
for house building, or paid for by development).
12
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Baseline VAC
The VAC systems used similar (high) stocking densities to the A system (Figure 8), but generated
somewhat higher yield (Figure 9), with a significant group of farmers producing in excess of 25t/ha/cycle.
While the data for some of the higher yields may be questionable, there are sufficient data points to
suggest that very high yields are indeed possible, probably where significant quantities of animal manure
are used.
Note: the change in the scale on the x axis compresses the data for higher levels of production and disguises
the very long tail.
13
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Corresponding to the variation in yield
Figure 10
and the variation in the use of inputs,
there is tremendous variation in net
revenue per hectare (Fig 10), with
similar performance to that achieved
in the A system. Significant numbers
of farmers (30 percent) made a loss,
when the market equivalent costs of
on-farm feeds are included. On the
other hand, 64 percent achieved more
than $500/ha/yr which might be
made from rice production and 32
percent made more than $2,000/ha/yr,
corresponding to a very healthy
income
Where such high variation exists, an
understanding of the relationships
between the intensity of use of inputs,
yield and return is of particular
concern to farmers and extensionists.
This is vital if projects are to learn
from practical experience, and if
sensible extension advice is to be
given. The relationships are shown in
Figures 11 and 12. The total value of
on- and off-farm food and fertiliser
inputs is used as a measure of input
intensity and plotted against net
revenue and profit margin.
Although there is substantial residual
variation, net revenue appears to increase significantly with increasing inputs up to around $5,000/ha/yr,
but beyond this, there is no clear relationship, and some farmers suffer significant losses. There is no clear
relationship between profit margin
and input costs. Together these
suggest that medium intensity systems
perform best, and the nature of these
systems and their input strategies
deserve further exploration in the
field. Of particular interest are those
farms generating $15-20,000/ha/yr
with input costs of $4-5,000.
The reasons for farmers making a loss
are also worth exploring. A total of 29
percent of the farmers in the baseline
survey made a loss when on-farm
inputs are included. Losses would be
even more significant if capital costs
for pond construction were to be
included. Even where the cost of on-
farm inputs is excluded, 15 percent of farmers still made a loss. The reasons behind these losses could not
be explored in this study, but warrant further investigation.
14
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
4.2
On-farm trials
Only data for 2000 were seriously explored in this study.
Figure 13
The most conspicuous difference between
the trial farmer performance and that of
baseline survey farmers is the consistency
of results. This is directly related to the
fact that farmers were obliged to follow
recommendations (Annex 2). Farmers
kept close to the recommended stocking
rate of five per square metre (average 5;
max 8; min 2). As a result, yields and
returns are also far more consistent
(Figures 13 and 14). This also tends to
confirm the view that variation in baseline
data is not associated with risk, but with
varied management practice.
Unfortunately, the on-farm trial net
revenue data presented here is not directly
comparable with the baseline data, since
on-farm input costs have been excluded
from the former. Rough comparisons can,
however, be made. Fewer farmers
performed badly compared with the
baseline survey. Only two farmers out of
80 made a cash loss, and roughly 5
percent made a real economic loss when
the value of on-farm inputs is taken into
consideration. On the other hand, rather
few farmers made returns comparable
with the better farmers in the
baseline survey, with less than 16
percent achieving more than
$2,000/ha, compared with 32
percent in the baseline survey.
However, most farmers (more
than 80 percent) achieved returns
to land (net revenue per ha)
substantially higher than that
possible from rice production.
As with the baseline data, it is
informative to plot returns against
investment costs. There appears to
be only limited relationship
between investment in feed and
fertiliser and return on land
(Figure 15). This might be expected since production is constrained by recommended stocking rates, and
marginal increases in production and revenue will therefore decline as inputs increase. Related to this,
there is a clear decline in profit margin with increasing intensity (Figure 16).
15
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Although variation in performance is much lower than that in the baseline survey, it is nonetheless high
when compared with well-established activities such as rice cultivation. It is particularly notable that
many farmers are achieving high cash returns (>$2,000/ha/yr) using very modest cash inputs. While part
of this is probably due to the availability of on-farm inputs, the actual practices used by the best farmers
(in terms of financial performance rather than production) should be studied.
The relationships can be further explored using multiple histograms The data were sorted and divided into
three classes according to the total expenditure on crop inputs (seed, feed, fertiliser, pumping, but
excluding on-farm labour and capital costs associated with pond digging). Distribution frequencies of net
revenue were then generated (Figure 17) to explore differences between the groups, and the possible
benefits, or otherwise, of higher input investment.
The chart shows little difference between the first two groups but higher returns generated from the
highest levels of investment. There is one important outlier, where a farmer with low apparent investment
generated very high returns. This case is clearly worthy of investigation.
Unfortunately data on labour utilisation were not available for the on-farm trials in Tien Giang, and return
on labour could not be calculated. However, data are available from comparable sources and "typical"
return on labour can be estimated (see below).
16
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
4.3
Comparison with alternative activities
Given the nature of the variation in performance described above, it is difficult to compare pond
aquaculture with other better-established activities, or indeed to make general analyses of its financial
desirability. As noted elsewhere, average figures have limited meaning. The problem is compounded
when different data sources present different kinds of financial information that may not be comparable.
Notwithstanding these limitations, simple models were developed based on average performance. This
was done for the various groups studied in the baseline survey and in the on-farm trial data. Missing
parameters and other information (such as the costs of pond construction, use of labour etc.) were
estimated from other sources or from first principles, as appropriate. These models also allow for the
estimation of sensitivity to changes in input costs, market price, and production parameters.
Financial models for other activities were developed in a similar way, though based on more limited
information. A summary of data derived from a survey of rice farmers in Tien Giang was available from
the local government offices, and this was used to develop a simple financial model of single and double
cropping of rice. Limited data were also available on returns from fruit tree production.
Details of all models used in this study can be found in Annex 3, and in the accompanying spreadsheet.
The results are summarised in Figures 18 and 19 and in Table 1. It should be noted that returns are
generally lower than those shown above since all economic costs (including capital (pond) costs and the
value (opportunity cost) of on-farm inputs) have been included to allow for realistic comparison.
Most striking is the very high average performance of the baseline survey VAC system, compared with
the A system and the on-farm trials. However, the on-farm trials and the A-system (baseline) compare
well with rice double cropping when labour and capital are excluded. However, the high cost of pond
construction results in negative return when both are included. While returns from the A system (baseline)
and OFT appear similar, it should be remembered that the A system generates far more variable returns.
Return on labour shows a corresponding pattern, with significant returns well above the agricultural
labour rate ($1.5-2/day) for the VAC baseline data. Return on labour is also relatively high for the OFT
and A system where pond construction costs are excluded, but falls close to zero when included.
However, much depends on the assumptions used for labour requirements. Because of the questionable
nature of the data on labour, I have used a standard rate of one person/ha/year, which is typical for
commercial labour requirements on semi-intensive pond fish farms in Asia.
Rice-fish, especially in the on-farm trials, generates low net revenue per hectare, but is not strictly
comparable because this is an additive rather than an alternative enterprise. The nature of labour inputs,
capital (refuge ponds) and management issues would all need to be explored in depth before useful
conclusions could be drawn.
17
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
18
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Table 1 Comparison between different economic activities in Tien Giang Province, Viet Nam
Net revenue Net revenue Return on
Return on
Profit
Profit
Return on Return on Minimum
Payback
Currency values in $
/ha/cycle
/ha/cycle
labour (incl. labour (excl. margin (incl. margin
investment investment start up
(incl. labour (excl. labour capital)
capital)
labour and
(excl. labour (strict)
(1st crop)
investment
and capital) and capital)
capital)
and
capital)
A system baseline
(355)
1,353 0.11
7.22
-12%
45%
-3%
-2%
150
-37.6
VAC baseline
3,429
5,137 20.29
27.40
49%
73%
26%
22%
152
3.9
Rice-fish baseline
58
505
NA
2.3
6%
42%
NA
3
0.0
OFT 2000
(377)
1,331 (0.01)
7.10
-15%
45%
-3%
-3%
145
-35.3
OFT 2000 rice fish
-
62
NA
NA
Rice double cropping
236
627 2.14
2.14
25%
65%
NA
41%
2
NA
Fruit (orange)
14,955
94%
100%
NA
1742%
0
NA
Note: Figures are based on average performance; Brackets indicate negative values.
19
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
4.4
Comparative evaluation of risk
Risk exposure
Profit margin
Profit margin is generally high (40-70 percent) for all enterprises (Figure 20). However, if labour is
factored in, the margin falls significantly for rice. If both labour and pond construction costs are added in,
both the baseline A system and the OFT incur losses. Any fall in price would seriously undermine
capacity to repay a loan on pond construction.
Minimum startup investment requirements
Minimum startup investment is calculated as capital investment + input investment in the first crop
(excluding labour). As with the other calculations, the cost of land clearance/flattening/irrigation etc. for
rice is not included. However, the costs for pond construction are included.
Minimum startup investment cannot be defined without first defining the minimum scale of activity. In
the following, it is assumed that the minimum size of pond is 100 square metres and the minimum plot of
rice is 500 square metres. Clearly such scale of activity would only be feasible where family labour is
used.
On this basis, the startup investment for all enterprises is very modest. The baseline A system, VAC, and
on-farm trials all require roughly $133 for pond construction. Additional investment in each crop amounts
to between $11 for the OFT and $19 for the VAC baseline. The extensive, semi-intensive and intensive
models used in the baseline report, correspond to crop investments of $15, $21 and $51, respectively.
These crop investment costs rise by a further $3-10 if all inputs have to be purchased off farm. By way of
comparison, investment in annual inputs for 500 square metres of rice (double crop) or fruit trees, would
be similar at around $17.
Overall, there is little difference between aquaculture and rice production, in terms of investment in the
crop. The risk exposure is related mainly to pond construction, especially where non-family labour is
used.
Note: rice and rice fish do not include a capital charge
20
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Payback period
The payback period was calculated for the model A and VAC systems, the OFT 2000 data, and for the
three intensity-level models described in the baseline report (Figure 21). Only the VAC baseline model
and the intensive baseline farms generated sufficient return to pay off capital in a reasonable time (two
years and three years, respectively). The A system model and the on-farm trials both had payback periods
of 14 years, and the extensive and semi-intensive models described in the baseline report (Sethboonsong
et al. 1999) did not generate sufficient income to pay off any capital costs. This suggests that lending
money for pond construction to be managed under the OFT recommendations, would not be economic,
and there would be a high risk of hardship and/or default. Rather more intensive systems would be
required to reduce the investment risk.
Production risk
It was not possible to analyse effectively the risk of not achieving an expected rate of production, as a
result of factors such as disease, water quality, seed quality etc. To do this would require either data on
individual farm performance over time, or, less satisfactorily, data showing variation in performance
between farmers using some standard production technology package. Although the OFT farmers used a
fairly standard package, there was nonetheless wide variation in the species used, size at stocking, and the
ratio between different types of feed and fertiliser input. These differences were far greater in the baseline
survey, and almost certainly swamp any variation related to production risk and uncertainty. As noted in
the methodology section, using measures such as the coefficient of variation is largely meaningless in
these circumstances.
However, it is clear from the distribution frequency of net revenue, that the performance of OFT farmers
is far more consistent than that of baseline farmers, with a lower proportion of loss-making farms. In this
sense, READ recommendations have reduced risk, presumably by excluding the worst or most-risky
production practices.
The scatter graphs of net revenue versus input intensity, are intended, in part, to assess the degree to
which returns and risk change with changes in intensity. While there is no clear relationship in the case of
the A system, and the on-farm trials, the baseline VAC data suggested a significant increase in risk, and
no significant increase in return, when the total economic cost of inputs exceeds $6,000/ha/yr. This
analysis is taken a step further in Figure 22 by comparing the proportion of farmers failing to achieve
positive returns with average net returns at increasing levels of intensity. Although the sample is limited
for levels of input intensity greater than $6,000/ha/yr, the chart suggests that input levels between $4,000
and $8,000, generate very high average returns with relatively low rates of failure. Above $8,000/ha/yr,
21
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
both returns and success rates decline rapidly. It is notable that the input costs under READ OFT
recommendations, correspond to less than $2,000/ha/yr. It appears that these levels may be sub-optimal
from a financial and risk perspective, although the relationships would need to be explored more fully in
the field.
Vulnerability to external risk factors
In a short workshop, a group of staff from the Cai Be field station helped identify risks, and the
vulnerability of different activities to these risks. Each selected activity was scored on a scale of 1 (low
risk) to 5 (high risk), in relation to each risk factor. The results are presented in Table 2.
Table 2 Workshop -generated risk assessment matrix
Theft
Market
Input Flooding Temp.
Disease
Acid
Water Pollution
Seed
Total
price
price
extremes
water
shortage
quality
VAC
3
2
2
3
1
1
3
1
2
1
19
Pig
1
4
4
1
1
3
1
1
1
3
20
Rice
1
3
3
2
2
3
3
2
1
1
21
Rice- fish
5
2
1
4
1
1
3
3
2
1
23
Cage
1
1
5
1
3
5
1
1
3
3
24
Fruit
3
4
2
5
3
3
3
1
1
3
28
Sum
14
16
17
16
11
16
14
9
10
12
Rice-fish, fruit farming, and cage aquaculture showed the highest overall scores, and these were the only
activities to score 5 against any single risk criteria. The VAC system was rated lowest risk overall.
This exercise was undertaken by technical staff with an interest in aquaculture, and, while every attempt
was made to be objective, the results may be somewhat biased. Ideally th e exercise should be undertaken
with technical specialists from other disciplines (agriculture, arboriculture), with extension officers and
with farmers themselves.
22
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
4.5
Overall conclusions
Small-scale pond aquaculture is extremely diverse in terms of both financial return and risk. The baseline
survey suggested that returns can be very high, and well above those generated by rice cultivation and
other alternative activities. Risks from external factors appear to be relatively low compared with
alternative activities.
However, many farmers in the baseline survey (VAC and A system), and especially those using very high
levels of inputs, made losses in real terms (29 percent), and significant numbers made losses in purely
cash terms (14 percent). On the other hand, of those farmers participating in the READ on-farm trials,
very few (2.5 percent in 2000) made losses in cash terms.
Unfortunately, this reduced failure rate was achieved at a significant cost, with substantially lower average
returns from the on-farm trials compared with the VAC baseline farmers, and with the negative average
returns in the OFT, if all costs, including capital costs, are taken into account.
The analysis of risk and performance of VAC baseline farmers suggests that higher returns (well in excess
of total economic costs) can be achieved with relatively low risk of failure. This requires that inputs be
used more intensively than those recommended in the trials, but at less than the extreme levels used by
some baseline farmers. The management practices of the successful existing farmers operating at these
levels deserve further investigation, and the possibility of testing modestly-increased inputs in future
on-farm trials should be explored.
Rice-fish culture appears to generate modest additional income in the baseline survey (cash net revenue
$58/ha per cycle or $505, including and excluding labour and capital respectively); and $62/ha/cycle
(excluding labour and capital) in the on-farm trials.
23
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Pond aquaculture and 5
alternative activities
in Cambodia
5.1
Financial returns baseline survey
No original analysis was undertaken of the Cambodian baseline survey data for this study. In the report of
the baseline survey (Setboonsarng et al. 2000), no financial analysis was undertaken of existing pond
aquaculture and alternative systems. It is notable that this report was completed in April 2001 too late to
have any significant influence on the evolving extension recommendations.
5.2
Financial returns on-farm trials
Very limited time was available to gain a full understanding of the farming systems and database. The
following analysis is therefore selective, designed to illustrate specific issues.
Production rates
Production rates were somewhat lower
in the Cambodia READ trials,
compared with those achieved in Viet
Nam, with production rates around
4t/ha/cycle being most commonly
achieved. The average in 2000 and
2001 was around 4.3 tonnes/ha per
eight-month cycle. As with Viet Nam,
however, significant numbers achieved
higher rates up to 9t/ha (Figure 23).
Return on land
Net revenue per hectare (based on cash
costs) in the on-farm trials averaged
around $3,600/ha/cycle in both 2000
and 2001. This is almost double the
returns achieved in Viet Nam, despite the slightly lower rates of production. This is due mainly to the
significantly higher farm-gate value of fish in Cambodia (around $0.8/kg) and Viet Nam ($0.5/kg). Given
the proximity of the two study areas, and the increasing quality of transportation infrastructure, it is
unlikely that such a differential will be maintained in the medium term.
25
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
These returns are much higher than
those achieved in rice farming, which
are very low, especially in the study
area (around $110/ha/yr). As a result
of poor quality soil, farmers can
produce only one crop of rice per
year.
Scale issues
When considering the suitability of
any enterprise as a tool for poverty
alleviation, the issue of economies of
scale arises. Can very small-scale
producers compete with larger
enterprises? This issue is explored in
Figure 25 by plotting cash net
revenue/ha against pond size. The
overall impression is of tremendous
variation in performance irrespective
of pond size. It is also clear that
many small-scale farm ers with ponds
less than 200 square metres achieve
good returns, comparable and
sometimes better than those received
by larger-scale farmers. However,
the failure rate (when defined as
negative net revenue, inclusive of a
labour charge) is higher for farms
with less than 200 square meters
(roughly 20 percent) compared with
farms of more than 200 square
meters (around 7 percent). The
causes of this failure would need to
be explored before final conclusions
on this issue could be drawn.
Return on labour
The use of labour in the on
farm trials in Cambodia is
very intensive, and highly
variable (Figure 26)
although less so than that
collected for the baseline
survey in Viet Nam. This is
related to the generally
small size of ponds, the
proximity to the house, the
use of family labour, and the
use, or otherwise, of on-
farm feeds which need
collection.
26
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Figure 27 shows the frequency distribution of return on labour for the Cambodia farm trials in
2000. Returns generally compare well with the standard agricultural rate and those generated by
rice cultivation ($1-1.5). In a significant number of cases, returns are very much higher. In practice, labour
inputs could probably be
reduced significantly, and
return on labour increased
correspondingly. However,
any labour savings would
have to be offset against
the costs associated with
increased use of off-farm
feeds.
The use of labour, and the
value or opportunity cost of
on-farm labour, are important
issues in financial analysis,
and are rarely effectively
addressed. Although the
project has collected much
data on labour, it has not
analysed and used this data to revise its extension programme. It is common to discount the importance or
costs of family labour. This is dangerous. Time is a key issue for all households, whether it is allocated to
income-earning activities or to social and cultural activities. In either case, it has significant value that
must be accounted. It is essential that farmers understand the labour implications of alternative production
systems if they are to make rational and informed choices.
Labour use is plotted
against production rate
in Figure 28. While there
is some indication of
increasing production with
increasing labour (up to
around 750 person-
days/ha/cycle), the trend is
not sustained, and, if
anything, production
declines with increasing
labour above this level.
While this may be a random
effect, it could indicate
excessive use of on-farm
feeds and manure
associated with higher
labour inputs.
Note: the calculations used to generate the histogram included a charge for on-farm labour, rice
bran, and broken rice at market rates
Return on investment
The cost of pond construction was estimated at around $0.7 per cubic metre. Assuming one cubic metre
of earth must be removed to create one square meter of pond, the costs of construction can be added to the
OFT performance data to generate return on investment for all farmers. This can be calculated using cash
net revenue, but more realistically and usefully, economic costs (labour; on-farm inputs) should be
included in the equation, as shown in Figure 29.
27
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Where labour costs are excluded, returns are generally healthy, averaging 45 percent. When labour costs
are included, returns average 30
percent, but significant numbers (20
percent) of farmers do not generate
sufficient revenue to pay off investment
costs.
5.3
Compa rison with
alternative activities
Returns (to labour and land) from pond
culture under the READ on-farm trials
are much higher than returns from rice
cultivation. Single crop rice farming in
the study areas typically generates 1-2
tonnes per hectare only, corresponding
to net revenue of $100 to $200/ha/yr.
Returns from pond aquaculture are likely to be twenty times this. The return on labour from rice farming
corresponds closely with the agricultural wage rate of $1-1.5 per day. Returns from pond culture are
typically $2-$5/person day, but with significant numbers of farmers achieving much higher rates (around
$15). It is probable that labour could be significantly rationalised and returns increased substantially.
5.4
Risk
Risk exposure
Profit margin
Profit margin, excluding pond digging and on-farm labour, averaged 67 percent for the on-farm trials in
2000. Data were not available to calculate real profit margin for individual farmers (including capital costs
of pond digging and labour at market rates). However, the spreadsheet model, based on average
performance and including these costs, generated a real profit margin of around 35 percent.
Minimum start -up investment
Assuming a realistic minimum size of pond (100m2), the total start-up costs would be $70-$100, including
the costs of pond digging.
Payback period
Average payback period (with on-farm labour charged at market rates) is very healthy, averaging 3.4
years for the 2000 trials. However, as with profit margin, there are significant numbers of farmers (20
percent) for whom it is infinite. If labour costs are excluded, the average payback period falls to 2.2 years
and only 5 percent of farmers would be unable to pay off the capital.
Production risk
Only one farmer out of 77 made a financial loss in 2001, and most farmers earned significant returns with
good margins. However, flooding has been a problem, as it has been for all activities, and this is discussed
below.
Strengths and weaknesses of pond aquaculture and vulnerability to external risk fa ctors
A rather more comprehensive subjective assessment of financial and economic strengths and weaknesses,
and vulnerability to external risk factors was carried out in Cambodia. Two mornings were devoted to
developing a comprehensive assessment matrix with staff members and other interested parties. As noted
previously, such workshops should be undertaken with a wide range of technical specialists and
28
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
stakeholders, so this should be seen as illustrative only. In the following tables (Tables 3-5) a score of 5
means very strong or attractive, and a score of 1 means poor or weak
Some of the scores above were derived directly from actual objective figures (e.g crops per year); others
were purely subjective assessment by the group. Where the criteria were not applicable (e.g. crops per
year for fishing), a neutral score (2.5) distinguished by italics is entered.
On the basis of an un-weighted sum of scores, pond aquaculture ranks fourth behind fishing, wage labour
and vegetables. The main reason for the relatively low ranking is the high start-up investment and
correspondingly low return on investment. Clearly the rankings can be altered by weighting the criteria,
and this might be done to stimulate discussion and information exchange in a broader workshop setting.
From this perspective, pond aquaculture scores rather better, although still behind fishing, which scores
particularly well because of the strong local demand for wild fish, the very low investment and high
labour generation, and the comparative advantage of Cambodia in fishery production.
No scores were entered for wage labour, although it is arguable that it is the least vulnerable to the various
risks listed in the table. Scores for the other activities were rather similar, with rice and fishing heading the
overall rankings.
Taking the three tables together, what is most striking is the similarity between the overall scores. All the
enterprises have different strengths and weaknesses that tend to cancel out. The only major difference is
the very poor rating of both rice production and cattle rearing in terms of financial return.
Table 3 Financial return and risk exposure
Activity
Return on Profit/ha Return on Minimum
Time to
Crops per Un-weighted
investment
($/ha)
labour
start-up
first
year
sum
($/$)
($/MD)
investment
income
Pond culture
3
4
5
2
3
3
20
Rice
2
2
2
3
4
4
17
Fishing
4
2.5
4
4
5
2.5
22
Vegetables
4
4
3
2
4.5
5
22.5
Cattle rearing
3
2.5
1
2
2
1
11.5
Wage labour
5
2.5
2
5
5
2.5
22
Table 4 Economic strengths and potential
Labour per Jobs per $ Up-stream Domestic Regional & Site/land
Compar-
Manage-
Un-
ha
investment
down-
market
inter-
suitability
ative
ment &
weighted
stream
national
and
advantage integration
sum
impacts
market
availability
issues
Pond culture
4
3
4
3
1
3
3
4
25
Rice
3
3
3
3
3
1
2
4
22
Fishing
2
5
2
4
4
1
5
3
26
Vegetables
4
4
3
3
1
2
2
3
22
Cattle rearing
4
3
2
4
3
2
3
3
24
Wage labour
2.5
2.5
1
3
3
2.5
4
2.5
21
29
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Table 5 Vulnerability to external risks and shocks
Activity
Flood Drought Climate Disease Theft Input
Input Soil & Market Land Skills Un-weighted
& pests
or
costs quality water
price
tenure
sum
poison
quality
Pond culture
3
3
5
3
4
4
2
3
3
4
3
37
Rice
4
3
4
3
5
3
4
4
4
4
5
43
Fishing
5
1
5
4
4
4
5
4
3
3
5
43
Vegetables
2
2
4
3
5
3
4
4
3
4
4
38
Cattle rearing
4
3
3
3
3
4
4
4
4
5
4
41
Wage labour
5.5
Overall conclusions READ Cambodia
Pond aquaculture, as promoted under the READ project in Cambodia, appears to be very attractive from a
financial perspective, generating much higher returns to land and labour than rice farming. The slightly
higher risks compared with alternate activities derive mainly from the relatively high capital investment in
ponds. However, this can be reduced by starting off with small ponds (good returns appear to be possible
with ponds of 100-200m2 ). Furthermore, the cash investment may be reduced if family labour is used to
build the ponds, although the opportunity cost of this labour must be taken into account before allocating
such labour. In practice, most farmers should be able to pay off the investment in a few years, and judging
by the 2000 and 2001 trials, the failure rate is likely to be very low.
Significant numbers of farmers do exceptionally well, generating extremely high returns compared with
any likely alternative. The project should examine these farmers in more detail in order to refine their
recommendations to optimise financial return without significantly increased risk.
30
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Cage aquaculture and 6
fishing in Lao PDR
The data available in Lao PDR were different from those available under the READ project. Data were
more limited, although some surveys of cage aquaculture had been undertaken.
6.1
Typology of cage aquaculture systems
It quickly became apparent that there was a range of cage culture systems that could be differentiated in
terms of species, feeding technology, cage size and technology, scale of enterprise and type of business.
The returns from these various systems are likely to be very different, and they need to be defined before
meaningful analysis can be undertaken. This had not been done in some of the previous analyses, which
generated average figures corresponding to no specific enterprise type. The first task therefore was to
define these production systems, which could then be used as the basis for financial model development.
Project staff and aquaculture staff from LARReC participated in a workshop similar to those described
above to discuss risks and returns, but with the added task of defining the most common and
distinguishable aquaculture system types. They were as follows in Table 6:
Table 6 Typology of cage aquaculture systems in Lao PDR
Species
Production system/enterprise type
Comment
Tilapia, sex reversed, in river
Cages, family run but organised in credit groups, each family Roughly 90% of production
typically owning 3-4 cages. 2 or 3 cycles in a year
is SRT
Tilapia, sex reversed, in cages in
Cages in ponds operated by a large commercial company.
The company also produces
ponds
Each pond 2-3 rai with ca 10 cages.
Pangasius (see below)
2-3 cycles per year.
Filter feeders mainly silver carp
Cages in a reservoir. Around 10 families each with 2-3 cages
(contract) in cages in reservoir
producing under contract. Usually only 1 cycle per year
Filter feeders mainly silver carp
Independent family run enterprises of 5 or more cages.
(family run) in cages in reservoir
Usually 1 cycle per year.
Filter feeders (military company)
200 cages operated by a single military company
Snakehead Channa micropeltes;
Family enterprises in Nam Ngum reservoir, usually more
Seed of C. micropeltes in
Channa striata (90%)
than 3 cages; average 10? Number of cages varies according
decline; now mostly C.
to seed availability
striata
Pangasius
Cages in ponds, as above, for Tilapia. Total of around 50
31
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Information was then collected on some of these systems, from data and survey material from the
aquaculture group, and from interviews during a one day field visit to Nam Ngum reservoir. This was
used to develop illustrative models to explore financial characteristics. Systems analysed included:
1. Tilapia (family cage culture in the Mekong River);
2. Snakehead (cage culture in Nam Ngum reservoir);
3. Silver carp (cage culture in a reservoir)
4. Tilapia (cage culture in a reservoir)
5. Pen culture (mixed species in Nam Ngum reservoir)
Models were developed from limited empirical survey data for System 1. Survey data were used for
System 2, supplemented by information collected on the field trip. Data on System 3 could not be clearly
separated from other forms of cage culture in the survey data. A model was therefore developed from a
mixture of partial empirical data and first principles. System 4 does not currently exist, but represents an
interesting development possibility. A simple financial model was therefore developed from information
about cage culture in rivers, modified according to the data on cage culture in reservoirs. A model for
System 5 was developed based on information collected during a field visit to Nam Ngum reservoir.
Complete model summaries are presented in Annex 3, and in the associated spreadsheet.
6.2
Culture of snakehead in cages in Nam Ngum Reservoir
Snakehead are typically grown in small bamboo cages (typic ally 5-6 cubic metres of water), which are
cheap, but last one or two years at most. They are also grown in net and wood cages, which are more
expensive, but last longer. Survey data were available on four examples of the former, and technical
information was sufficient to generate a model of the latter.
Seed are collected from the wild, and can be purchased for around 200 kip (2 cents) each. The price is
rising. They are stocked at between 250 and 1000 per cage, with the (limited) survey data suggesting t hat
the former is more common although this may be related to shortage of seed.
The fish are fed mainly Pa Keo (Clupeichthys aesarnensis) and this is usually caught by family members
and fed in a fresh or semi-dried form. This fish has a market value (1000k/kg [10 cents] fresh; 1500/kg
semi-dried). FCR using fresh fish is estimated at 6, and 3.5 for semi-dried.
Labour costs are estimated at one hour per cage/day, including the time required to catch Pa Keo, and 20
minutes per cage/day in cases where the feed is purchased. In practice, there will be significant economies
of scale in the use of labour as the number of cages increases. Farmers suggested that one person could
fish for Pa Keo and look after perhaps 5-8 cages.
The cropping cycle is 8-10 months, with fish typically held back until market price is high. Survival rates
are high typically 90 percent - and this was confirmed through back calculation of some of the survey
production data.
Cash net revenue per cage (including a capital charge for the cage, but excluding labour) depends
primarily on stocking rate. With rates at 250 per cage, cash net revenue is 500-600,000 kip or $50-
$60/cage. With stocking rates of 1000/cage, cash net revenue is around 2 million kip or $200/cage. A
family with five cages is therefore generating a significant $250-$1,000/cycle. Corresponding returns on
labour are $3-7/day significantly higher than the standard wage labour rate of around $1/day. Profit
margins and return on investment (in cages) are also healthy at 50-80 percent, and 200-80 percent
respectively. Payback on the investment in cages is achieved within a single production cycle. This is true
for both the cheaper bamboo cages and for the more-expensive wood and net cages.
32
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
If the Pa Keo is purchased rather than caught, returns per cage are (necessarily) lower, since some of the
economic benefits go to the fishermen. Returns range from negative (-$30-40/cage) where low stocking
densities are used, to $50 to $70/cage at high stocking densities. Corresponding returns to labour range
from negative, to $3-$6 for the higher stocking densities.
Minimum start-up costs are very modest. A small 12 cubic metre bamboo cage costs around $8, and if
seed and feed are both caught, there is no significant additional cash expenditure. A larger (24 cubic
metre) cage made from net and wood might cost around $80. At the other extreme, if seed and feed had to
be purchased, and if labour were charged at market rates, the start-up investment would amount to $200.
However, lower stocking rates would allow for lower start-up costs, although returns would be lower.
6.3
Culture of Tilapia in cages in the Mekong River
There has been a significant increase in intensive Tilapia production in cages in recent years in Thailand,
and this technology has been introduced to Lao PDR, largely unchanged. For the following analysis,
information on five examples was available from a recent survey.
Steel-framed net cages are used, varying in size from 10 to 50 cubic metres, and costing between $50
(home construction) and $200 (complete). These are stocked with commercially available sex-reversed
Tilapia (costing 600 kip [6 cents]) each, and fed with commercial pellets (35-45 cents/kg). Food
conversion rates are estimated at 1.5. Stocking rates varied from 30 to 145 per cubic metre. Fish are
grown to 400-600 grams in a four-month cropping cycle, and sold for around $1/kg. Farmers claim
survival rates of 90 percent, although back checking the production data suggests 80-90 percent. Smaller
cages produce around 500kg/cycle, while the larger cages can produce more than two tonnes.
Labour use was recorded at between 70 and 160 person days per cage per cycle (equivalent to around one
full-time person), and this requirement is related as much to guarding as to husbandry, and would
therefore be significantly lower for groups of cages.
Cash net revenue (excluding labour costs) per cage per cycle is between $500 and $1,200 for the small
cages, and $2,100 for the large cage. Annual returns will be double or treble this, depending on the
number of crops. If labour is charged at standard rates ($1.2/day) this is reduced to $100-$800 (small
cages) and $1,700 (large cage). The high variation for the smaller cages is related to highly variable
labour inputs. For an enterprise that uses labour efficiently, the higher figure is probably more realistic.
Return on labour varied between $1.7 and $4 per person day on the smaller cages; and was around $6 on
the large cage. Profit margin (including labour charge) was 5-35 percent on the smaller cages, and 50
percent on the larger. Return on investment is very high (from 100 percent to several thousand percent).
This results in rapid payback periods of less than a year in all cases, and less than one cropping cycle in all
cases except one.
Start-up costs (excluding labour) for these systems are relatively high at 4.5 to 6 million kip ($500-600)
for the current typical enterprise. Adding one full-time labourer for four months would increase these
costs by a further $100. However, costs could be reduced by self-assembly of a cage (approximately $50
for a cage), use of smaller cages, and/or use of lower stocking densities (and correspondingly reduced feed
and seed costs). By way of illustration, one full-time job paid at $1.5/day, could be generated by stocking
around 250 tilapia in one cage. Capital investment would still be paid off within a year (three crops). Total
maximum outstanding investment would be around $270 until the first crop is harvested, reducing to zero
before the end of the year. Where sites are available near houses, and where part-time and family labour is
available, the use of even smaller cages is worthy of exploration in order to provide opportunities for poor
people. Such small cage systems have been successfully used in Bangladesh (Hambry et al. 2001).
33
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
6.4
Cage culture of silver carp
No data were available which specifically separated cage culture of herbivores such as silver carp, from
mixed cage culture enterprises, including snakehead. Also insufficient time was available to discuss costs
and returns with farmers in the field. Nonetheless it is possible to make rough estimates of costs and
returns, using existing knowledge of cage culture costs, coupled with appropriate production param eters
for silver carp. If reasonable growth rates can be achieved dependent on the quality of natural feed
available in the reservoir returns appear to be very attractive. No feed costs are incurred, and far less
labour is required. In other respects costs are similar, although the growth cycle is likely to be around one
year.
6.5
Pen culture of mixed species in Nam Ngum reservoir.
This is a relatively new enterprise and reliable performance data is lacking. However, fourteen-month old
silver carp of one kilogram in weight were observed in pens, and cost data were provided by local
villagers. Investment costs are high. In the enterprise visited, the cost of constructing a fence across an
arm of the reservoir amounted to around 40 million kip or $4,000, with an expected life of 3-4 years.
Investment in seed amounted to a further 10 million kip ($1,000), and two full-time guards were
employed, at an additional 10 million kip/yr. No feed inputs or fertiliser were used, although this might
prove necessary to achieve optimal rates of production. Total start-up capital was therefore in the region
of $6,000, and annual operating costs (including a capital charge) were around $3,500. However, at a
modest 20 percent survival rate, a yield of 21 tonnes was anticip ated, generating 166 million kip or
$16,600. This corresponded to net revenue of around $13,000, and very high rates of return on both labour
and investment.
While this is clearly not an enterprise for individual poor households, it may prove very attractive for
village groups or community associations, and its success or otherwise should be monitored.
6.6
Fishing
The majority of the households living close to Nam Ngum reservoir are primarily dependent upon fishing.
No detailed data were available on returns from the fishing, but local government officers and villagers
provided some basic information. A typical fishing household owns a small boat with a "long-tail" engine
and two or more sets of nets. Gill nets are the most common net type. Total investment is of the order of 8
million kip or $800, and life of the boat and gear was estimated at around six years, corresponding to an
annual cost of $133, plus an appropriate amount for fuel, spares and maintenance (say a minimum of
$5/week or $250). A minimum of two household members are usually involved. Local officials suggested
that income was around 25,000 kip per day for a typical household, corresponding to around $850/year.
Maximum net cash revenue is therefore unlikely to exceed $500, corresponding to return on labour of less
than a dollar a day, and negative return on investment, if labour is charged at market rates.
Data from a recent study (Mattson et al. 2000) suggest a catch per unit effort for gill nets of a little less
than 1 kg per set, and that annual household gross income from gill netting averaged four million kip,
corresponding at that time (1999) to $671. Unfortunately the authors provide only percentage costs so that
crosschecking with the above figures is difficult. They also provide return on investment estimates (22
percent for gill nets), but it is not clear what charge for labour was used in these estimates, and what was
included in the investment. As noted elsewhere in this report, more detailed representative case studies
would be of much greater value for the purposes of comparisons between enterprises. In either case, it is
clear that fishing requires high investment (typically using a high interest loan from the fish purchasing
company) and generates a poor and unpredictable return.
6.7
Overall conclusions cage aquaculture and fishing in Lao PDR
As with other aquaculture systems, it is very difficult to give indicative returns because the technology is
new and varied, and standard management practices are not established in most cases. At a small scale,
34
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
scale factors, especially in relation to labour use and return on labour are very significant. Also in this case
only limited data were available. Of the systems examined, the most consistent was for intensive Tilapia
where a standard semi-commercial package is now available.
Table 7 presents a rough approximation and summary of the main financial features of the various
systems examined. In general, the cage aquaculture systems score well against a range of criteria, and
appear to be more attractive than most available alternatives, including fishing and rice cultivation. One
great attraction of the aquaculture systems is their flexibility in terms of scale, intensity of inputs,
collection or purchase of inputs, and range of species from mainly herbivorous to carnivorous. Start-up
costs are modest, especially if captured seed and feed is available, or where herbivores/planktivores are
reared. The Tilapia systems require more investment, but returns are more predictable, and oper ations can
be set up in locations where wild seed and trash fish are not readily available.
Table 7 Summary financial profile of selected alternative economic activities in Lao PDR
Snakehead
Snakehead
Intensive
Silver carp
Pen culture
Fishing (gill
(purchased
(captured seed cage culture
net, using
seed and feed)
and feed)
of Tilapia
small boat)
Minimum start-
100-200
8-100
500-700
90
6,000
800
up capital $
Length of crop
0.7
0.7
0.33
1
1-2
-
cycle (years)
Payback period
<1
<1
<1
<1
<2
6+
(years)
Net revenue
Negative to+70
50-200
300-6300
500?
13,000
<500
(cash) per cage or
enterprise $
Return on labour Negative to 6
3-7
2-6
-
-
<1
$/person day
Profit margin %
<20%
50%-80%
5%-40%
-
-
-
(labour charged)
Return on
Negative to
200% +
100%+
-
-
-
investment %
500%
35
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Reservoir fisheries, 7
cage culture of grass carp,
and alternative enterprises
in Dak Lak, Viet Nam
The emphasis of work in Dak Lak was again different. More effort went into understanding the broader
economic context for fisheries and aquaculture development, and their role within the local economy. This
should always be a key starting point for more detailed financial analysis.
In addition to analysing returns from rice cultivation, coffee cultivation, cage culture of grass carp, and
fish seed production, the consultant and local counterparts spent much time and effort examining the less
easily defined returns associated with fishing at various levels of organisation. We also explored returns
from stocking, and discussed the ways in which returns associated with improved reservoir management
might be assessed.
7.1
The role and importance of reservoir fisheries in the Provincial economy
The relative importance of fisheries and the other major sectors of the economy in Dak Lak are shown in
Table 8.
Table 8 Income and employment in fisheries and other selected activities
Dak Lak Province 1999.
Production
Income $
Employment
Area
(tonnes)
(FTE)
(ha)
Fisheries
3,815
3,309,463
287
3,328
Coffee
262,365
96,846,107
135,000
250,830
Rice
228,671
19,951,141
26,964
59,180
Manufacturing
48,000,336
17,611
Notes:
-
Average labour cost per person -day (PD) is equal to 25,000 Viet Namese Dong (VND).
-
Rate varies from 20,000-30,000VND/PD.
-
Average labour spent for 1 ha of coffee per year is calculated 140 PD, based on Ea Soup.
-
Average labour spent for 1 ha of rice field is calculated 120 PD, based on Ea Soup.
-
Average time spent for fisheries per year is calculated 90 PD/person (2 hr/PD).
-
For coffee and rice, employment is calculated from person -days divided by 260 days/yr, for FTE's.
- Coffee price for 1999 estimated at 5,500 VND/Kg; for rice 1300 VND/Kg.
37
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Provincial statistics do not distinguish between aquaculture and fisheries. Phuc and Sollows (2001)
estimated that around 5,000 tonnes of fish could be produced from the reservoirs of Dak Lak,
corresponding to roughly 25 billion VND ($1.7 millon). With stocking and improved management, the
figure could be substantially higher. This compares with VND1,443 billion ($97 million) for coffee
production, and VND297 billion ($20 million) for rice. Although this is a modest proportion of Provincial
GDP, fish is very important in household nutrition.
7.2
The role and importance of reservoir fisheries in the local economy
The impact of reservoir fisheries locally is higher. Communities close to the reservoirs are often highly
dependent on them, and reservoir fisheries can be an important safety net for the poorest people,
especially new migrants.
It is important to gauge the relative importance of fisheries in the "reservoir-irrigation" system. Ea Kau
reservoir covers 210ha and is used to irrigate 100ha of coffee and 350ha of rice. It yielded 150 tonnes of
fish in 1996/7 valued at VND747 million ($50,000) and generated 27 full time equivalent jobs; although
both production and employment have declined by more than 50 percent since that time. Based on the
area of land/water allocated to different activities within the reservoir/irrigation system, and estimates of
employment and income generated per hectare from rice and coffee production, 4 the relative importance
of the different activities within the system can be estimated roughly.
Figure 30 Relative importance of fisheries in the reservoir/irrigation system of Ea Kau
4 Data on productivity and income generation for rice and coffee are derived from a recent (2001) survey. The value of coffee has
declined rapidly in recent years, and income in the past would have been much higher.
38
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Ea Soup reservoir covers an area of 240 ha and provides irrigation for 450 ha of rice. The associated
fishery generates roughly $22,000, and 26 FTE jobs, while rice cultivation generates $140,000 and 225
FTE jobs.
While fishing is not the dominant sector in the economics of the reservoir, it is significant, and deserves a
corresponding weighting in reservoir management decision-making.
7.3
Economic returns and employment in reservoir fisheries
Broad technical and economic profiles of selected reservoirs in Dak Lak
The MRC data on reservoir fishing in Dak Lak is limited to six reservoirs varying in location, size, natural
fertility, and management system. It is therefore not possible to undertake detailed analysis or draw firm
conclusions with regard to the returns from different management interventions (stocking; effort
regulation). In any case, detailed information was not available relating to management costs, although
some "ball park" figures have been estimated for the purposes of illustration. Despite these limitations,
some broad preliminary conclusions may be drawn.
The size and major economic characteristics of the six reservoirs are shown in Table 9.
Table 9 Broad technical and economic profiles of selected reservoirs in Dak Lak
Reservoir
Size
Management
Yield kg/ha
Gross income
Gross
Employment
(Ha)
system
mean (range)
$/ha mean
income/ha
individuals/ha
(range)
less stocking
(mostly part
costs
time*?) fishers
and management
Ea Kao
210
Stocked.
576 (264-719)
195 (91-242)
186
0.2
(Average over 4
DAPCO
yrs)
employee
seconded to
manage
Ea Kar
141
Stocked.
355 (265-462)
179 (156-223)
162
0.1
(average over 3
contracted; very
yrs)
restricted access
Yang Re
56
Stocked.
550 (153-832)
232 (70-336)
218
0.3
(average over 3
4 local
yrs)
contractors
license fishers
and participate
Ho 31
5
Stocked. Owned
876(310-1307)
273 (99-414)
202
0.2
(average over 4
and managed by
yrs)
co-operative;
Lak
658
Un-stocked.
171 (126-256)
79 (57-113)
79
0.3
(average over 3
Government
yrs)
agencies
regulate; Union
started
Ea Soup
240
Un-stocked.
264 (221-312)
126 (91-168)
126
0.5
(average over 3
Union since
years)
1999
Note: Ea Kao: Fishing costs per hectare do not include many gears, notably integrated net and seines. * This is an
under-estimate.
The data suggest that stocking is cost effective. Stocked reservoirs generated gross income ranging from
$153/ha/yr to $1,307, with much the highest yield from the smallest and most heavily stocked water body
(Ho 31). This compared with $61 to $168/ha/yr for the un-stocked reservoirs. However, this difference
39
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
might also be attributable to the larger size of the un-stocked reservoirs, which are typically less
productive than smaller reservoirs.
Data on the relationship between stocking rate and yield for individual reservoirs is very limited, but also
suggests that stocking is effective (Figure 31).
Data over several more years, and with a range
of stocking densities, would be required to
generate a reliable economic relationship. Such
a relationship would convert the quantities in the
axes of a graph such as Figure 31, to cash
values, providing an estimate of the marginal
benefit of stocking. For example, with silver
carp stock costing $2.5/1000, and an average
value of the catch amounting to $0.5/kg, the
relationship below would convert to yield = 27 x
stocking costs + 23. In other words, spending $1
on stock would yield $27 in terms of harvested
fish value. Clearly, improved data of this kind
would be very valuable.
Returns and potential returns to the reservoir enterprise
Table 10 shows the overall returns to "the fishery enterprise" for three of the reservoirs. Estimates for
labour use are approximate.
Table 10 Costs and returns to reservoir fisheries
Year
Stock
Fishing
Fishing
Manage-
Total labour
Total
Net
Return on
cost/ha ($) cost/ha ($) cost/ha (excl.
ment
FTE/ ha (incl. income/ha income/ha
labour
labour)
cost/ha ($) management)
($)
(incl.
labour)
Ea Kao
96-97
9
19
4
0.14
0.13 239 211
6
97-98
9
24
4
0.14
0.13 242 209
6
98-99
7
38
6
0.14
0.10 206 161
7
99-00
10
24
24
0.14
0.06 91 57
3
Ea Soup
97-98
0
181
25
0
0.08 91 (90)
3
98-99
0
234
27
0.08 118 (115)
4
99-00
0
246
32
5.3
0.09 169 (83)
5
Ho 31
96-97
604
188
0
134
0.20 1,249 323
9
97-98
404
188
0
134
0.20 2,224 1,498
28
98-99
262
188
0
134
0.20 1,861 1,276
24
99-00
264
188
0
134
0.20 530 (57)
2
It is notable that the stocked fisheries (Ea Kau and Ho 31) show much higher net income, although yields
in Ea Kau appear to be declining. Data for Ho 31 in 1999-2000, are misleading as flood problems
prevented complete harvest. Overall, return on labour is high relative to average wage rates, especially for
the stocked fisheries. This "return" to labour is potential income only, and in practice is distributed more
widely (to the government, the commune, the company) and does not correspond to individual
fishermen's income (see below). In the case of Ea Kau, for example, the company takes a tax
corresponding to roughly 50 percent of the total revenue.
Unsurprisingly, the management costs for the small intensively managed fishery are much higher than
those for more extensive fisheries.
Returns to individual fishermen
Calculations were made on financial returns to selected fishing enterprises (one or more fishermen
operating a net, with or without a boat) and to the fishermen operating these gears. Complete data were
40
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
only available in respect to lift net and gill net fisheries in Ea Kao and Ea Soup reservoirs. The data were
not specifically collected for this kind of analysis, and the results should be considered as indicative only.
Investment in boat and gear is significant even when divided amongst two or more fishers ($54 to $315).
Total net revenue for lift nets in Ea Kao (a stocked reservoir) was high, at more than $1,000 in 1997-1999.
Returns to labour were around $6/person-day, return on capital investment was high, and profit margin
healthy at 66 percent. Unfortunately, productivity declined significantly in 1999-2000, with net revenue
becoming negative (-$427), and return on labour declining to close to zero.
Table 11 Returns to gears and fishermen
Reservoir
Gear
Capital 5Capital Labour
labour
Total
Net
Net
Return return on Profit
type
cost
cost
(person -
cost
revenue revenue revenue
on
capital
margin
$ per
allocation
day)6 @$1.7/pd in dollars in $ (excl. in $ (incl. labour
(incl.
fisher
$/yr
labour) labour)
$/pd
labour
charge)
Ea Kao 97-8
Lift net
315
110
263
441
1638
1528
1,086 5.81
345%
66%
Gill net
54
85
150
252
412
326
75 2.17
137%
18%
Ea Kao 98-9
Lift net
315
110
263
441
1624
1514
1,073 5.76
340%
66%
Gill net
54
85
150
252
371
286
34 1.91
63%
9%
Ea Kao 99-00
Lift net
315
110
263
441
125
15
-427 0.06 -135% -342%
Gill net
54
85
150
252
336
250
-2 1.67
-3%
0%
Ea soup 98/9, 99-00 Gill net
121
310
234
393
345
34
-359 0.15 -297% -104%
Gill net
121
310
234
393
293
-17
-410
- 0.07 -340% -140%
Net revenue for gill nets in Ea Kao was lower, generating returns on labour around $2/person-day in
1996-7 and 1997-8. Net revenue declined in 1999-2000, but not to the same extent as that for lift nets, and
return on labour remained at a modest $1.7 (equivalent to the agricultural labour rate). It would appear,
therefore, that gill nets are less susceptible to the recent fall in productivity. This is because they catch a
greater variety of species, and rely more heavily on naturally-recruited species than lift nets.
Returns from Ea Soup, which is not stocked, were poor for gill nets. While total revenue was only a little
lower, net revenue was negative, related to the higher capital costs (boat + engine), and return on labour
was very low at 0.07-0.15$/person day. Clearly, this is not financially viable.
Broader economic issues
Data were not readily available to examine the variation in returns to different fishermen with different
gears, although with modest additional effort this information could be generated. Catch-effort
information, which has been collected, is closely related to financial return.
Some analysis was also undertaken relating to the allocation/partition of the income generated by
reservoir fisheries to different fishers, to management and to government. Such information is important
for an economic assessment of the strengths and weaknesses of alternative management systems, and the
possible benefits related to co-management systems. However, an informed assessment of these issues
was beyond the scope of this study, and the preliminary analysis is not presented here.
7.4
Cage culture of grass carp
The data for the following analysis was derived from a report produced by Michael Phillips (1988),
supplemented by other information generated by the MRF project (Vinh et al. 1999).
5 Capital cost of net/life+boat/life+engine/life + annual maintenance charge
6 Working days, rather than hours, were used to estimate person days
41
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
The culture of grass carp in wooden slatted cages in reservoirs developed rapidly in the mid 1990s, but
declined following serious disease outbreaks after 1996. Survey data is available for the period prior to the
crash, and data is also available relating to three trial cages promoted by the MRF project in Ea Soup.
Traditionally, floating cages, 15-25 cubic metres in volume, were made of heavy wooden slats, with a
small shelter built above. In the trial, the use of less wood, but with net liners was used to try to improve
water quality and extend the life of the cages (from three to four or more years).
Seed are stocked at 500 to 1000/cage and grown for eight months to a year, achieving a weight of 0.5-1kg.
The fish are fed limited amounts of rice bran, and soy cake. The main inputs are cassava leaves, young
grass and water weeds. Substantial quantities are required, corresponding to labour requirements for food
collection and feeding of around one hour per feed, twice a day.
Survival rates were typically 70-80 percent prior to the disease problems. In the trial, survival rates in
three cages were 24 percent, 54 percent and 72 percent, with losses probably due to both disease (shortly
after stocking) and escapes.
Table 12 Key financial characteristics and ratios
Minimum Investment
Total
Cash net
Net
Return on
Profit
Return on Payback
start-up
in single revenue revenue per revenue
labour
margin investment period
investment crop (per
per cage
cage (excl.
(incl.
$/person
(incl.
(years)
(1 cage)
cage)
labour; incl. labour and
day
labour)
capital)
capital)
grass carp
culture, pre -
137
57
231
159
9
2.3
4%
11%
1.8
disease *
grass carp
culture, data
195
49
95
18
-118
0.3
-125%
-81%
-1.6
adapted
from MRF
trial
Note:
* Data adapted from Phillips 1998.
Although cash net revenue per cage was reasonably high (around $169) before disease struck, if labour
costs are fully accounted, net revenue is very low. Return on labour is correspondingly low just a little
higher than agricultural wage rates. Profit margin is very slim (indicating sensitivity to increased cost
and/or reduced price) and return on investment is low. Payback period was satisfactory at less than two
years (when using the cheaper cages.)
The trial farmers' performance suffered from higher capital costs associated with the improved cage and
lower survival and growth, resulting in very low cash net revenue ($18) and very low return on labour
(well below market rates). If labour is costed at marke t rates, profit margin and return on investment are
negative.
Using similar cost and labour utilisation data, the survival and growth rates required to achieve desirable
returns (i.e. returns to labour higher than the market rates) can be estimated. Assuming growth to 700g (as
was typically achieved in a production cycle prior to disease), and a market price of VND10,000 (price
varies between VND8,000 and 10,000) a survival rate of more than 75 percent is required for return on
labour to exceed the market rate of 30,000VND. If the price fell to 8000/kg, the survival rate would need
to be more than 90 percent. Reducing only the cost of the cage has limited impact the main problem
here is the relatively low value of the product and the high labour requirements. These results explain why
most farmers have abandoned grass carp culture and are reluctant to re-start: the returns do not adequately
compensate for the effort, and risks remain high.
42
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
7.5
Coffee production
Coffee production was a booming business in Dak Lak until recent years, but prices have declined rapidly
(Figure 32) and returns are now marginal. The main problem with coffee production, especially for the
small-scale producer, is the long lead-time (five years before significant revenues are realised), with a
corresponding high outstanding investment, and vulnerability to local and global over -production.
Because the lead-time is long, production cannot adapt rapidly to market conditions, and there is
significant potential for indebtedness.
The MRF team undertook a survey of coffee and rice producers in the areas adjacent to Ea Soup reservoir.
For the seven coffee farmers surveyed in 2001, net revenue per hectare (excluding labour costs) ranged
from $54 to $362 (average $184). If labour is charged at standard market rates, returns fall to between
$-134 and + $160 (average $-11). Profit
margin and return on investment were
correspondingly poor, averaging 28
percent and 2 percent, respectively. Four
farmers generated return on labour
between $1 and $3/person day, and three
farmers generated between $5 and $6. It is
clear that although some farmers continue
to do reasonably, the days of high returns
have passed, and the risk of losses are
substantial. The start-up costs for coffee
production are in excess of $500/ha, and
returns do not begin for four or five years.
7.6
Rice production
Net revenue per hectare per crop for rice (excluding labour costs) ranged from $57 to $257 (average
$172). If labour is charged at market rates, returns are reduced to between $-91 and $+90 (average $19).
Profit margin ranged between 100 percent to +41 percent (average 4 percent). and 2 percent
respectively. Five farmers generated return on labour between $2 and $4/person day, and three farmers
generated between $5 and $7. At the present time, therefore, rice farming appears rather more attractive
than coffee production, requires less investment, and prices are more stable.
7.7
Risk
As with the other projects, project staff were asked in a mini workshop to provide a subjective assessment
of risk associated with selected activities. The results are presented in Table 13.
7.8
Overview: rice, coffee, fishing and cage culture
A summary of the financial characteristics of some of the activities studied in Dak Lak Province is
presented in Table 14. The most attractive enterprises are the small stocked reservoir (Ho 31) and the lift
net fishing in Ea Kau, a medium sized stocked reservoir. Prior to disease, cage culture grass carp
generated consistent returns to labour that were a little above market rates, but profit margins were very
slender, and this, coupled with increased risk of failure has led to its demise. Any resurgence would be
dependent upon very high growth and survival rates, coupled with a ready supply of feed requiring lower
labour input.
Coffee production used to generate high returns but is now marginal, and investment is unlikely to be
recouped unless the price recovers significantly.
43
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Coffee is a classic example of a high-risk activity, with significant investment, and long lead time. It is
very difficult and painful for such an industry to adapt to falling world prices. It is therefore essential that
the more general economic issues of comparative advantage, economies of scale, and the nature of world
markets are examined thoroughly before encouraging small-holders to enter.
These figures suggest that stocked reservoir fisheries are relatively attractive from a financial perspective,
and can generate returns higher than those available from other enterprises. However, a key issue is the
management and distribution of income from such enterprises. Much more detailed studies are required to
explore these issues, building on financial analysis to develop broader economic studies, which could
inform strategy for future interventions in reservoir fisheries management. This will require a focused
programme of economic research, rather than ad hoc and exploratory analyses of the kind undertaken
here.
Table 13 Subjective comparative assessment of risk and potential, MRF project staff, Dak Lak
Activity
Production risks
Prices and Market
Economic Potential
Livelihood
Flood Drough Theft Disease Price
Price Local Intern.
Com -
Labour
Potential
Job quality
t
season- trend market market parative
per ha
expansion
ality
advantage
(sites etc.)
stocked,
1-3
1
2-3
2
20%
+
3-4
1
4-5
3-4
3-4
co-managed
stocked, company
1-3
1
2-3
2
20%
+
3-4
1
4-5
0.1-0.2
3-4
2-3
managed
un-stocked
1-4
1
1-3
2
20%
+
4-5
1
3-4
3-4
3
co-managed
un-stocked,
1-4
1
1
20%
+
4-5
1
3-4
0.3-0.5
1-3
1-2
un-managed
cage culture
1-2
1
3-5
2-5
20%
+
3-4
1
1-27
1-2
2-3
rice
2-5
2 -5
1-4
1-3
35%
+
4-5
5
1-28
3-5
2-3
3-4
coffee
1
3 -5
2-4
1-3
20%
-
1-2
5
4-5
4-5
1-2
1-5
pond culture
2-5
2-4
1-4
2-4
20%
+
3-4
1-3
2-3
4-4
3-4
5-6
Table 14 Summary financial profile of selected activities in Dak Lak Province
Capital
Annual
Net revenue9
Return on
Return on
Profit
investment
costs
per ha/yr;
labour
investment
margin
per ha or
(including
gear/ yr;
unit
labour)
cage/yr
Small stocked reservoir
-
584-926
323 to1,498
9-28
NR
26-68%
(Ho 31)10
Gill net fishing Ea Kao
5411
327
-2 to 75
1.7 to 2.2
-3% to 137%
0-18%
reservoir
Gill net fishing Ea Soup
121
703
-359 to -410
.1 to 0.2
-297% to 340% -104% to 140%
reservoir
Lift net fishing Ea Kao
315
551
-427 to+1,086
0.1 to 5.8
-135% to+345% -342% to + 66%
Cage culture of grass
137
207
9
2.3
11%
4%
carp (pre-disease)
Coffee production (2001) 455-721 (547) 191-394 (276) -134 to +160 0.5-2.4 (1.3)
-22% to +32%
-111% to 32%
(-11)
(-2%)
(-28%)
Rice production-1 crop
NR
181-347 (232) -91 to +90 (19)
0.5 to 2.5
NR
-100% to +
2001
(1.6)
41% (-4%)
7 Lack of river; skill, seed, trash fish
8 Lack of river; skill, seed, trash fish
9 Labour charged at market rates
10 The figures for 2000 were excluded since flooding prevented full harvest.
11Capital costs divided by the number of fishers in the team.
44
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Summary, 8
conclusions and
recommendations
8.1
Key elements of financial feasibility assessment
1. Financial feasibility assessment should encompass analysis relating to:
? the cash return to the household or enterprise
? the cash return on the factors of production (capital; land/water; labour)
? the variation in these returns between farmers/fishers (related to location, management practices
etc.)
? the variation in returns for an individual farmer/fisher, related to production risks (such as crop
loss) or market risk (e.g. falling price of product)
? the profit margin (which measures exposure to increased costs or decreased product value)
2. In practice, most financial analysis generates simple summary statistics and ratios relating to the first
two of these only. While this is appropriate and useful for well-established enterprises and
technologies, it is of limited value for new activities and enterprises where both technology and
performance are highly variable. It is the exploration of variation in returns to different factors of
production which is the key to developing improved recommendations and interventions in aquatic
resources management; and tailoring these recommendations to the resource profiles and needs of
different client or beneficiary groups.
3. Unfortunately a great deal of "false" variation is generated in large-scale socio-economic surveys as a
result of misinterpretation of questions and responses, and errors in data handling and analysis. The
nature of the "real" variation can be more usefully explored through detailed case studies and
enterprise modelling.
4. The relative importance of simple measures of return on labour ($/person day), land (profit, or net
revenue/ha), and capital (profit/capital investment), will depend on the value or scarcity of these
resources to different households. This will vary significantly both within and between countries. It is
therefore important that all these measures (or related variants) are calculated.
5. It is common to discount or ignore family labour as a cost for small-scale enterprises. This is a
mistake. In most of the locations visited, casual wage labour was available, and there is a real
opportunity cost in using family labour. In any case, time itself has value in all societies, and
(especially where adequate food is available) people will invest time in proportion to the financial or
social rewards with which it is assoc iated. The calculation of return on labour, though difficult, is
therefore an essential component in financial analysis for small-scale family enterprises.
45
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
6. Summary financial ratios and indicators can only be derived by making many, often questionable,
assumptions. It is essential that these assumptions are both understood and communicated if the ratios
are to have value for informing development strategies.
8.2
Analytical risk assessment
1. Risk assessment requires a consideration of both exposure to risk and the likelihood of certain risk
events occurring. Risk exposure has two components: the level of investment, and the time period
over which the investment is outstanding. Indicators of risk exposure include: the total investment
required before achieving a return; the time delay or "lead time" before the return occurs; the length
of the cropping cycle; and the working capital required for each cycle. These also serve as indicators
of accessibility to the poor, since both the amount of finance and the period over which it is available
are limited for poor people.
2. Profit margin measures exposure to a fall in product price, or an increase in input costs, and is
therefore also an index of risk exposure.
3. Price and cost sensitivity provide more specific and strategically -useful information than profit
margin. It can be estimated as the percentage change in price or percentage increase in costs, which
would lead to zero profit, or an unacceptable level of return to land, labour or capital. The likelihood
or risk of such a change taking place can then be assessed.
4. The probability of certain risk events taking place, and the financial consequences of such events (e.g.
flooding, low temperatures, disease) can sometimes be calculated. Unfortunately risk data in respect
to disease is very limited.
5. Analysis of variation of current financial performance, as described above, offers important insights
into both exposure to risk and the frequency of risk events. The proportion of farmers making a loss is
a key general indicator of financial risk. Ideally, farmers/fishers should be classified into different
enterprise types - in terms of scale, intensity, technology (including species) - and failure rates
examined for each type. The reasons for failure, and the nature of the risks, can then be explored more
thoroughly through case studies.
6. Analysis of variation in performance of individual farmers over time provides further information on
the nature of risk, and allows for an assessment of the extent to which skill and/or specific
management practices can reduce variation in financial performance.
7. The coefficient of variation (standard deviation/mean) has been used as a measure of risk by READ
Viet Nam. This measure is not particularly meaningful when applied to financial returns whose
variation mainly reflects variation in technology and management practice. While risk implies
variation in performance, variation in performance does not necessarily imply risk. The measure is
more useful once variation related to differing tec hnologies has been removed; i.e. once the data has
been classified according to production system.
8. The coefficient of variation is only statistically valid when applied to groups whose performance is
distributed normally around a mean.
46
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
8.3
Subjective risk assessment
1. It is often not possible to quantify the risks, or the measures used may not allow for comparison
between activities. In such cases, a more subjective form of risk assessment can be undertaken, which
is closely related to multi-criteria decision analysis. A representative group of stakeholders, including
farmers and technical specialists, is brought together to undertake the analysis. Major risks are
identified and listed on a matrix against alternative development options. The vulnerability of each
option to each risk is then discussed, and scored on a scale of 1 to 5 or 1 to 10, as agreed. The
completed matrix provides an overview of the risk characteristics of different options, and provides a
basis and framework for overall comparison, discussion, and further analysis.
2. Although the exercise was conducted at each field station with technical specialists, lack of time
prevented the involvement of a wide range of stakeholders, and the results presented in the body of
the report should be seen as illustrative only.
8.4
Accessibility to the poor
1. Key measures of the financial accessibility of an enterprise include the total minimum investment
required before acceptable income is generated, and the total time over which such finance is
required.
2. Much depends upon what is deemed to be a minimum scale of activity. This can be empirically
assessed where a range of data is available related to differing scale of operation. This was done in
Cambodia, where the data suggested that those producing from ponds of less than 200m 2 generated
very variable returns, but a significant proportion did very well. Where survey data is absent,
production/financial models can be developed to assess the minimum realistic scale of operation,
given known production parameters, local resource constraints, income expectations and other factors.
8.5
Previous data collection and analysis
1. All projects had collected, analysed and reported financial and economic data over several years. In
the case of READ, substantial socio-economic studies had been undertaken, including a major
base-line study in Cai Be and a Master's research study in Phnom Penh. There was no shortage of
material to draw on. However, none of the existing analyses had seriously addressed the issues of risk,
of variation in performance between target beneficiaries, or the strengths and weaknesses of project
intervention, compared with alternative activities.
2. There are several problems in the way in which financial performance is currently analysed and
reported:
3. Analyses are usually undertaken too late to be of use in developing improved interventions, and are
rarely used to inform overall development strategies;
4. The financial returns from enterprises are typically described and compared using a single average
figure (in some cases a range, or other measure of variation) that does not adequately address the
nature of the variation in the returns, and the implications of this variation to new entrants.
5. Much of the information related to variation in performance (typically the "project database") is
compounded with apparent variation related to the nature of farmer responses and interviewer
interpretation. In some cases, this "false" variation may swamp real variations.
6. Approaches to accounting (or not), family labour and certain kinds of capital expenditure are varied,
and assumptions are not always clear in reported figures or database calculations. Variation in
approach between projects and field offices makes cross-regional comparisons difficult, and in some
cases impossible.
47
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
7. While return on land (e.g. net revenue or profit/ha) and capital (profit/capital investment) are almost
always calculated, return on labour, which is a key concern to small enterprises, is less often reported,
and the conventions for its calculation appropriate to small-scale rural enterprise are not well
established.
8. Thorough risk assessment is rarely undertaken, and there is no widely adopted format or framework
for risk assessment which would allow for comparison between different kinds of intervention and
existing farmer/fisher activities.
9. Financial performance is often reported for a particular intervention, without thorough comparison
with existing or possible alternative activities. Lacking any local reference point, these figures may be
meaningless. This is a particular problem where interventions imply changes in resource use patterns.
8.6
Examples from READ Viet Nam: pond aquaculture and alternative activities in
Tien Giang Province, Mekong Delta
1. Small-scale pond aquaculture in Tien Giang Province, is extremely diverse in terms of both financial
return and risk. The baseline survey suggested that returns can be very high, and well above those
generated by rice cultivation and other alternative activities. Risks from external factors appear to be
relatively low compared with those affecting alternative activities.
2. However, many farmers in the baseline survey, and especially those using very high levels of inputs,
made losses in real12 terms (29 percent), and significant numbers made losses in purely cash terms (14
percent). On the other hand, of those farmers participating in the READ on-farm trials, very few (2.5
percent in 2000) made losses in cash terms.
3. Unfortunately, this reduced failure rate was achieved at a significant cost, with substantially lower
average returns from the on-farm trials compared with the VAC baseline farmers; and with negative
average returns in the on-farm trials if all costs, including capital costs, are accounted.
4. The analysis of risk and performance of VAC baseline farmers suggests that higher returns with
relatively low risks of failure could be achieved. This would require using rather more intensive
inputs than those recommended in the trials, but less than the extreme input levels used by some
farmers. The management practices of the successful existing farmers operating at these levels
deserve further investigation, and the possibility of testing modestly-increased inputs in future
on-farm trials should be explored.
8.7
Examples from READ Cambodia pond aquaculture and alternative activities in
three provinces
1. Pond aquaculture, as promoted under the READ project in Cambodia, appears to be very attractive
from a financial perspective, generating much higher returns to land and labour than rice farming.
2. The slightly higher risks compared with alternate activities derive mainly from the relatively high
capital investment in ponds. However, the survey data suggest that good returns are possible with
ponds of 200m2 or less, so that would-be aquaculturists can begin with relatively-modest investment
of perhaps $200. In practice, most farmers should be able to pay off the investment in a few years, and
judging by the 2000 and 2001 trials, the failure rate is likely to be very low. Furthermore, the cash
investment may be reduced if family labour is used to build the ponds, although the local opportunity
cost of this labour must be taken into account before allocating such labour
12 Including family labour charged at market rates and opportunity costs of on-farm inputs.
48
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
3. Significant numbers of farmers do exceptionally well, generating extremely high returns compared
with any likely alternative. The project should examine these farmers in more detail in order to refine
their recommendations to optimise financial return without significantly increased risk.
4. In general, financial returns to pond aquaculture were higher in Cambodia than in Viet Nam, even in
the lower-input systems. This is related to slightly lower labour costs in Cambodia and significantly
higher farm-gate prices. These differences deserve further analysis and may have important
implications for the future development of aquaculture in the two countries.
8.8
Examples from MRF Lao PDR cage culture of Tilapia, snakehead and silver carp;
reservoir fishing
1. The analysis of cage culture and fishing in Lao PDR was based on more limited data than that
available for the READ project, and greater reliance was placed on case studies and small-scale
surveys, rather than on comprehensive survey data.
2. Cage culture technology is new and varied, and standard management practices are not esta blished in
most cases. It was therefore difficult to generate "typical" returns. At a small scale, scale factors,
especially in relation to labour use, are highly significant, resulting in widely divergent financial
profiles. Of the systems examined, the most consistent was for intensive Tilapia where a standard
semi-commercial package is now available.
3. In general the cage aquaculture systems score well against a range of financial and risk criteria, and
appear to be more attractive than most available alternatives, including fishing and rice cultivation. A
great strength of the aquaculture systems is their flexibility in terms of scale, intensity of inputs,
collection or purchase of inputs, and range of species from mainly herbivorous to carnivorous.
4. Start-up costs are highly variable ($8-$700) but can be kept to very modest levels, especially if
captured seed and feed is available, or where herbivorous/planktivorous species are reared. The
rearing of species such a silver carp, while apparently highly profitable and requiring only limited
inputs, is only possible in very fertile reservoirs.
5. The Tilapia systems currently in use require more investment, but returns are more predictable, and
production can take place in many more locations in rivers, ponds and reservoirs irrespective of
local food and seed availability. The use of rather smaller cages, or low stocking densities would
allow for initial low cost entry.
8.9
Examples from MRF Project, Dak Lak, Central Highlands of Viet Nam reservoir
fisheries; cage culture of grass carp; coffee and rice
1. Of the enterprise systems studied, the most financially attractive were a small (5 ha) stocked reservoir
(Ho 31) and the lift net fishing in a medium-sized stocked reservoir (Ea Kau). However, the small
reservoir suffered from harvesting problems related to flooding last year, resulting in greatly reduced
returns; and the lift net fishing declined radically in 1999-2000. In contrast, although the gill net
fishing in Ea Kau had previously generated rather poor returns (close to the market wage), the
downturn last year was much less severe, and it significantly outperformed lift net fishing.
2. This illustrates the dangers of using financial performance indicators in isolation to assess the
strengths and weaknesses of different enterprises or technologies. They must be used in combination
with a thorough understanding of the nature of the systems being exploited, broader economic trends,
and possible changes over time.
49
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
3. Prior to disease outbreaks in the mid 1990s, cage culture of grass carp generated consistent returns to
labour a little above market labour rates, but profit margins were very slender, and this, coupled with
increased risk of failure led to its demise. Analysis of data from MRF trials on cage culture of grass
carp using improved cages to promote higher water quality, suggests that returns would be marginal
without exceptional growth and survival rates. The low returns are related mainly to the high labour
requirements involved in feed collection and feeding, as well as the relatively low price of grass carp
in Viet Nam ($0.5-0.6).
4. Coffee production generated very high returns in the past but is now marginal, and investment is
unlikely to be recouped unless the price recovers significantly. Using aver age values from a small
survey to develop a spreadsheet model, it is shown that prices of raw coffee would need to rise by
around 30 percent to restore return on labour to market rates, and closer to 100 percent to generate
returns sufficient to make up for the high investment and long lead time.
5. Overall, the figures suggest that stocked reservoir fisheries, analysed as a single enterprise, are
relatively attractive from a financial perspective, and can generate returns higher than those available
from other enterprises. This is especially the case with the smaller water bodies. However, a key issue
is the management and distribution of income from such enterprises. Much more detailed studies are
required to explore these issues, building on financial analysis to develop broader economic studies,
which could inform strategies for future interventions in reservoir fisheries management. This will
require a focused programme of economic research, rather than ad hoc and exploratory analyses of the
kind undertaken here.
8.10 Major conclusions
1. Socio-economic surveys, and especially baseline surveys, have been ambitious and detailed, but have
not been used effectively as tools for identifying or refining interventions, especially extension
recommendations. Less ambitious preliminary surveys, analysed prior to extension or advisory
interventions, followed up with more focused surveys or case studies, and linked to an evolving
extension programme, would be far more effective.
2. The study suggests that the varied forms of aquaculture in ponds and cages have high potential
throughout the region, in terms of both commercial development and small-scale family enterprise
directed at poverty alleviation. In general they compare well, and in some cases very well, with
alternative traditional enterprises such as rice and fishing, and other new enterprises such as fruit and
coffee production.
3. The very high levels of variation in performance found in the READ baseline surveys in Viet Nam
and Cambodia, with some farmers doing badly, and others very well, suggests high potential and need
for identifying and extending a range of financially-attractive production systems suited to different
household or enterprise types.
4. The analysis of risk and performance of VAC baseline farmers in Tien Giang Province suggests that
higher returns with relatively low risks of failure could be achieved with rather more intensive use of
inputs than those recommended in the on-farm trials.
5. Stocking of small reservoirs appears to generate very high returns, and can be organised as a managed
"enterprise" relatively easily. The financial benefits of stocking larger reservoirs are more
ambiguous, and the social and economic issues, including resource access and allocation, are
complex, requiring much broader social and economic analysis than was possible in this study.
50
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
6. Some interesting differences have been highlighted between countries (for example lower returns
from pond culture in Viet Nam compared with Cambodia) that suggest the need for a broader
economic study to examine price and cost differences between countries, and their implications for
trade and future price trends.
8.11 Recommendations
1. Useful financial appraisal requires relatively simple forms of analysis coupled with a thorough
knowledge of the technologies and the (often changing) development context. It should therefore be
undertaken by local technical staff trained in the basics of financial analysis appropriate to small-scale
enterprises.
2. Financial analysis should be undertaken throughout the project or programme cycle to inform
resource allocation decisions, and to guide and refine interventions and extension recommendations.
3. Baseline studies should be completed and analysed prior to initiation of on-farm trials, and prior to the
development of extension packages. Indeed, communicating the financial and risk profile of
alternative enterprises and technologies should be a key part of project and extension activity.
4. Comprehensive baseline surveys and detailed monitoring exercises may be counter-productive, in so
far as analysis may become too complex, too time consuming, and too divorced from the realities and
trends on the ground. A day in the field may be more informative than many days of database
analysis.
5. Relatively simple but broad-ranging preliminary surveys, followed up with detailed case studies of
representative enterprise types, are likely to be most effective. These case studies should then be used
to analyse production parameters, and develop corresponding production/financial models that can be
used to explore the financial consequences of modified relationships or input/output values. These are
likely to be of more use for informing strategy than empirical "average" models derived from large
data sets.
6. Survey responses should be cross-checked in the field at the time of interview. For example,
information may be solicited on production, on product value, on total income, on stocking rates and
on survival. A simple on-the-spot calculation will highlight discrepancies that can then be explored
with the respondent. It is in the exploration of such discrepancies that insights into the nature of
technologies, and the financial realities of these to the farmer, can be gained.
7. Once data has been collected it should be explored and analysed immediately, either by the field team
or in close consultation with them. Particular attention should be paid to "outliers": data that lie at the
extremes of performance. These may represent false data, or important differences in the kind of
enterprise.
8. Histograms and scatter graphs rather than summary statistics should be used to explore and present
the nature of variation in financial performance, and this should provide pointers for further analysis
and research, and important information for extension advice. These charts will also provide
important insights into the variation in performance between different beneficiary groups, and the
risks of poor performance or failure associated with particular types of enterprise.
9. Where possible, returns to the enterprise or household, to land, to labour and to capital should all be
calculated, since these different returns are more or less important depending on local conditions and
individual needs and perspectives. An estimation of minimum start-up investment and risk of failure
should also be key components in the analysis, especially when assessing the potential for poverty
alleviation.
51
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
10. Labour is a key resource and input to any new enterprise, and must be carefully quantified and
accounted in financial analysis. Care must be taken to distinguish between actual labour input and
minimum necessary labour input. Where labour is plentiful, the former is likely to be high and
variable. The latter is technology dependent, and is the key parameter for input to financial analysis. It
should be explored through in-depth case studies.
11. Financial analysis, ideally undertaken by the same analyst and based on similar assumptions, should
be undertaken in respect to existing or possible alternatives to any proposed intervention. Without
some such "baseline", development potential is almost impossible to assess, and rational allocation of
resources by projects and by farmers or fishers themselves is unlikely.
12. Financial analysis and risk assessment should as far as possible follow the framework and approach
outlined in more detail in the methodology sections (2.2 to 2.7) of this report.
52
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
References 9
Hambrey, J., K. McAndrew, & M. Beveridge. 2001. Aquaculture and poverty alleviation 1: cage culture
in freshwater in Bangladesh. World Aquaculture. 2001. 32 (1): 50-58.
Mattson, N; H. Nilsson & S. Phounsavath. 2000. The fishery of Nam Ngum Reservoir, Lao PDR. Mekong
River Commission. Vientiane. Component Report No. 26.
Phillips, M. 1988. Freshwater cage culture development in the reservoirs of the Central Highlands of Viet
Nam. Report for the Mekong River Commission. Network of Aquaculture Centres in Asia-
Pacific, Bangkok, Thailand.
Phuc, P.D. & J.D. Sollows. 2001. Status and potential of reservoir fisheries in Dak Lak Province, Viet
Nam. In: Reservoir and culture-based fisheries: biology and management. p.36-42, ACIAR
Proceedings No. 98, Canberra, Australia.
Setboonsarng, S., L.H. Hoang, & P.C. Thien. 1999. Report of a baseline survey of Tien Giang Province in
1988. Rural extension project for aquaculture development in the Mekong Delta, Mekong River
Commission, Phnom Penh.
Setboonsarng, S., K. Viryak, K. Saovannart & T. Somony. 2001. READ 1999 Baseline Survey Report,
Kandal, Prey Veng, and Takeo Provinces, Mekong River Commission, Phnom Penh.
Vinh, N.N., P.D. Phuc, P.T. Huy, & J. D. Sallows. 1999. Grow-out cage culture trials of grass carp in Ea
soup. MRP Technical Report V1-1999, Bun Ma Thuot, Viet Nam. 13 pp.
53
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Measures and Annex 1
indicators of
financial performance
Steady state analysis (annual costs and earnings)
This is a relatively simple approach to financial appraisal and adequate for most purposes. In particular it
is useful for comparing the performance of already established, and relatively un-intensive (low
investment) activities. The only complexity or subjectivity relates to the manner in which the cost of
capital (the money tied up in capital assets - land, buildings, plant, equipment) is accounted. Normally a
capital charge is included in the operating costs. This charge may include any or all of the following:
? an interest charge against capital tied up in land, buildings, plant and machinery/equipment;
? a depreciation charge to allow for the establishment of a replacement fund for deteriorating or
ageing buildings, plant and equipment;
? a maintenance charge against buildings, plant and machinery;
? an insurance charge related to the value of capital assets (e.g. buildings, plant and mac hinery or
equipment;
The interest charge may be related to the current opportunity cost of capital (e.g. commercial rates of
interest on invested cash) or the borrowing cost of capital (bank lending rates). It may be charged on all or
any of land, buildings, plant and machinery. By convention (with little obvious justification) it is often not
charged against land value. The values chosen for the various interest rates can have a major impact on the
analysis.
There are a variety of conventions for estimating depreciation , but for the purposes of project appraisal, the
straight line method is adequate. Cost is divided by the expected life to give a simple average annual charge.
The cost of maintenance is highly variable and difficult to estimate on an actual cost basis. It is
conventional to assume that maintenance can be estimated as a simple percentage of capital cost (usually
between 5 and 15 percent).
If information is not available on actual insurance premiums related to buildings, plant and equipment (if
any), a percentage rate may be assumed.
Other annual operating costs are relatively straightforward, and should normally be broken down into
labour, raw materials (food, fertiliser, chemicals), energy (electricity, fuel oil etc.), communications etc. as
appropriate to the enterprise.
55
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Variable costs are those operating costs that vary in direct proportion to output (e.g. food, casual labour).
Fixed costs are those costs that are independent of output or production rate (e.g. capital charges related to
land, ponds, major items of equipment, labour associated with routine management). It may be useful to
sum these up as separate sub-totals, especially for existing enterprises with significant overhead costs.
However, many operating costs cannot easily be classified as fixed or variable and may be termed semi-
variable. In practice there is often little point in making the distinction when the purpose of the analysis is
investment appraisal or feasibility. In this case most costs may be varied (on paper) according to a range of
possible outputs (e.g. numbers of ponds or tanks).
Table A1.1 Static financial/resource model of a hatchery
Capital costs
Item
Quantity
Unit cost Total cost $
Life
Units
Land
1
5000
5000
ha
Building
200
150 30,000
20
m2
Plant and machinery
5,000
10
Vehicle
1
15,000 15,000
6
Tanks
12
200 2,400
8
Tanks
8
400 3,200
8
Pipework
2,800
6
Lab equip
2,000
5
total
60,400
Operating Costs
Fixed costs
Item
Quantity
Rate/cost Total cost $
Units
Interest
10% 6,040
Depreciation
see above 6,067
Maintenance
10% 6,040
Labour skilled
100
20 2,000
MD
Total fixed costs
20,147
Variable costs
Casual labour
75
15 1,125
MD
Fuel
300
4 1,200
l
Artemia
3
100 300
kg
Feed
5
80 360
kg
Fertiliser
30
5 150
kg
Chemicals
30
30 900
l
Broodstock
6
50 300
each
Total variable costs
4,335
Total operating costs
24,482
Production Unit price
Sales
Total revenue (income)
5,000,000
0.01
50,000
56
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Indicators of financial viability
Given information on production, and product value, a range of simple indicators of financial viability can
be calculated:
Profit (also often referred to as net revenue or net income). Income minus all operating costs, including
interest, depreciation, maintenance, labour, inputs etc. If tax is deducted this is called net profit, or profit net
of taxes.
Profit/ha/crop or profit/ha/yr is a simple measure of return on land, or land productivity, and can be
calculated for a single production cycle or for a year, whichever is appropriate. This should always be made
clear.
Return on Labour (RoL/PD). (Profit + labour costs)/total labour used (in person days). RoL
corresponds to the average wage that would reduce profit to zero, or the maximum average wage that
could be paid. Note that if labour has not been included in total costs when calculating profit, then there is
no need to add labour costs back in.
Return on Investment (static). (Profit/total capital investment)x100 percent. A simple measure of
attractiveness for investment. This is sometimes confused with the more complex measure internal rate of
return (see below).
Profit Margin. (Profit/total income)x100 percent. A measure of vulnerability to product price change or
increased costs. A useful indicator of financial risk.
Pay-back (PB). Total investment/(annual profit+depreciation). The time required to pay off capital invested
in a project. While payback periods of 10 or more years may be acceptable to some very large corporations,
most small businesses, including farmers, would hesitate to invest where payback periods exceed two or
three years.
Unit Production Cost. Total operating costs/total units or quantity produced. Useful for assessing
competitive position or comparative advantage compared with other actual or possible producers.
Total start-up investment/ha. The cost (per hectare or per enterprise) of purchasing land,
building/establishing ponds, tanks, buildings etc., and investing in inputs for the first crop. The total
outgoing costs before any return is generated. Essential information for people with limited access to funds.
13Gross margin (GM). Gross income (sales revenue) minus variable costs. If a farmer engages in several
different activities, it may not be possible to allocate fixed costs to each of these, and gross margin may
then be used as a partial measure of return for comparative purposes. Unfortunately, labour may be
classified as a fixed cost or a variable cost, depending on circumstances, and this makes gross margin
figures difficult to compare. It is useful therefore to distinguish two measures: gross margin excluding all
labour (GMxl), and gross margin including all labour, so that confusion can be avoided and consistent
comparisons made.
Measures relating to land use and land productivity. Several of the above can be divided by the area of
land used in production to give an indication of the efficiency of land use e.g. gross income/ha;
profit/ha; GM/ha; RoL/ha; MD or MY/ha (or labour density). While gross income/ha is of importance
to the economy as a whole, the other measures have more meaning for the individual land-user.
13 In practice, there may be a range of measures of profitability which include/exclude different kinds of costs as appropriate to
the analysis being undertaken. It is important to make clear what costs have or have not been included in profit/net revenue/gross
margin figures.
57
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Fish combination Annex 2
recommendations to
farmers, READ on-farm trials,
Tien Giang Province, Viet Nam
VAC:
1. For inland area (Chau Thanh, Cho Gao, Go Cong Tay):
? Cai Lay: river catfish 50%, Tilapia, and kissing gourami.
? Chau Thanh: + For sale: giant gourami 70%, kissing gourami, river catfish, and Tilapia.
+ For household consumption: Tilapia 70%, river catfish 30%.
? Cho Gao: Tilapia 60%, kissing gourami 20%, grass carp and silver carp.
? Go Cong Tay: Tilapia 70-80%, river catfish, and silver carp.
2. For flood prone area (Cai Be and Cai Lay): Tilapia >50%, river catfish 20-30%, kissing gourami,
silver barb, and common carp.
3. For highly acid sulphate area (Tan Phuoc): Tilapia 50%, kissing gourami, river catfish, and hybrid
catfish.
4. For slightly acid sulph ate area (Tan Phuoc): Tilapia 40-50%, kissing gourami 20-30%, river catfish,
hybrid catfish, snakeskin gourami.
5. For salinity intrusion area (limited water exchanged) (Go Cong Dong and Go Cong Tay): Tilapia
50%, river catfish, and common carp.
Rice-fish:
1. Flood prone Cai Be:
+ Rice field>5,000 m2: Common carp 30%, Tilapia 30%, silver barb 30%, silver carp 5%, and Indian
carp 5%.
+ Rice field<5,000 m2: Common carp 30%, Tilapia 25%, silver barb 35%, silver carp 5%, and Indian
carp 5%.
2. Low lying area in Go Cong Dong and Go Cong Tay:
? Go Cong Dong: Tilapia 35%, common carp 35%, silver barb 20%, silver carp 5% and Indian carp
5%.
? Go Cong Tay: Tilapia 40%, silver barb 30%, common carp 25% and silver carp 5%.
59
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Spreadsheet models Annex 3
of selected
enterprises
The (37) spreadsheet models used in this paper are too extensive to include in a standard A4 sheet, and
most of the information is lost in printing. They can be downloaded from the Nautilus Website
www.nautilus-consultants.co.uk or the MRC website www.mrcmekong.org or contact John Hambrey
john@nautilus-consultants.co.uk
61
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Economic Annex 4
approaches to
assessing the aquaculture
potential of indigenous species
Assessment of potential should be an evolving process, constantly updated and informed as new
information and trial results are received.
There are typically three stages in aquaculture production: hatchery, nursery and grow-out. Grow -out is by
far the most important in overall economic terms, and seed costs are usually a relatively small part of
production costs. The assessment should therefore put greater weight initially on grow-out economics.
The same argument applies to actual research and production trials. Grow-out performance should be
examined before expensive research on hatchery production is initiated, especially for the less
well-known/understood species.
If growth rate and feeding habits are reasonably established, then the minimum production costs for
different potential species can be established through comparison with established species. This can be
done roughly, on the basis of a scoring system, or more accurately if local data on production economics
are already available for a range of comparable species.
Rough scoring system for comparing economic potential of aquaculture candidate species
grow-out
The economic attractiveness of any new species for aquaculture will depend on the difference between
market price and input costs. Where accurate information is not available, a scoring system, based on
comparison with known species, can be used.
The fish is given a score on a range of 1 to 5 (or 1-10 if preferred). The range for each parameter is
defined by reference to known species. For example, if it is agreed that silver carp involves the lowest
input costs, then this species correspo nds to 1 on the reference scale. If it is agreed that Channa involves
the highest input costs, then this represents 5 on the reference scale. The new species is then assigned a
score between 1 and 5 by comparison with these species. This will be relatively easy for some new
species which are very similar to existing species, and for which good scientific information is available.
For others, the scoring will be more difficult. To take account of this difference, an uncertainty score
(estimated range for the parameter score e.g. + or 1) should be assigned for each parameter.
63
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Table 1 Scoring table for the assessment of species potential (economic)
Species
Fixed
Un-
Variable
Un-
Market
Un-
Net
Total un-
e.g.
costs
certainty:
input
certainty:
price
ce rtainty:
revenue
certainty
+ or -
costs
+ or -
+ or -
(net score)
score
Anabas
testudineus
Osphronemus
gourami
Trichogaster
pectoralis
Barbodes
gonionotus
etc.
Notes on scoring
Assigning scores should be done with care, taking account of the various components of cost.
Fixed costs
Fixed costs do not vary with production. They may be related to capital investment (pond, cage, dyke etc.)
or to labour (e.g. for guarding). All else being equal, these costs will be lower per unit of production for
faster growing species. For example, if growth is such that two crops per year might be feasible, then
fixed costs will be roughly 50 percent of those for a species for which only one crop is possible. Assigned
scores should reflect these differences.
Variable input costs
These include feed, seed, fertiliser, and variable labour (i.e. labour which varies with production). Growth
rate should not be taken into account when assigning this score. Species should be compared in terms of
expected input costs/kg of production. Although the expected cost of seed should be taken into account, it
should be noted that seed is typically a relatively small component of input costs when compared with
feed and labour.
Market price
In assigning a score for market price, potential demand should be taken into account as much as existing
market price. Many unusual wild species have a very high market price locally, and the price is often
related to scarcity. Significant aquaculture production is lik ely to cause a significant price fall for these
species. The market price score should therefore be based on the price of similar species that are more
widely available.
Using the scores
The scores for fixed costs and variable costs can then be added, and subtracted from the market price
score to provide a "net revenue" score. The uncertainty scores can also be summed to provide an overall
indication of the uncertainty associated with the net revenue score. The results can then be discussed,
scores adjusted where appropriate, and a final score obtained. The species with the highest net revenue
and lowest uncertainty score will be the most attractive as immediate candidate species. Those with high
revenue and high uncertainty may deserve further investigation. Those with low net revenue scores should
be given low priority.
64
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Applying the same approach to hatchery economics
A similar approach can be taken to the costs and returns from hatchery production, although as noted
above, this is probably less important than grow-out for overall species potential assessment.
When undertaking this exercise for hatcheries, a key issue is technical difficulty. In terms of financial
return, technical difficulty will have an impact on both fixed costs (low survival implies more
tanks/ponds/cages for broodstock, larvae and fry) and variable input costs (mainly labour).
It may be easier to simply classify seed production as low cost (cf. common carp, Tilapia) medium cost
(cf. grass carp, Pangasius) and high cost (cf. seabass, Macrobrachium). These rough costs could then be
included in the assessment of input costs for grow -out in Table 1.
Towards more detailed assessment
Rough estimates of financial return for different species can be made if the following information is
available, or can be reasonably estimated through reference to other similar species:
? Seed cost
? Survival rate
? Growth rate
? Input costs
? Market price
Seed cost should be relatively easy to estimate through comparison with similar species.
Survival rate and growth rate may be known through trials, or again may be assessed in comparison to
similar known species.
Other input costs (per kg of production) (mainly feed, fertiliser and labour) may be estimated from survey
data of existing aquaculture operations, and are likely to fall into one of three classes: trash
fish/formulated feed systems; fertilised ponds with supplementary feed; and fertilised only systems.
Market price has been discussed above. Likely demand should be taken account of as well as current
price. It will probably be appropriate to adjust the current price downward to take account of the impact of
increased aquaculture production. Similar species that are more widely available should provide an
indication of what this adjusted price might be.
A table (preferably set up in a spreadsheet) can then be constructed which provides rough return data for
different species, taking account of survival rate, growth rate, and market price. An example, based on
current species grown in the Mekong Delta, is provided in Table 2.
Adjusted seed cost is the cost of seed required to produce one harvested fish, and takes account of
mortality. It is calculated as the purchase price of one seed divided by survival rate. For example, if seed
price is VND200/piece, and survival rate is 50 percent, then 2 seed are required to produce 1 fish, and the
adjusted seed cost per fish harvested is 200/0.5 = VND400.
Allocation of input costs is the estimated input costs/kg (excluding seed) multiplied by the size of the fish
in kilograms. These costs should include labour, feed, fertiliser etc.; and, if possible, an allocation for
fixed costs (ponds, nets etc.), although these have not been included in the estimates made in Table 2.
Net return per fish harvested is simply the market value of the fish (column three) less the adjusted seed
cost and input costs. Remember throughout that the calculation is based on one fish, not on 1 kg of
production. This figure would represent the maximum return (there will be other less-easily defined costs)
and is a useful financial performance index for comparing different species.
65
Financial analysis and risk assessment of selected aquaculture and fishery activities in the Mekong Basin
Table 2 Partial returns over nine months for different species grown in the Mekong Delta
Species
Size at ca 9 Farm gate price
Fish value Less adjusted
less
Net return
months
VND/kg
(VND/piece)
seed cost
allocation of
after 9
at 9 months
input costs
months/fish
harvested
Common carp
320
8,000
2,560
167
504
1,889
River catfish
450
8,000
3,600
563
709
2,329
Tilapia
160
6,000
960
182
252
526
Kissing gourami
100
10,000
1,000
175
158
668
Giant gourami
150
11,000
1,650
500
236
914
Silver barb
110
7,000
770
300
173
297
Grass carp
320
6,000
1,920
143
504
1,273
Silver carp
350
6,000
2,100
71
551
1,477
Note: prices and costs in the table above are rough estimates only and should be adjusted according to local
conditions/current knowledge.
66