ccda prawn hatchery (financial feasibility)_20july2013_finaldraft

CCDA Prawn Hatchery Project

Final Draft

July 2013

FINANCIAL FEASIBILITY ANALYSIS SHAKIB

AHSAN KAMAL SADEK & CO. CHARTERED ACCOUNTANTS |

Financial feasibility analysis of CCDA Prawn Hatchery Project

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Table of Contents

List of Abbreviations ..................................................................................................................................... 3

Executive Summary ....................................................................................................................................... 4

1 Introduction .......................................................................................................................................... 6

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

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

3.1 Background ................................................................................................................................... 8

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

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

4 CCDA Prawn Hatchery Project ............................................................................................................ 15

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

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

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

4.4 Success ........................................................................................................................................ 18

4.5 Challenges ................................................................................................................................... 18

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

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

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

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

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

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

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

8 Financial Analysis ................................................................................................................................ 32

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

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

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

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

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

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

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

9 Scope for Expansion ............................................................................................................................ 43


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

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

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

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

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

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

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

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

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


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List of Abbreviations

BB Bangladesh Bank

BD

BDT

BFFEA

BRAC

CCDA

Bangladesh

Bangladeshi Taka

Bangladesh Frozen Foods Exporters

Association

Bangladesh Rural Advancement

Committee

Center For Community Development

Assessment

DoF Department of Fisheries

DSCR Debt Service Coverage Ratio

EBITDA Earnings Before Interests, Taxes,

Depreciation and Amortization

EBT Earnings Before Taxes

FAO Food and Agriculture Organization

FSYB Fisheries Statistical Year Book

GoB Government of Bangladesh

GDP Gross Domestic Production

IRR

LRT

Internal Rate of Return

Larva Rearing Tank

LLCR Loan Life Coverage Ratio

MARR Marginal Attractive Rate of Return

MBDT Million Bangladeshi Taka

MIRR

MOFA

Modified Internal Rate of Return

Ministry of Fisheries and Agriculture

NBR National Board of Revenue

NPV

PKSF

Net Present Value

Palli Karma Shayak Foundation

PL

PPT

Post larva

Part Per Thousand

ROE Return on Equity

ROI Return on Investment

TPM Three Point Method


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Executive Summary

CCDA Prawn hatchery project project was primarily conceptualized as a Value Chain

Development project for the enhancement of the income of the floodplain1 aquaculture farmers

residing at Daudkandi (Upozilla of Comilla District). CCDA started the Value Chain Development

project in 2010 with the help of PKSF. Under the Value Chain Development project Prawn was

included along with other fishes to increase the income of the farmers. 175 farmers were trained

in order to conduct the farming of these newly included Prawns and also to overlook the

management of the nurseries under this project. All these farmers were successful in producing

juveniles2 (T.B.Bagenal & W.Nellen, 2010) and also in selling those in the market for fish farming.

The Prawn Farming requires very less care and food, and that is the reason why considering the

low price/investment required buying PLs, the Prawn Farming has turned out to be a very fruitful

one.

Primarily the project objective has been to increase the income of fish farmers by enhancing and

expanding the Prawn/shrimp production/farming in Comilla floodplains. In order to accomplish

this task the availability of PL locally is essential. By ensuring supply of quality PL locally, we can

avoid the cost of long distance delivery and transportation along with decreasing or even

eradicating the number of dead PL and thus ensuring low cost of Prawn production cost. This will

not only increase production quantity but also encourage farmers get more and more involved

in this business.

Currently as there is no hatchery in this region, all PLs are brought in from various other places

(especially from Khulna region). CCDA can sell the entire PL that is produced in the hatchery just

by fulfilling the demands of PL in the floodplains of Daudkandi, Titas and Muradnagar Upazilla.

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


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The comprehensive analysis of the projects business model, market demand and financials

demonstrate that the project is feasible under the base case and best case scenario. Notably,

although the worst case scenario gives completely negative picture of the project performance,

it is highly unlikely for the market forces to behave according to those assumptions. The

expansion plan adds to the projects baseline performance, hence is feasible to undertake.

However, the additional value is virtually insignificant.

The projects payback period is quite long, minimum 6 years under base case and minimum 4

years under the best case. On an average it would take around 9 years to recoup the total

investments, 7 years to recoup CCDAs investments if CCDA invests BDT 19.94 million (no external

fund support for the extra expenses), and 5 years to recoup CCDAs investments is CCDA invests

only what they have already made available for the project i.e. BDT 12.83 million.


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1 Introduction

Today, fishery, including marine shrimp farming3, has been able to establish itself as not only a

successful medium of livelihood but also a technology en route for economic solvency based on

its continuously increasing contribution in gross domestic production. The respective industry

provides a dynamic source of nutrition along with creating employment opportunities, recreation

and most importantly immense economic benefits for the current scenario persisting immense

potential to sustain for the future generation as well. Commercial shrimp farming began in the

1970s, and production grew steeply, particularly to match the market demands of the United

States, Japan and Western Europe. The total global production of farmed shrimp reached more

than 1.6 million tons in 2003, representing a value of nearly 9 billion U.S. dollars. About 75% of

farmed shrimp is produced in Asia, in particular in China and Thailand. The other 25% is produced

mainly in Latin America, where Brazil, Ecuador, and Mexico are the largest producers. The largest

exporting nation is Thailand.

Shrimp farming has changed from traditional, small-scale businesses in Southeast Asia into a

global industry. Technological advances have led to growing shrimp at ever higher densities, and

stock shipped worldwide. Virtually all farmed shrimp are of the family Penaeidae. According to

FAO nomenclature, freshwater paleomonids are referred to as prawn; marine penaeids,

metapenaeids and paleomonids are called Shrimp. The following two species comprise roughly

80% of all farmed shrimps (FAO, 2003-2005)4

Penaeus vannamei (Pacific white shrimp) and

Penaeus monodon (giant tiger prawn)

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


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2 Objectives of the study

The main objectives of this study were to:

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

assess the factors impacting on the growth and distribution of hatcheries including brood

stock strategies, transportation of PL, and pre-grow-out management policies,

Demonstrating technical knowhow of operation.

Conducting holistic financial projection of the project in hand to extract the true financial

feasibility and operational sustainability.

Over viewing possible expansions and accompaniments.

Review opportunities to involve poor people in hatchery operations, specifically in nursing

and grow-out of PLs.

This review forms part of the Shrimp Action Plan developed jointly by DFID and representatives

of Fourth Fisheries Project, Department of Fisheries in February 2002. The report describes the

measures needed to improve farming and hatchery management practices to ensure a more

sustainable and equitable shrimp aquaculture in Bangladesh.


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3 Industry Overview

3.1 Background

Prawn5 (Species of Macro Brachium) found across the country, particularly in the running river,

canal and the paddy field, prawn was abundance. In the 60s when the food campaign of grow

more food started, the HYV from IRRI, Philippines was initiated in our agricultural fields (CCDA,

2011). Because of that insecticides were introduced in the paddy fields for Application to control

the harmful pests. Prawn belongs to the class crustacean, which is the very precise reason why

prawns were mostly affected by the initiation of pesticides. Along with prawn other indigenous

fish species spawn was also damaged. Because of that the prawn abundance in natural water was

reduced and paddy field prawn was entirely eradicated.

In the 1980s it was felt that for the preparation of prawn it is necessary to establish prawn

hatchery, and thus experiments were conducted in both public and private sectors. The result

was not enthusiastic. From FAO a group of scientist was given responsibilities to explore

prawn/shrimp6 hatcheries in Bangladesh. But unfortunately that study gave negative results. So

there was a pause in the prawn and shrimp sector.

Later through development project of Fisheries Department experimented Prawn and Shrimp

Hatcheries positive results started to creep in. But many of the reputed scientists did not agree

with the results.

We all know necessity knows no laws and boundaries. It was evident in the fact that the shrimp

hatchery parameters were successfully prevailing in the Coxs bazaar area in the 1990s. So in the

private sector the shrimp hatchery developed in full scale during that period. About 44 hatcheries

were established in the Coxs Bazaar Area (Kalatoly, Teknaf). Each of the Hatcheries was able to

produce 1.5 to 2 crore P7L in a season.

5 Prawn= Fresh Water (All species present in the fresh water) 6 Shrimp= All marine and coastal Species 7 PL= Post Larva


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Due to many other unavoidable reasons the establishment of the prawn hatchery industry in

national level was delayed in spite the experimentation and even the setting of prawn decision

were completed in 1988. Later in 1993 BRAC came forward for learning the technologies. The FRI

Chandpur trained some technicians of BRAC about the prawn hatchery technology and that was

followed by BRAC establishing a small prawn hatchery project in Comilla BRAC Center.

Now at present time a staggering number of 130 both big and small shrimp hatcheries are

operating all over the nation. Some of them are not in operation for the lack of technical

manpower and constrain of fund.

3.2 Basic Information

By 2007-08, the shrimp farming area occupied nearly 2, 17,877 hectors; the main fresh water

shrimp farming districts are Khulna, Bagerhat, Jessore, Narail, Gopalganj, Pirojpur and Noakhali.

More or less 80% of the shrimp farming areas are in the southwestern region of Bangladesh while

the rest are in the southeastern part. Shrimp is the second most important export item in

Bangladesh.

The following statistical upshot regarding the basic infrastructural and source based upshot has

been constructed in accordance with information released by Bangladesh Frozen Foods

Exporters Association (BFFEA)8 :

A. Inland Fisheries

a) Closed Water body

1. pond 151,916 Ha

2. Oxbow Lake 5,488 Ha

3. Coastal Shrimp farm Zone 170,000 Ha

4. Fresh Water Shrimp Farm Zone 4,017,064 Ha

Total of closed Water Body 4,344,468 Ha

b) Open Water body

1. River, Canal, Depressions etc 1,031,563 Ha

2. Beel, Haor 114,161 Ha

3. Kaptai Lake 68,800 Ha

4. Flood Plain 2,834,008 Ha

Total open Water Body 4,048,532 Ha

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


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B. Marine Fisheries

(Industrial & Artisan Fisheries) 16,607,000 Ha

Grand Total Water Area 25,000,000 Ha

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

01. No of Fish Processing Plants 148

02. Plants Licensed by the GOB 88

03. Fish Processing Plants Approved by the EU 74

04. Quantity of Frozen Food Exported in 2009-2010 129.81million (Lbs)

05. Shrimp Exported in 2009-2010 108.84 (Lbs)

06. Fish Exported in 2009-2010 20.97 million (Lbs)

07. Processing Capacity in the Total Plant 300,000 M. Tons

08. Export Earnings from Shrimp 2009-2010 Tk. 2,409.40 Crore (348.28 Million US $)

09. Export Earnings from Fish 2009-2010 Tk. 616.53 Crore (89.12 Million US $)

10. No. of Shrimp Hatcheries 130

11. Production of Shrimp Fly 1200-1500 Crore

12. Shrimp Cultured land 170000 Hectare

13. Unutilized land for Shrimp Culture 170000 Hectare for Brackish9 Water Shrimp

Table 02: BASIC INFORMATION ON FROZEN FOOD INDUSTRIES IN BANGLADESH, 2010 (BFFEA,

2009)

1.

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

2. Bagda Shrimp Bagda farms are mostly rice fields converted into shrimp ponds varying in size from 0.4 to 200 hactres. Most of the shrimp farmers are not permanent residents of the areas in which their ghers are situated, even the local big landowners typically lease their land to outside entrepreneurs, though it requires saline water throughout the entire process.

3. Galda Shrimp There are about 105,000 freshwater prawn farms in Bangladesh Shrimp Region. Galda farming has increased quite rapidly in recent years because it can be farmed on a smaller scale. The prawns are grown in freshwater that can often be re-used three or four times, the environmental impact is much less than in Bagda farming. Galda shrimp are cultured in ponds and ghers.

Table 03: Classifications of Shrimp

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


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

Figure 1: Fisheries resources of Bangladesh

Inland fisheries cover an area of about 4.6 million hectares of which aquaculture comprises more

than 0.5 million hectares (DOF, 2010). However, inland capture fisheries have been under heavy

pressure as a result of worsening environmental conditions; siltation in river beds; water

pollution from agricultural, industrial and municipal wastes; construction of embankments for

flood protection; irresponsible and destructive fishing practices; and loss of natural breeding

grounds through habitat degradation. Therefore, Bangladesh has focused its attention on

aquaculture, which has a high potential for development (Hussain & Mazid, 2005). The country

aquaculture contributes more than 39% (Figure 2) to total fish production in 2008-09 (FSYB,

2010).

Fisheries Resources

(Bangladesh)

Inland Capture Marine Capture Aquaculture

39%

42%

19%

Aquaculture mainland Capture Marine-Capture


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

Carp aquaculture is rising sharply in Asia. Carp production from Asia contributed 95% to the world

total carp production in 2001. In this region, there are more than 20 main inherent carp species,

contributing to about 80% of the total freshwater fish production. The most carp production in

Asia is contributed by China, India, Bangladesh and Indonesia. Carps are basically the most

important species to aquaculture in Bangladesh. In 2001, carp production was estimated as 89%

of the total freshwater fish production in the country (Dey, 2005)The proportion of freshwater

carps in total fish production is about 35% (Figure 3) in 2008-09 followed by small indigenous

species, hilsha, marine fish, shrimp and prawn, and cat fish (FSYB, 2010).

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

3.3 Economic Contribution

Shrimp farming and related activities contribute significantly to the national economy of

Bangladesh. The main areas of contribution are export earnings and employment generation for

on and off farm activities. Fisheries sector contributes 4.57% to the Gross Domestic Product

(GDP) and over 22% to the agricultural GDP. Bangladesh earned more than 32 billion BDT by

Small Indigenous

24%Shrimp and

Prawn9%Cat Fish

12%marine Fish9%

Hilsha11%

Freshwater Carp35%

Small Indigenous Shrimp and Prawn Cat Fish

marine Fish Hilsha Freshwater Carp


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exporting about 73 thousand mt of fish and fish products and contributed over 3% to the

countrys total export earnings in 2008-09. The average growth rate of Bangladesh fisheries is

5.4%. Per capita annual fish intake is about 17.5 kg supplementing about 60% of the animal

protein of the daily national diet. About 10% of the total population is directly or indirectly

employed in the fisheries sector (DOF, 2010). In 2009-10, Bangladesh earned about Tk 45000

million by exporting shrimp (SHAB, 2010) and shrimp alone contributes about 0.07% of total

export earnings (BER, 2010 ).

Year Item Qty (Million Lbs) Value(Million $) Taka Crore

1997-1998 Shrimp & Fish 60.85 293.84 1333.13

1998-1 999 Shrimp & Fish 58.35 270.32 1316.16 1999-2000 Shrimp & Fish 74.23 343.82 1722.52 2000-2001 Shrimp & Fish 76.70

363.23 1957.79

2001-2002

Shrimp & Fish 88.36

276.11 1585.25 2002-2003

Shrimp & Fish 75.57

321.81 1863.27

2003-2004

Shrimp & Fish 84.48

390.25 2300.92 2004-2005

Shrimp & Fish 96.11 420.74

2587.90 2005-2006

Shrimp & Fish 107.86

459.11

3200.00 2006-2007


515.32

3558.78 2007-2008


534.07

3663.70 2008-2009 Shrimp & Fish 117.31

454.53

3127.16 2009-2010


437.40

3025.93 Table 04: Frozen Shrimp & Fish Exports from Bangladesh (1995-1996 to 2009-2010) (BFFEA,

2009)

0

500

1000

1500

2000

2500

3000

3500

4000

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

VA

LUES

IN C

RO

RE

(TK

)


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

2009)


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4 CCDA10 Prawn Hatchery Project

Project Name CCDA Prawn hatchery Project,

Comilla, Bangladesh

Relevant Organization name and

Address

Centre For Community Development Assistance

(CCDA),

Adampur, Raipur, Daudkandi, Comilla ,

Bangladesh

Administrative Office:

109 (first Floor) Park Road,

New DOHS, Mohakhali, Dhaka-1206

Mailing Address:

Box No- GPO-2265, Dhaka-1000

Phone: +88-02-8711215, +88-02-8713137; Cell:

+880-1714166125

Website: www.ccdabd.org

Project period Implementation Period: 2 years (already

completed)

Operational Period: 5 years (incepting from the

completion of implementation procedures)

Cost of Project

(In BDT)

Total: : 20,700,000.00 Taka

In words: Two Crore and Seven Lakh Taka Only

CCDA: : 6,900,000.00

PKSF11: :13,800,000.00

10 CCDA: Center For Community Development Assistance 11 PKSF: Palli Karma Shayak Foundation


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4.1 Conceptualization

The aforementioned project was primarily conceptualized as a Value Chain Development project

for the enhancement of the income of the floodplain12 aquaculture farmers residing at Daudkandi

(Upozilla of Comilla District). Among all the perceived development projects, the prawn nursery

was activated in full strength. The nursery result was extremely positive and enthusiastic, passing

even international survival percent. The highest survival rate was at best managed state 95%.

In a floodplain project, from 30,000 juvenile prawns that weighed 601 kg in total were harvested.

The survival rate was 55%, which is 50% higher than the normal survival rate. It was the positive

results that led to the idea of proposing the establishment of the aforementioned prawn hatchery

project and the extension of the prawn polyculture.

4.2 Background of establishment

Daudkandi, Muradnagar and Titas are Upazilla of Comilla district that are adjacent to Titas-Gomti

River. These areas along with some other low areas of Comilla district stretch from the banks of

the rivers channel to the base of the enclosing valley walls and experience flooding during

periods of high discharge. Thus floodplains are created. These aforesaid areas remain under

water on an average of 5-6 months in a given year. Following our liberation struggle in 1971, due

to the construction of many roads, culverts etc, and many partially secured water area was

created. Currently the area of these floodplains in Daudkandi comprises of nearly 6 thousand

Acre (2500 hector) of land. No crop is farmed in these areas in times of flooding. Land owners

along with other interested local group of people form small organizations and capitalize on this

flooded situation by farming various fishes in these flooded lands. CCDA has been helping these

entrepreneurial activities by providing training, technical assistance and even financial assistance

through PKSF. CCDA through the financial support of PKSF has already planted a Water testing

Center to measure and ensure the water quality of the nursery ponds.

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


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Along with local species Carps, silver carp, glass carp, Tilapia etc fishes are also farmed in these

ponds.

CCDA started the Value Chain Development project in 2010 with the help of PKSF. Under the

Value Chain Development project Prawn was included along with other fishes to increase the

income of the farmers. 175 farmers were trained in order to conduct the farming of these newly

included Prawns and also to overlook the management of the nurseries under this project. All

these farmers were successful in producing juveniles13 (T.B.Bagenal & W.Nellen, 2010) and also

in selling those in the market for fish farming. The Prawn Farming requires very less care and

food, and that is the reason why considering the low price/investment required buying PLs, the

Prawn Farming has turned out to be a very fruitful one.

The project under the Value Chain Development scheme, which started in March, 2011,

has been able to obtain 3000 KG prawn/shrimps from the first 60 acres of land.

o Due to the intensive depth of certain deep floodplains, it was not possible to

obtain prawn/shrimps. But it is estimated that a further 100 kg amount of

prawn/shrimp will be obtained in near future.

It should be mentioned that, in the first year production in almost 10000 acre of land was

not up to the mark.

Farmers are gradually gaining experiences and expertise. It is expected that in future

production of prawn/shrimp per acre would be between 100-150 kg, which is an excepted

amount in mixed fish farming.

4.3 A brief snapshot of the prawn hatchery project in Daudkandi

Total area of these floodplains in Daudkandi comprises of nearly 6 thousand Acre (2500

hector) of land.

There 200 flood lands in the respective area.

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


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70 floodplains are developed, comprising 1125 hectors of land( Approximately 45% of

total area)(eligible for farming all kinds of fish)

Among these 70 floodplains, Prawn farming is performed successfully in 30 floodplains

comprising an area around 200 hectors.

4.4 Success

a) Under this project a successful nursery has been constructed and is being operated

functionally. They can and have been successfully creating juveniles from PLs.

b) The farmers who are working under this project and scheme are gradually developing

skills and growing interests to farm prawn/shrimp along with other fishes.

c) Without expending extra money on food and caring, farmers are being bale to create an

extra edge in income level by just bearing the PL expense and learning the technical and

operational aspects.

d) There is a new enthusiasm building up among the farmers regarding prawn and shrimp

farming from both inside and outside of the project undertaken by CCDA.

e) A new window of opportunity has been created for not only farmers but also for

interested entrepreneurs.

f) All these private and public endeavors are fostering local economy as well as national

economy by enhancing and diversifying an already established industry of Bangladesh.

4.5 Challenges

a) Its not possible to obtain PL on a local basis. There are prawn PL producing hatcheries in

Khulna and Nouga area. But due to insufficient supply of A-grade PL in proper time, in

spite of pre-arranged orders, it was possible to supply only farmers with PL in the second

year.

b) Due to lack of local supply it will not be possible to supply adequate amount of PL to

farmers against high demand.

c) Due to long distance transportation and supply, the number of damaged and even dead

PL has been increasing. This is seriously damaging the desired production outcome.


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4.6 Project Target

The main target of this project is to make PL easily available to farmers in order to enhance and

increase the Prawn/shrimp farming and production in floodplain areas of Comilla.

Project objectives:

i. Increase the income of fish farmers by enhancing and expanding the Prawn/shrimp

production/farming in Comilla floodplains. In order to accomplish this task the availability

of PL locally is essential. This is the main objective and target for the CCDA PRAWN

HATCHERY PROJECT

ii. By ensuring supply of quality PL locally, we can avoid the cost of long distance delivery

and transportation along with decreasing or even eradicating the number of dead PL and

thus ensuring low cost of Prawn production cost. This will not only increase production

quantity but also encourage farmers get more and more involved in this business.

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

the local fisheries unit.

4.7 Project Implementation procedure and logic

The hatchery has been established in CCDAs own land as an income increasing activity. The

nominated land has already been upgraded to the quality of hatchery operation. The site has

been developed according to the declared policies and instruction of the Public Works

department of Bangladesh government. After the construction was finished salt water (Brine

water) with the capacity of 150-200 PPT14 had been collected from salt production fields. Berried

Shrimp along with all necessary food items have been collected in due time.

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


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5 Hatchery Processes and Technical know-how

Table 5: Capacity and Production Cycle:

Cycle Duration Amount

1st Cycle Last week of March to Last week of April (1

month)

2,000,000 PL (20 Lakh)

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

Total 4,000,000 PL (40 Lakh)

Description of the facility:

Nursery and reserve pond: 2 ponds measuring 150 decimal and 2 other ponds measuring 30

decimal have been leased in Adampur area for the usage of nursery and reserve.

Land description:

The land is adjacent to kacha road of Putia Adampur, which is north of Dhaka-Chittagong

highway. The land is 150 meter distanced from the highway and falls in east of the kacha road.

The land is 200 feet in length and 100 feet wide, therefore total 20,000 square feet. The

position of this land is 200 feet on east-west and 100 feet on north-south. The eastern

portion is 12 feet down from the Putia, Adampur Road and measures 100 feet* 25 feet.

Rest of the land is feet lower from the road on an average.

Hatchery Room:

The hatchery facility has been developed in east-west portion consisting of (500*100) feet

land area. The walls of the main facility building are made of concrete and have necessary

ventilations for sun light.


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The walls are also equipped with sufficient windows comprised of thai aluminum glasses

with air tight boundaries. The connection of the rood and wall has been carefully made

so that no outside air passes through.

The tin roofs have been connected with terrace in such a way so that the heat from the

sun can be absorbed in an environmental friendly manner. There are also pipes for water

exhaustion.

Hatchery room (main) tank and other tanks:

a. Holding Tank: 3 tanks, each with the capacity of holding 3 tons of water; Mature berried

shrimps will be collected from external sources and be kept in these tanks.

b. Larva release tank: 3 tanks, each with the capacity of holding 3 tons of water; the selected

berried shrimps will be kept for larva release.

c. Larva care tank: 20 tanks, each with the capacity to hold 3 tons of water; the larva is taken

care off in these tanks.

d. Mixing tank: 1 tank with the capacity of holding 30 tons of water; in this tank salted water

and fresh water are converted into 10-12 PPT water.

e. Treatment tank: 2 tanks, each with the capacity of holding 20 tons of water; after mixing

the water is purified in this tank using bleaching powder.

f. Brine Water reserve tank: 1 tank with the capacity of holding 30 tons of water; In this tank

the collected salt water is preserved.

g. Broodstock tank: The broodstock of freshwater prawn can be easily obtained with a

steady supply either from farms or natural broodstock. The tank is mainly designed to

keep the broodstock before and/or after they spawn. The minimum requirement of the

water depth of brood-stock tank is 0.50 m with various shapes.

h. Spawning tank: The egg of the freshwater prawn is already fertilized. The berried females

can be hatched in aquarium, jar, bucket and/or pail. There is no limitation of the depth of

water, and the size.


22

i. Larval rearing tank: The freshwater prawn can be reared from larval stage to juvenile

stage in the tank with water depth of 0.20 m. For successful operation the larval rearing

tank should be designed to have a water depth at least 0.50 m.

Figure 7: Brood stock holding tank Figure 8: Larva Rearing tank

j. Phytoplankton tank: This tank is not necessary for the hatchery that is designed for

operation with the clear water system. But for those who prefer to use the green water

system, or combined green water clear water technique, the phytoplankton tank is

required. To utilize the sunlight with maximum efficiency, and management, the tank

should have a water depth of not more than 0.50 m. The shape of the tank can be circular,

square or oval.

k. Artemia Hatching Bottle: Standard- 4


23

Figure 9: Layout of a small scale Prawn hatchery

Management Rooms

Room type position Number

Meeting Room West to the hatchery facility 1

Resting/recreation Room West to the hatchery facility 2

Laboratory West to the hatchery facility 1

Food preservation and reserve West to the hatchery facility 1

PL Packing South to the hatchery facility 1

Resting and sitting room for farmers 1

Pump and machinery house: 1; It is constructed for holding blower, generator and water pump.

High water reservoir: a high water reservoirs is placed to hold water up o 2 ton weight

Fresh water reservoir underground: The fresh required for shrimp has to be free of all chemical

elements. That is the reason why instead of using water from underground, fresh water from rain

is collected and preserved in this tank, which is in size 50*25*10= 200 ton in capacity.


24

Supply and Distribution Channels

Supply of salted water:

Salted water/Brine is usually collected from salted fields. The production of salt is usually

done in fields adjacent to Coxs Bazaar and Maheshkhali Upazilla. The salt is created in

the winter season.

Usually 30-35 PPT salted water is brought to the fields for production. This amount wter

is then dried under the sun and thus the salinity is increased.

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

to Prawn hatcheries.

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

Supply and agriculture of Berried shrimp

Primarily the berried shrimp is collected from the following areas:

o Kocha river of Pirojpur,

o Andhar manic river of Patuakhali and

o Chittagongs Shakha river, which is adjacent to Halda river

On an average 25 to 30 thousand Larva can be obtained from a shrimp. To produce 40

Lakh/ 4 million PL, at least 3 times Larva is required.

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

To produce 1.23 crore larvas, 600 mother shrimp is required. An approximated amount

of 200 BDT is required on an average.

In the initial stage the berried/mother shrimp has to be bought from outside sources. In

near future these shrimps will be produced in CCDAs own ponds.

15 BDT: Bangladesh taka


25

Distribution and potential buyers

The total floodplain in Daudkandi is almost 2500 hector or 6000 acre. Just to fulfill the

demand of local farmers a staggering amount of 1.2 crore juvenile is required. And to

produce 1.2 crore juveniles, at least 3 crore PL is required.

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

required.

CCDA can sell the entire PL that is produced in the hatchery just by fulfilling the demands

of PL in the floodplains of Daudkandi, Titas and Muradnagar Upazilla.

MANAGEMENT AND OPERATIONS

The management and operations of shrimp/prawn hatcheries in the region basically follow

similar lines. However, they differ in detail, often depending on local conditions.

Broodstock development and spawning:

o For prawn, berried females are readily available from the wild or under captive

conditions.

Larviculture water management and monitoring:

o For prawn, green water, clear water as well as a combined green water/clear

water rearing system is used. For clear water, the rearing water is usually changed

partially (2060 percent) each day, except in the recirculation system, where only

the water lost by siphoning is replaced by freshwater. Water change is carried out

after the daily siphoning of bottom wastes.

o The rearing tanks are covered to reduce temperature fluctuation and to provide

shade for the larvae.

o Daily monitoring includes observation of larvae for mortalities, disease and

feeding behavior and excess of food on the tank bottom which is siphoned

together with other sediments.


26

Warning systems

o Some hatcheries are equipped with warning sirens in the event of power

breakdown. Most hatchery operators keep a close and continuous watch of their

hatchery systems.

Feeds and feeding

o For prawn larvae, feed used include Artemia nauplii, egg custard, or egg custard

mixed with fish flour, shrimp meal, mussel or clam meal, screened fresh fish or

cockle, but for the first 5 days, usually only Artemia nauplii are used. Feeding is

carried out 36 times, with Artemia given as the last feed in the evening. The feed

is spread throughout the tank, usually with the aeration stopped temporarily to

facilitate observation of the feeding. Sometimes, an extra feeding is given during

the night.

Diseases and their control

o Preventing disease through proper nutrition and maintenance of good water

quality is more important than control. However, occurrence of Lagenidium and

other fungal diseases is controlled by application of 0.01 ppm malachite green or

treflan, bacterial disease by 1 ppm chloramphenicol and 3 ppm oxytetracycline,

and Zoothamnium by 10 percent formalin at 5 ppm.

o For disease prevention, all rearing tanks and utensils are properly cleaned, and in

some cases totally sterilized by chlorination.

Predators and other enemies and pests: These are not major problems but occasionally

some aquatic insects are found in prawn larval tanks. These pests can usually be removed

by dipping them out.

Harvest methods: Harvest is done by partial draining, then scooping out the post larvae.

In bigger tanks, water is siphoned down to 1/3 total volume and the post larvae are

gradually drained into a bagnet.


27

Transport methods: In short-distances, the fry are placed in a tank with aerated seawater

but for long-distances, the fry are packed in plastic bags in oxygenated seawater of 20

24C. Stocking density depends on size and age of fry and transport time

6 Demand Analysis

The forecast of demand for prawn PLs has been conducted under the following assumptions:

Harvest area and productivity

Total area of flood land 2,500 hectare 6,178 Acre 200 No.

Developed area of flood land 45% 1,125 hectare 2,780 Acre 70 No.

Developed flood land with prawn harvest 200 hectare 494 Acre 30 No.

Historically observed prawn harvest 3,000 kg 60 Acre

50 kg/acre

Expected prawn harvest in future 100-150 kg/acre [Base case: 100]

Initial demand estimates according to CCDA

2011 500,000

2012 1,200,000

2013 1,500,000

Survival rate Min Max

PL production 25% 35%

Juvenile production 50% 70%

Prawn harvest 45% 60%

Harvest area growth

Historical prawn harvest floodplain growth rate 83%

Prawn harvest floodplain growth rate Base Best Worst

15% 41.3% -13%

Number of prawns per kg 10

Table 6: Demand Forecast Assumptions

The methodology used to forecast demand using these assumptions is explained below. The

methodology comprises 3 basic steps:

1. Forecasting the area of flood land utilized to cultivate prawn: Currently 494 acres of

flood land is being used by the local farmers to harvest prawn. The core demand for PLs


28

comes from the expectation of the final total harvest over this area. The first step to

determine the demand involves forecasting the area to be used to cultivate prawn in the

next 5 years

2. Back-calculating the number of PLs to be required for the expected harvest: Once the

land area to be used for prawn-culture is quantified, total amount of expected harvest of

prawns is found using an average productivity estimate [base case: 100 kg/acre].

Subsequently, the standard minimum survival rates at each level of production i.e.

survival of juveniles (45%) and survival of PLs (50%) are used to calculate the number of

PLs required to realize the production expectation.

3. Scenario analysis using conservative and optimistic approaches: Various combinations

of assumptions are then maneuvered to come up with demand figures in optimistic,

neutral and pessimistic scenarios.

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

Table 6: Various Assumptions under Various Scenarios

Parameter Base case Best case Worst case

Flood land area growth rate 15% 41.3% -13%

Rationale Nominal Assuming that the entire 2,780 acre of area currently

being used for carp culture will come

under prawn culture program in

5 years

Assuming that the farmers will slowly move away from

prawn farming due to unavailability of raw materials and

the area will decline to half

Prawn harvest productivity 100 kg/acre 100 -> 150 kg/acre 100 -> 50 kg/acre

Rationale CCDA estimate Assuming the initial harvest

results will encourage the

farmers to increase target production to 150 kg/acre in

the later years

Assuming the initial harvest

results will discourage the

farmers and they would decrease

target production to 50 kg/acre in the later years

Number of prawns per kg 10 10 10

Survival of juveniles in final harvest 45% 45% 45%

Survival of PLs in nursery 50% 50% 50%


29

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

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

2014 2015 2016 2017 2018

Base case 2,526,013 2,904,915 3,340,653 3,841,751 4,418,013

Best case 2,526,013 3,568,290 6,300,785 10,680,717 15,087,765

Worst case 2,526,013 2,199,022 1,435,770 833,274 725,407

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

Re

qiu

red

Nu

mb

er

of

PLs

Base case Best case Worst case


30

7 Competition Analysis

7.1 Local competition

The total floodplain in Daudkandi is almost 2500 hector or 6000 acre. Just to fulfill the demand

of local farmers a staggering amount of 1.2 crore juvenile is required. And to produce 1.2 crore

juveniles, at least 3 crore PL is required. Other than this expand in the proposed 5 districts an

additional 3 to 3.5 crore PL will be required.

Currently as there is no hatchery in this region, all PLs are brought in from various other

places (especially from Khulna region).

CCDA can sell the entire PL that is produced in the hatchery just by fulfilling the demands

of PL in the floodplains of Daudkandi, Titas and Muradnagar Upazilla.

From a business point of view and in consideration of the increasing local demand, the setup of

CCDA Prawn Hatchery Project seems like an inevitable success. So it can be said that apart from

the possibility of problems arising from technical in-efficiency or managerial issues, there is

literally no hurdle in-terms of competition from a local regional stand point.

7.2 External (Region) Competition

Currently all required Pl to produce juveniles in Comilla region comes from areas outside

of Comilla that are mainly Khulna, Nouga and even sometimes from Coxs bazaar.

Many Prawn farmers have good relationship with many hatchery owners of these areas.

So they might not feel the urge to destroy a good trading relationship.

Many of the farms have prior deals with hatcheries. Many of them have advance payment

deposited, so at least for a certain period they would not be able to buy PL from the CCDA

project even if they want to.

BRAC Fresh Water Prawn Hatcheries situated in Khulna region are the largest supplier

of PL in Comilla. So the uppermost distinctive competition may come from the prawn

hatcheries of BRAC that are situated in those regions. A general snap shot of the current

scenario of BRACs fisheries department: (BRAC, 2010)


31

Fisheries16 Number

Carp Hatcheries 04

Fresh Water Prawn Hatcheries 08

Marine Fish Breeding Centre 01

Tilapia Fish Hatchery 01

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


32

8 Financial Analysis

8.1 Capital Expenditure Estimation

The actual capital expenditure has exceeded the budgeted figure by a great deal. Below, the

capex budget and actual expenses are illustrated.

Total projected budget at the inception BDT 16,936,500

CCDA Contribution BDT 6,657,000

PKSF Contribution BDT 10,279,500

The projected budget at the inception of the project was BDT 16,936,500, of which CCDA committed to provide

39.3% and PKSF committed to provide 60.7%.

The breakdown of the budget is as follows.

Breakdown of the projected budget

Construction and others BDT 10,956,000

(responsibility of the contractor)

Other BDT 5,980,500

Land BDT 3,000,000

Salary and allowance BDT 714,000

Working capital BDT 1,310,000

Pond lease BDT 150,000

Contingency BDT 806,500

Total BDT 16,936,500

After the construction of the facility was complete, there was a cost overrun. The final bill submitted by the

contractor amounted BDT 20,792,975. This, combined with the materials costs and Other Initial Capital

requirements, sums up to the amount BDT 29,354,300.

Corrected budget

Bill submitted by the contractor BDT 20,792,975

(on 25 May 2013)

Materials BDT 2,580,825

Other BDT 5,980,500

Land BDT 3,000,000

Salary and allowance BDT 714,000

Working capital BDT 1,310,000

Pond lease BDT 150,000

Contingency BDT 806,500



33

The breakdown of the bill submitted by the contractor is as follows. Notably, the quotation for Remaining Work

(marked in red below) is no more valid as construction cost has gone up to BDT 2,000,000 by now. Hence while

considering the initial expenses, the latest cost estimate for Remaining Work has been taken into account.

Breakdown of the bill submitted by the Contractor

Tender wise bill BDT 11,802,000

Group A BDT 4,550,000

Group B BDT 4,520,000

Group C BDT 2,732,000

Tender wise extra work bill BDT 2,760,540

Group A BDT 1,365,000

Group B BDT 1,395,540

Other work BDT 5,091,935

Remaining work BDT 1,138,500

Hatchery Boundary Wall BDT 112,500

Connecting road BDT 745,000

Balcony finishing BDT 281,000



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

Amount of the bills paid

Contractor's bill BDT 11,666,528



So far, BDT 18,129,110 has been received as fund, of which PKSF provided BDT 5,299,286 as the first installment

of the fund disbursement. The remaining amount (BDT 12,829,824) has been brought on the table by CCDA.

Fund inflows

From PKSF (till 25 May 2013) BDT 5,299,286

From CCDA BDT 12,829,824

Contractor's bill and working capital BDT 9,829,824

Land BDT 3,000,000



34

8.2 Revenue Forecast

Based on the demand analysis, the required production will be as below:

Table 7: Cycle-wise Production Requirement

Scenario Cycle 1 Cycle 2 Total required production

Base Case

2,000,000 576,534 2,576,534

2,000,000 963,014 2,963,014

2,000,000 1,407,466 3,407,466

2,000,000 1,918,586 3,918,586

2,000,000 2,000,000 4,000,000

Best Case

2,000,000 576,534 2,576,534

2,000,000 1,639,656 3,639,656

2,000,000 2,000,000 4,000,000

2,000,000 2,000,000 4,000,000

2,000,000 2,000,000 4,000,000

Worst

Case

2,000,000 576,534 2,576,534

2,000,000 243,003 2,243,003

1,464,485 - 1,464,485

849,939 - 849,939

739,915 - 739,915

The sales forecast has been conducted using a rather conservative approach. Based on the total

demand, the production during the 2 cycles has been distributed. If demand exceeds the single-

cycle capacity of the hatchery i.e. 2,000,000 PLs, the remaining PLs would be cultured and sold in

the next cycle.

Pricing varies for the outputs of the 2 cycles: the second batch is usually priced lower to

compensate for the lower demand after the peak of the season i.e. the first cycle.


35

To account for the PL wastage/mortality during transportation from hatchery to the consumer

end (nursery), 2% extra PLs are included in the final packaging. Hence, the price of this excess

amount of PL is not realized through sales.

Globally, hatchery operations are subject to the risk of complete washout of one cycle of

production every certain cycle. For instance, the CCDA Prawn Hatchery project has experienced

such a production loss in its first-ever production attempt, due to the carbon produced by the

generators penetrating the air blower machine and intoxicating the oxygen provided in the tanks.

The sales forecast has taken into consideration such production losses. The frequency of the

washouts varies under different scenarios. Since it is not possible to forecast the exact cycle to

face such damage, the loss has been equally distributed to all the forecasted production cycles.

Table 8: Sales Assumptions

Extra PLs to account for mortality during transportation 2% of the actual sales quantity

Price/PL (Current) peak time 2.5 BDT/PL

Expected maximum price/PL high demand 4 BDT/PL

Expected minimum price/PL off-peak time 1.5

Juvenile production 1.25% of total production

Price/Juvenile 8 BDT/Juvenile

Resale value of Berried prawn

Production risk assumptions 1 every 7 cycles will be completely damaged under base scenario

The hatchery would also generate additional revenue from the sale of berried prawn after

extracting eggs from them and also the sale of juveniles from the adjacent nursery.

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


36

Box 3: Various Assumptions under Various Scenarios

The final revenue forecast is illustrated in the following figure.

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

2014 2015 2016 2017 2018

Base case 5,092,584 5,769,789 6,534,893 7,402,866 7,540,252

Best case 5,360,156 7,171,398 10,047,650 12,319,948 12,319,948

Worst case 4,909,243 4,302,005 2,551,076 960,186 781,287

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Pro

ject

ed R

even

ue

(BD

T)


Parameter Base case Best case Worst case

Price (Cycle 1) BDT/PL 2.5 2.5 -> 4 2.5 -> 1.5

Price (Cycle 2) BDT/PL 1.5 1.5 -> 2.5 1.5

Rationale CCDA estimates Assuming that high

demand will drive

the price up to BDT

4/PL during peak

time and BDT

2.5/PL during off-

peak time

Assuming that low

demand will push

the price down to

BDT 1.5/PL during

peak time and

keep it flat during

off-peak time

Production loss (1 every __ cycles) 7 10 4

Average production per cycle 1,686,560 1,821,619 1,124,839

Loss distribution per cycle 281,210


37

8.3 Expenses Forecast

Expenses for the project have been forecasted very conservatively, considering high cost inflation

for most of the components. The following table summarizes the cost components and their

growth assumptions.

Table 9: Cost Components

Item of expenditure Unit number Price per unit

(BDT)

Total (BDT) Growth

Berried prawn 1000 300 300,000 10%

Artimia Cyst 8 dozen 70,000 560,000 15%

Transportation cost for berried 2 20,000 40,000 10%

Brine 50 MT 5,000 250,000 5%

Fuel for generator 1000 hr*4 ltr/hr = 4000

liters

68.12 272,480 per cycle

Generator capacity 24 kW

Time 1000 hour

Total required electricity 24000 kWh/cycle

PBS Commercial tariff 7.79 BDT/kWh

Electricity Bill 12 months 2,000 24,000

Expected electricity supply

time

50% of total time required

Manpower 0

Hatchery Manager 1 40,000/month 520,000 5%

H. Technician 4 10,000/month 520,000 5%

Mechanics 1 20,000/month 260,000 5%

Guard 2 6,000/month 156,000 5%

Maintenance of hatchery L/S 100,000 5%

Unseen expenditure L/S 50,000 5%

Pond lease 2 ponds 150,000 5%

Larva obtainable from Berried

Prawns 10,000

Notably, expenses from the purchase of berried prawn, Artmia cyst, fuel and power supply are

the variable cost components. The remaining items are fixed expenses.

In determining fuel and power cost, it is considered that 50% of the required power will be

obtained from Palli Bidyut Samiti connection at 7.79 BDT/kWh (flat rate for commercial entities.

The remaining will be produced by the generators.


38

8.4 Income Statement

The income statement for the project is constructed as below. It is to be noted that depreciation

has not been accounted in the statement as the projects income is not subject to taxation,

therefore no significant tax advantage will be gained from considering depreciation.

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

2014 2015 2016 2017 2018

Base case 1,833,960 2,261,931 2,648,649 3,066,424 2,877,730

Best case 2,101,532 3,413,223 5,982,795 7,970,502 7,657,427

Worst case 1,650,619 969,688 -453,027 -2,017,644 -2,344,161

-4,000,000

-2,000,000

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Ne

t In

com

e (

BD

T)



39

8.5 Important Income Statement Ratios

In analyzing the financials, it is important to look at various ratios. The following table

summarizes the key Income Statement components as a percentage of total revenue.

Table 10: Key Income Statement Ratios

Component as percentage of sales

2014 2015 2016 2017 2018

Expected revenue 94% 94% 93% 93% 93%

Sale of berried prawn 1% 1% 1% 1% 1%

Sale of juveniles 5% 5% 5% 5% 5%

Total Revenue 100% 100% 100% 100% 100%

Berried prawn cost 6% 7% 8% 8% 9%

Artimia Cyst 8% 8% 10% 12% 13%

Fuel for generator 5% 5% 4% 4% 4%

Electricity Bill 4% 4% 3% 3% 3%

Total Variable Costs 24% 24% 25% 26% 29%

Contribution Margin 76% 76% 75% 74% 71%

Transportation cost for berried 1% 1% 1% 1% 1%

Brine 5% 5% 4% 4% 4%

Manpower 29% 26% 25% 23% 23%

Maintenance of hatchery 2% 2% 2% 2% 2%

Unseen expenditure 1% 1% 1% 1% 1%

Pond lease 3% 3% 3% 2% 2%

Total Fixed Cost 40% 37% 35% 32% 33%

Net Income Margin 36% 39% 41% 41% 38%

The above box reveals that Salary Expenses is the single most important expense account for the

project. It suggests that the manpower is subject to their best utilization throughout the year, in

order to sustain the viability of the project.

Another observation is that the cost for procuring Berried Prawn and Artimia Cyst is expected to

go up in the coming years, especially the anticipated hike in the price of Artimia Cyst (from 8% to


40

13% of revenue in 5 years) may be very a crucial obstacle on the way to survival. It is important

to ensure spontaneous and cost-effective sourcing to cope with the price hike of these items.

8.6 Feasibility Analysis

The financials projected and shown in the preceding sections are used to test the projects

financial feasibility. The Net Income figure has been used as a proxy to Free Cash Flow, as the Net

Income figure omits Depreciation and the hatchery transactions are completed on cash basis,

therefore leaving no accruals to account for. The following assumptions have been undertaken

for discounting purpose.

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

Terminal growth rate: 5%

The following tables summarize the projects feasibility under various scenarios:

Table 11: Feasibility under Base Case

Base case

2013 2014 2015 2016 2017 2018

Total initial outlay

30,215,800

Cash flow profile (a)

-

30,215,800

1,833,960

2,261,931

2,648,649

3,066,424

2,877,730

Terminal cash flow (b)

40,288,227

Total cash flow (a+b)

-

30,215,800

1,833,960

2,261,931

2,648,649

3,066,424

43,165,957

Net Present Value 826,858

Payback period 10.22 years

IRR 13.3%


41

Remarks: The project is deemed feasible, as the Net Present Value (BDT 0.83 mn) is positive and

IRR (13.3%) is more than the opportunity cost of capital. However, the payback period is poor at

10.22 years, meaning CCDA and PKSF needs to be involved in the project for at least 11 years to

recoup the investments.

If the projects feasibility is measured considering CCDAs investments only, the following 2

scenarios are obtained.

1. CCDA bears the entire amount except for PKSFs committed fund of BDT 10,279,500:

The initial outlay is BDT 19,936,300, of which CCDA has already made available BDT 12,829,824.

CCDA needs to disburse BDT 7,106,476 more in order to implement the project. The projects

feasibility becomes:

Net Present Value: BDT 9,964,192

Payback Period: 7.32 years

IRR: 24.6%

The projects viability picture improves significantly and the payback period comes down to

around 8 years.

2. CCDA bears only the amount that has been made available till date:

The initial outlay in this case is BDT 12,829,824, the amount CCDA has already made available to

the project. CCDA needs to arrange for BDT 12,086,690 more from donor funds like PKSF, in order

to implement the project. The projects feasibility becomes:

Net Present Value: BDT 16,281,059

Payback Period: 5.05 years

IRR: 38.4%

The projects viability picture improves significantly and the payback period comes down to

around 5 years.


42

8.7 Feasibility Analysis under Different Scenarios

The projects feasibility is compared under various scenarios in the following table.

Table 12: Feasibility Comparison under Different Scenarios

Tool Base Case Best Case Worst Case

Full initial

outlay:

BDT 30,215,800

NPV BDT 826,858 BDT 42,014,993 BDT -43,620,292

Payback Period 10.22 years 5.38 years NA

IRR 13.3% 38.5% NA

CCDA pays

entire extra

amount:

BDT 19,936,300

NPV BDT 9,964,192 BDT 51,152,326 BDT -34,482,959


IRR 24.6% 52.5% NA

CCDA pays no

more:

BDT 12,829,824

NPV BDT 16,281,059 BDT 57,469,194 BDT -28,166,091


IRR 38.4% 69.5% NA


43

9 Scope for Expansion

The hatchery will be producing prawn PLs in 2 cycles (April-May and May-June). The remaining

portion of the year, the capacity in terms of manpower and facility would remain unutilized.

Therefore, CCDAs plan is to expand the operations to a carp and cat fish hatchery and generate

additional revenue.

The expansion would have the following incremental impact on the projects cash flow:

Table 13: Incremental Yearly Effect of Expansion

Extra capital

expenditure

BDT 3,000,000

Additional expenses

Brood for Major and Minor carp for 200kg spawn 2,000 kg 300 BDT/kg 600,000

Stimulating hormone 40 boxes 1,500 BDT/box 60,000

Netting and other miscellaneous cost L/S 20,000

Cat fish 20 kg 1,000 BDT/kg 20,000

Total BDT 700,000

Additional revenue

Sale of Carp spawn 200 kg 4000 BDT/kg 800,000

Sale of Cat Fish fry 200,000 1 BDT/fry 200,000

Total BDT 1,000,000

The extra capital expenditure would involve building marketing office, guest room, extra bottles

for hatchery operations etc.

Feasibility Analysis

The financials projected and shown in the preceding sections are used to test the projects

financial feasibility. The Net Income figure has been used as a proxy to Free Cash Flow, as the Net

Income figure omits Depreciation and the hatchery transactions are completed on cash basis,


44

therefore leaving no accruals to account for. The following assumptions have been undertaken

for discounting purpose.

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

Terminal growth rate: 5%

The following tables summarize the projects feasibility with the effect of additional carp

hatchery operations:

Table 14: Feasibility Comparison with Carp Hatchery Operations under Different Scenarios

Tool Base Case Best Case Worst Case

Full initial

outlay:

BDT 30,215,800

NPV BDT 1,181,411 BDT 42,369,546 BDT -43,265,739


IRR 13.5% 37.0% NA

CCDA pays

entire extra

amount:

BDT 19,936,300

NPV BDT 10,318,745 BDT 51,506,879 BDT -34,128,406


IRR 23.6% 49.3% NA

CCDA pays no

more:

BDT 12,829,824

NPV BDT 19,302,279 BDT 60,490,413 BDT -25,144,872


IRR 42.2% 71.8% NA

The feasibility analysis shows that the expansion very slightly increases the viability of the project

compared to stand-alone prawn hatchery operations, due to high initial investments and low

yearly value addition (BDT 300,000 only). However, considering the utilization of idle resources

and the potential social impact of the expansion, the expansion may be undertaken.


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10 Risks & Mitigation

There are mainly 4 types of risk that may affect the project operations. The risks are explained

below along with possible mitigation measures.

Risk Details Mitigation

Demand risk The demand for locally cultured and

distributed prawn PLs may fall

unexpectedly due to

Consistent lack of adequate supply of

PLs and other raw materials for

harvest,

Poor harvest compared to

expectations, and

Siphoning of required investments

toward other profitable use of

floodplains.

Proper marketing, capacity and

awareness development programs for

farmers,

When demand would surpass the

production capacity of the hatchery,

capacity expansion would be required

to sustain competitive position in the

market to stay ahead of possible local

competition.

Pricing risk Lower demand, lower purchase power

of the farmers may make incremental

pricing unviable.

In such cases, the project might need to

actually decrease the selling price of

the PLs.

Maintaining quality, commitment and

sincerity in realizing the long-term

vision of the project.

Providing micro-credit to the farmers

may be a cushion for the project. This

way the pricing does not need to be

redefined; rather CCDAs micro-credit

operations also get additional business.

Cost inflation

risk

The cost of berried prawns, artemia

cyst and salary of employees are the

prime areas to look out for. The prices

Cost-efficient and spontaneous

sourcing is required for artemia cysts.


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of berried prawns and artemia cyst are

expected to rise at very high rates.

Skilled manpower is hard to find for

such projects, hence the employee

salary expenses contribute to a large

chunk of the total cost. Overall

headline inflation would push the costs

up in the coming years.

Fuel cost and electricity tariff may rise

in the coming years due to expected

shortfall in gas production and power

generation.

Berried prawn may be sourced from

local farmers, in-house ponds etc.

There are no alternatives to paying the

employees a higher salary, however,

best use of the employee pool would

be required to generate higher return

on investments throughout the year.

Production risk Any damage caused during production

by natural calamities, spreading of

disease or pollution through air or

water may wash away partial or a

complete production cycle.

In fat, the hatcherys very first

production cycle has been wiped away

due to carbon pollution as the air

blower caught the smoke of the

generators. Later the generators have

been separated from the air blower

machine room by wall and other

caution measures have been taken.

This risk may be addressed through

increasing efficiency of the facility and

manpower. Cautious care and strict

health checking procedures may ensure

minimal exposure to any such risk.


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11 Social and Environmental impact of the CCDA Hatchery Project:

Social Impacts:

a) Every year a minimum number of 30 Lakh juvenile will produced from 40 Lakh PL. If 15

Lakh juveniles (15 per Kg) survive from that lot then 100 metric tons of prawn can be

produced. If the retail price is set TK 600 per kg the earnings will amount to TK 6 crore.

b) By spending TK 60 Lakh on just flood plain PL and extra 20 Lakh BDT on food, a total of

80 Lakh BDT it is possible produce 6 crore or more shrimps/prawns.

c) Using this money extra loan can be disbursed among both nursery farmers and prawn

farmers. By this the loan activity organization may earn almost 80 Lakh BDT through

service charge.

d) Circular Fund (fund cycle): The amount that will earned by selling the PL produced in the

hatchery and the juveniles produced in the nursery, will be submitted in a circular fund.

A fixed policy will developed to direct and manage that fund. If required, then this fund

may be used in other value chain development projects by the permission of PKSF.

Environmental effects:

a) Fresh water prawn hatchery does not generally pose any sort of adverse effect to the

environment. Chemical, anti-biotic or any other material that is harmful to the

environment will not be used in this project.

b) After using salt in the hatchery for multiple times, the water will be dried under the sun

to convert it into salt, which will be used to fight diseases.

c) The PL produced in the hatchery will be cultivated in the nursery to convert it into juvenile

to preserve tem for further culturing.

d) In every step cleansing will be done using bleaching powder of 60-65 % chlorine. That is

why it is very unlikely for environmentally harmful substances to be fabricated.


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e) Only 100 gram carbon is exhausted from 1 kg shrimp whereas 400 grams carbon is

exhausted from 1 kg of beef. That is why prawn farming in fresh water is more like to

contribute positively to ecosystem.

f) In mixed aquaculture Prawn eats the wasted and rotten substances that are left over in

the floor of the water body.


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12 Conclusion & Recommendation

The comprehensive analysis of the projects business model, market demand and financials

demonstrates that the project in hand is feasible under the following circumstances

(noteworthy)-

Base case scenario and

Best case scenario.

On the other hand although the worst case scenario gives completely negative picture of the

project performance, it is highly unlikely for the market forces to behave according to those

assumptions.

The expansion plan adds to the projects baseline performance, hence is feasible to undertake.

However, the additional value is virtually insignificant.

A summary of the different scenarios in terms of financial performances and its relationship with

feasibility is as follows:

Scenario Feasible? Notes

Best Case Yes

Base case Yes

Worst Case No The possibility of this

scenario is highly unlikely to

occur considering the high

local demand and accord

market forces

The Expansion Yes Plan adds to the projects

baseline performance.

However the additional value

is virtually insignificant.


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The projects payback period is quite long, minimum 6 years under base case and minimum 4

years under the best case. On an average it would take

Around 9 years to recoup the total investments,

7 years to recoup CCDAs investments if CCDA invests BDT 19.94 million (no external fund

support for the extra expenses), and

5 years to recoup CCDAs investments if CCDA invests only what they have already made

available for the project i.e. BDT 12.83 million.

A few recommendations to ensure the projects viability in real life would be:

i) Go for the operations expansion as soon as possible: The expansion plan would not

only generate additional value (be it insignificant), it would also create shield for

possible production losses of prawn hatchery operations. Shiftless human and idle

material resources may further damage in skills and effectiveness if remained unused.

ii) Arrange for external low-cost fund or grant to pay for the excess expenditure: In

order to ensure quicker payback of investments, CCDA needs to minimize its financial

exposure in this project. It would be of CCDAs interest to arrange for additional

external funding for the excess capital expenditures.

iii) Active marketing: The best case scenario is neither easy nor impossible to achieve.

The key is to intrigue the owners/farmers of the floodplains, who are yet not a part of

the existing prawn culture industry, to begin prawn farming. It is important to carry

out active marketing to motivate the people actively rather than passively waiting for

the demand to be created inevitably.

iv) Expansion of prawn PL production capacity: If the demand surpasses the production

capacity of the hatchery permanently, increasing the PL production capacity would

help keep up with the market, increase revenue stream, and shorten the payback

period.

a. Adding an extra cycle of production may help resolve this issue in the short-term

(if not technically unviable).


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13 Annexure 1: Summary of Assumptions


52

14 Annexure 2: Revenue Projection


53

15 Annexure 3: Expense Projection


54

16 Annexure 4: Income Statement


55

17 Annexure 5: Output (Prawn)


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18 Annexure 6: Output (Prawn and Carp)

ccda prawn hatchery (financial feasibility)_20july2013_finaldraft

Documents

project target

competition analysis

hatchery processes

demand analysis

local competition

external region competition

background of establishment

brief snapshot