Production Economics and Profitability Analysis of Aquaculture in Southwest Bangladesh

Study Area

The study was carried out in southwest region of Bangladesh. The region, comprising the districts of Satkhira, Khulna, Bagerhat and the southern part of Jessore possesses both freshwater and brackish water resources. The ecological and geological form of southwest Bangladesh is distinctive in many ways. The southwest region of Bangladesh, having tidal influence and sweet water supplies from upstream, has a unique brackish water ecosystem. It is a low, flat and fertile deltaic plan with calcareous to non-calcareous alluvial soils [7] and situated just behind the mangrove forest Sundarban and Bay of Bengal. The population of the region is about 30 million with a total area of 40,500 sq km. Agriculture and fisheries are important economic sectors in the southwest Bangladesh, employing a large number of the population, and aquaculture is increasingly being practiced as an alternative livelihood option for rural households. The water of this region is slightly saline because of daily tidal fluctuation of riverine water which allows different types of fish culture practices, such as monoculture, polyculture, integrated culture, and crop rotation [8]. Khulna, Bagerhat and Satkhira districts were selected for this study from southwest Bangladesh, The study areas lie between N 22039’-220 50’ and E 890 32’-890 45’.

Data Collection

For the purpose of data collection, a field survey was conducted at 160 villages of 9 upazila (Sub-administrative units) in Khulna, Bagerhat and Satkhira districts (Administrative units) from January to July 2015. It was based on primary data collected from randomly selected 450 aquaculture practicing households belonging to three categories of aquaculture like commercial fish culture, commercial shrimp culture and homestead aquaculture. The survey was conducted through pre-tested well- structured questionnaire with the assistance of AIN (Aquaculture for Income and Nutrition) project of World Fish.

Economic Analysis

The cost of aquaculture was considered as the total of all fixed cost and variable cost. Total revenue was the multiplication of production and price of fish. We calculated the total income as of each individual fish species produced to the farm, including those for self- consumption and distribution as gift. Economic performances as well as relative profitability of aquaculture were calculated on the basis of gross margin and net return analysis. Gross margin is difference between total revenue and total variable cost. Net return of aquaculture was calculated by subtracting the total cost (variable cost + fixed cost) from the total revenue obtained from aquaculture production. Cost-Benefit ratio is used to tell whether or not an investment will be profitable. Cost-Benefit Ratio (CBR) defined as a ratio of total cost to gross return. The following equations were used to analysis the production economics.

Total cost (TC) = Total Fixed cost (TFC) +Total Variable

cost (TVC) Total Revenue (Income) TR= Production x Price. Gross Margin = TR - TVC Net Return (NR) = TR-(TFC+TVC) Cost-Benefit ratio (CBR) =Total Cost /Total Revenue.

Cost of equipment, pond excavation cost and lease value was measured as fixed cost. Cost of long term equipment like pump, net, drum etc. was calculated according to their life span or longevity and percentage of usage while actual price of short-term equipment was measured. Lease value of ponds and ghers (enclosure for shrimp culture) was estimated considering land used over a production period for one year. Similarly, cost of pond excavation was considered for one year.

Total variable cost was the summation of labour cost and all inputs cost of aquaculture production like seed cost, feed cost, fertilizer cost. The amount of money required to hire the labour was counted as labour cost. There were two types of labour found to be hired for commercial aquaculture, such as permanent labour and daily labour. Permanent labour was hired for the whole production cycle and paid monthly. Daily labour was hired according to need basis. In homestead aquaculture, daily labour was hired only for pond excavation and final harvesting.

In this study, Cobb-Douglas production function model was used to analysis the profitability of aquaculture. The model was applied to signify the effects of key variables on production process of aquaculture. According to Khai HV, et al. [9], there are many functional forms for estimating the physical relationship between inputs and output, but the Cobb-Douglas functional form is preferred to other forms, especially if there are three or more independent variables in the model. The specification of Cobb-Douglas production functions as follows:

lnY_i_= α + β1 lnX1 + β2 lnX2 + β3 lnX3 + β4 lnX4 + ……. β6 lnX6 + μ; Where: Y_i_ = Profitability; X1 = Cost of Feed (Tk/ha); X2 = Cost of Seed (Tk/ha); X3 = Cost of Fertilizers (Tk/ha); X4 = Cost of labour (Tk/ha); X5 = Cost of pond/gher excavation/ repairing; X6 = Cost of equipments(Tk/ha); μ = Random error term; βi= coefficients of the independent variables α =Intercept Sensitivity analysis is used in this study to determine how fluctuations in one variable can affect the profitability of the aquaculture. Sensitivity analysis is a set of assumptions that can be used to examine the degree of uncertainty in a cost-benefit analysis.

Total Revenue

The results of the study indicate that the per hectare average total revenue were BDT 384767.00 in commercial fish culture, 374662.62 in commercial shrimp culture and 242100.29 in homestead aquaculture. Total revenue was calculated by the multiplication of species wise farm production of fish and shrimp and the actual price obtained by farmers. The average annual gross revenue of fish farming was estimated at BDT 238640.00 per hectare, varying from BDT 121360.00 in extensive farming to BDT 224720.00 in semi-intensive and BDT 369760 in intensive farming in Mymensingh district [10].

Total Cost

In this study, per hectare total cost of production of commercial fish culture, commercial shrimp culture and homestead aquaculture were BDT 225615.46, 242860.17 and, 185799.52 respectively.

Fixed Cost

Total fixed cost for aquaculture production were BDT 63204.50, 78858.29 and 46794.20 per hectare which shared 27.55%, 31.96% and 25.52% correspondingly of total cost of commercial fish culture, commercial shrimp culture and homestead aquaculture. Total fixed cost was higher in commercial fish and shrimp culture than those in homestead aquaculture because homestead ponds had no lease value.

Variable Cost

From this study it was observed that total variable cost were BDT 162410.95, 164001.88 and 139005.32 per hectare in commercial fish, shrimp and homestead aquaculture respectively. Variable cost constituted 72.45% of total cost for commercial fish culture, 68.04% for commercial shrimp culture and 74.48% for homestead aquaculture. Mondal MAH, et al. [10] reported that, the per hectare average annual variable costs and fixed costs of aquaculture in Mymensingh district constituted 79% and 21% respectively of total cost.

Gross Margin and Net Returns

The per hectare gross margin was estimated as BDT 222356.05, 210660.74 and 103094.98 for commercial fish culture, commercial shrimp culture and homestead aquaculture respectively and the corresponding net returns were BDT 159151.54, 131802.45 and 56300.77. There was a considerable difference in income between commercial and homestead aquaculture.

Cost-Benefit Ratio and Profitability

The profitability analysis shows that in cost-benefit ratios of commercial and homestead aquaculture benefits were greater than one. The results indicate that all types of aquaculture in southwest Bangladesh were profitable. However commercial fish culture, commercial shrimp culture and homestead aquaculture being practiced in southwest Bangladesh is feasible and profitable with a cost-benefit ratios of 1:1.71, 1:1.54, and 1:1.30 respectively Table 2. Mohsin ABM, et al. [11] estimated CBR of 1:1.05 in carp polyculture practiced in Rajshahi and Natore districts of Bangladesh while Islam M, et al. [12] recorded CBR of 1:2.73 in case of carp growout ponds in Rajshahi district (Table 3).

Source: Field Survey, 2015. Table3: Profitability of commercial and homestead aquaculture in southwest Bangladesh (n=450).

Table 3 shows the range of total revenue, total cost, gross margin, net returns and profitability of selected commercial and homestead aquaculture farms with maximum value and standard deviation. Profitability refers to net returns as compared to the cost of production.

According to the results of net returns, profitability ranged from 0 to 0.77 in commercial fish culture, 0-0.73 in commercial fish culture and 0-0.71 in homestead aquaculture respectively. This table also shows that minimum value of net returns of all types of aquaculture were negative indicating some fish and shrimp farms (Constant) 226723.66 21531.11 10.53 0 Equipments cost (BDT/ha) -0.953 0.437 -2.18 0.031 Excavation cost (BDT/ha) -1.277 0.482 -2.651 0.009 Lease Value (BDT/ha) -0.215 0.313 -0.687 0.493 Fertilizer Cost (BDT/ha) -2.546 1.35 -1.886 0.061 Feed Cost (BDT/ha) 0.011 0.225 0.049 0.961 Seed Cost (BDT/ha) 0.172 0.26 0.66 0.51 Labour Cost (BDT/ha) 0.284 0.353 0.805 0.422 Commercial shrimp culture (Constant) 69814.494 12656.875 5.516 0 Equipments cost (BDT/ha) -0.456 0.232 -1.963 0.052 Excavation cost (BDT/ha) -0.711 0.215 -3.302 0.001 Fertilizer Cost (BDT/ha) 0.781 0.814 0.959 0.339 Feed Cost (BDT/ha) 0.004 0.154 0.025 0.98 Seed Cost (BDT/ha) 0.02 0.13 0.15 0.881 Labour Cost (BDT/ha) 0.376 0.189 1.985 0.049 a. Dependent Variable: Net Returns (BDT/ha) under both commercial and homestead categories were not profitable.

Factors Affecting Net Returns of Aquaculture Production

The Cobb-Douglas production function is used to identify the factors that affect profitability of aquaculture production on the basis of significant effects of input cost on net returns. The factors that affect the profitability of commercial fish culture, commercial shrimp culture and homestead aquaculture are presented in Table 4.

Variables Coefficient Std.Error t-Value p-Value Commercial fish culture (Constant) 219412.266 21074.33 10.411 0 Equipments cost (BDT/ha) 0.294 0.39 0.753 0.453 Excavation cost (BDT/ha) -1.424 0.405 -3.513 0.001 Lease Value (BDT/ha) -0.864 0.148 -5.821 0 Fertilizer Cost (BDT/ha) 0.214 1.382 0.154 0.877 Feed Cost (BDT/ha) -0.725 0.207 -3.497 0.001 Seed Cost (BDT/ha) -0.07 0.172 -0.408 0.684 Labour Cost (BDT/ha) 0.357 0.399 0.894 0.373 Homestead aquaculture Table 4: Factors affecting the profitability of aquaculture in south west Bangladesh.

For all the three types of aquaculture, seven variables are considered to describe the effects of fixed and operational variables in net returns. The coefficients for fixed cost in all aquaculture are negative, so for every

unit decrease in fixed cost of aquaculture, a unit increase in net returns is expected, remaining variable cost constant except equipment cost in commercial shrimp culture having positive coefficients. Further, it is observed from the Cobb-Douglas production function that the production coefficient of labour cost of all types of aquaculture is significant holding positive value. The coefficient for fertilizer cost in commercial fish culture is - 2.546 indicating a unit decrease in fertilizer cost would increase the net returns from commercial fish farms. Similarly coefficient for feed cost and seed cost (-0.725 and -0.070 respectively) in commercial shrimp culture shows a unit decrease in feed cost and feed cost would increase the net returns from shrimp culture. Commercial shrimp culture and homestead aquaculture have the positive coefficients for fertilizer cost and whereas commercial fish culture and homestead aquaculture hold positive value of coefficients for feed cost and seed cost (Table 4).

Sensitivity Analysis

The profitability analysis showed that all types of aquaculture are profitable in the study area but it is necessary to define their sustainability. Every project may have some uncertainties that affect the profit margin of that project. Similarly, the uncertainties may affect the profitability of aquaculture farms. Considering the facts, sensitivity analysis was conducted in this study. Sensitivity analysis is a technique used to assess how different values of an independent variable will influence a particular dependent variable under a given set of assumptions. Sensitivity analysis is the study of how the variation (uncertainty) in the output of a mathematical model can be apportioned to different sources of variation in the inputs of a mode [13].

Commercial fish culture is still profitable even if all the variable costs are increased by 20% remaining the revenue fixed though profit margin is lower than the original value. The profitability of commercial fish culture largely varies with the decrease in fish price and increase in feed and seed cost. If aquaculture production of commercial fish culture is increased by 5% to 10% and others remain constant or if variable cost is increased by 10% the profit margin is increased by 6% to 4% from the original profit margin. On the other hand, even price of fish is decreased by 30%, the commercial fish farmers can enjoy 25% profit if they can produce 5% more fish. Similarly farmers can also make profit with feed cost and seed cost increase by 10% (Table 5).

The profitability of commercial shrimp culture is mostly sensitive to both the decrease in the price of shrimp and increase in feed cost. Profit margin of commercial shrimp farms may decrease from 54% to 36% if all the variable cost is increased by 20% while shrimp production is increased by only 5% remaining other input cost constant, the shrimp farmers can enjoy an increased amount (60%) of profit. Therefore, if the total variable cost is increased by 10%, and the farmers produce 10% more shrimp, can get more or less same amount of profit as original profit value. Similarly, if the price of shrimp is decreased by 40%, the commercial shrimp farmers can get 14% profit if they can produce 5% more shrimp. In addition, farmers can also earn more profit with 10% decreased of seed cost (Table 6).

Source: Authors calculation based on field survey. Table 6: Sensitivity analysis of commercial shrimp culture production (n-150).

The aquaculture production of homestead ponds is also profitable with a number of scenarios except in the scenario related to price of fish. Production increase by 5% to 10% with constant input cost and 10% increased of all input cost correspondingly can contribute 37% and 33% profit to the farmers. If both feed and seed cost is decreased by 10% keeping others constant can provide 39% profit while increase in all input cost by 10% can make the profit lower than the original profit. If the prices of fish falls by up to 30% remaining other variables constant, the production of homestead aquaculture in the study area would not be profitable (Table 7).

Source: Authors calculation based on field survey. Table 7: Sensitivity analysis of homestead aquaculture production (n-150).