7. FARM-LEVEL FINANCIAL ANALYSIS

7.1 General Considerations

7.1.1 For aquaculture ventures it is possible to relate operational inputs to expected outputs with a reasonable probability. In assessing the financial feasibility of aquaculture development on a micro, i.e., individual farm level, it is necessary to estimate or predict the general and seasonal availability and costs of the projected inputs and compare them with expected revenues. From the farmer's point of view, the revenues must be compared with the benefits which could be derived from alternative farming operations using the same land or labour, in order to arrive at a conclusion regarding the desirability of engaging in aquaculture. A reliable appraisal of this kind can be made only when sufficient practical experience has been gained of the systems under consideration. What follows is therefore only a preliminary assessment based on estimated costs and earnings for aquaculture.

7.1.2 It has to be borne in mind, moreover, that the decision to culture fish has to be made by the farmer and his family and they have to bear the consequences; values and priorities may be different from those implied in the kind of analysis attempted here. The socioeconomic and socio-cultural variables, which will be discussed in Chapter 9, will be of at least equal importance.

7.2 Factor Analysis

7.2.1 Land and water

Decisions on land-use will be made by the farmers on an individual basis. General land availability has been discussed in 3.3. above.

Rainfall can be used as an indicator for water availability (see 3.1.2). However, water availability should be assessed individually for each envisaged operation. As a general rule, pond culture of fish requires a water inflow of 9 1/sec for a pond of 1 ha with an average depth of 1 m to offset seepage and evaporation.

No overall statement on the quality of available land and water can be made here. For each envisaged fish pond topography, soil and water quality and accessibility have to be studied. Decisive factors are usually pH value, mineral contents and the capability of the soil to hold water. Particularly the available marshland, with obvious potential for pond culture, will have to be examined carefully in this respect (acidity). See 5.1 and Annex 3.

7.2.2 Opportunity costs of land

From an economic, as well as from a financial point of view, it would be ideal to use land which is more or less unsuitable for agriculture as little or no opportunity costs arise in such cases. As implied earlier (3.3) however, aquaculture will often have to compete with agriculture for land. It is assumed that farmers will not buy or lease additional land for aquaculture, at least in the near future. Nevertheless the alternative possible and probable land use under the prevailing production structure will have to be taken into account. Swampy marshlands (marais) for example, will have the opportunity cost of the gross value of crops presently grown, minus inputs, for the respective land area and over a given time. The ‘marais’ are typically farmed under the following production pattern (for 1 ha/year):

Table 11

Structure, Output and Value of Present Marshland Production

Inputs to be deduced from the total value created by marshlands cultivated in the way shown above are almost entirely farm labour. Farm labour is difficult to value for rural subsistence production, ranging from zero (when no alternative production is possible) to the monetary return on labour for an alternative activity, which can be as high as Rw.F. 528/man/day (IBRD, 1977) in the case of banana cultivation.

For the opportunity cost of marshlands considered for fish culture, the labour input, which has to be subtracted from the total value of production, should be calculated according to estimates of the value of production (per ha/year):

Table 12

Labour Requirements of Present Marshland Production

Source: Based on IBRD, 1977 and estimates of the author

On these assumptions, the opportunity cost of marshlands can be roughly estimated at Rw.F. 24 000/ha/year (total production - labour inputs).

7.2.3 Labour

Together with land and water, labour is one of the most important inputs in rural aquaculture.

(i) Labour potential

The dominant agricultural production unit is the nucleus family (parents, children) with additional inputs from the aged and the unmarried brothers or sisters. Average family size is about five persons (4.71 in 1970, 4.97 in 1973) constituting a total labour potential per family of about 4 000 hours or 660 man/woman days a year (Delepierre et al., 1978).

(ii) Seasonality of farm labour inputs

Because of the variety of food and cash crops cultivated simultaneously by the average Rwandan family, labour inputs are spread relatively evenly throughout the year (see Table 13). Occasional labour peaks occur, however, but usually neighbourhood and kinship help are available in such cases.

The following diagram shows the seasons of production of marshland crops¹:

¹ That is to say, beans are under cultivation from July to October; green fodder is produced all the year round

Fish culture operations will have to be timed in order to avoid coinciding labour peaks. This implies planning for major labour inputs in fish culture during the months January to May, and, to a lesser extent, October and November, in order to prevent labour peaks coinciding with present ‘marais’ cultivation patterns. An indication of the seasonality of labour inputs for the overall farm production pattern is given, for one region, in the table presented below:

Table 13

Annual Calendar of Farm Work at Butare

Source: Leurquin (1960) In: Morris (1979)

(iii) Division of labour

As for the qualitative division of labour between the sexes the men usually perform the heavy works such as land preparation; they are also dominant in animal husbandry and take care of cash crops like coffee and (except for composting) banana cultivation. Women are mainly responsible for the daily labour for food crop production and the household. Harvesting and post-harvest activities are generally shared between the sexes. A quantitative breakdown of total weekly labour inputs is shown in Table 14.

Table 14

Average Hours Worked per Week

Source: Delepierre et al., 1978

For fish culture operations it would therefore seem convenient for pond construction and pond maintenance (earth work) to be done by the male family members and feeding/fertilizing by the women. Stocking, harvesting and post-harvest activities will probably be shared between the men and women.

(iv) Opportunity Cost of Labour

The family labour inputs of 4 000 man/hours/year/family indicate a high degree of utilization of overall available labour.¹ It appears to be advisable, therefore, to attach a value to labour input projections for fish culture.

From the calculation of opportunity costs for marshlands, as shown in the former chapter, one can deduct a return on labour per day of about Rw.F. 100 for marshland cultivation and this figure will be assumed for the micro-economic analysis presented here.

In cases where labour envisaged for fish culture has to compete with the alternative production of other agricultural commodities, the following table presents estimated returns on labour.

Table 15

Returns to Labour/Man/Day of Different Crops in Rwanda
(Rw.F.)

Source: IBRD, 1977

¹ H. Brandt (1979) estimates an African average of 900–1 000 man/hours per economically active person in agriculture per year

7.2.4 Capital

For small-scale family-based pond culture little or no capital investment is required. Pond construction will be done by manual labour provided by the family, relatives or neighbours, in which case no monetary compensation is usually given. In pond construction concrete is not commonly used at present. Operational inputs such as labour, compost and green manure will, in most cases, come from internal sources without monetary exchange. Only fingerlings and, in the case of integrated production, livestock, will have to be purchased, but expenditure will be minimal (at present a nominal charge of Rw.F. 1/fingerling is considered adequate by the Département des Eaux et Forêts). For larger production units, managed by groups and cooperatives, locally produced bricks and clay pipes can be used and only a little concrete is needed. Operational inputs will be discussed in the next chapter. It is not envisaged that infrastructural capital costs will be passed on to farmers.

7.2.5 Operational inputs

Inputs, other than those already discussed in the factor-analysis, will consist mainly of feeds (for larger production units) and fertilizers, for which availability and costs have to be discussed.

(i) Feeds

Family-based small-scale fish culture will, in most cases, use feeds available on the farm, i.e., kitchen scraps, wastes from the food and cash crops, draff from banana and sorghum beer, non-edible parts of farm-grown vegetables, etc., none of which will represent a cost to the farmer. Purchase of feed inputs should be considered only for large-scale fish culture operations because transport will be economic only for large amounts; in any event feedstuffs exist only in limited quantities in Rwanda. At present, mainly rice bran and slaughterhouse wastes are used in the few cases where fish are being fed. Agro-industrial wastes and by-products are, however, obtainable (see Annex 6). Little information on quantities, alternative uses, seasonality and prices is presently available; accordingly, the possibilities of using supplementary feeds will have to be evaluated for each colline and unit.

Presently available information indicates a cost price for the majority of brans of a maximum of Rw.F. 1/kg, while slaughterhouse and other wastes can be obtained free of charge. Accordingly, fish feed-based agro-industrial by-products and wastes, including transport, will be assumed for the present to have a cost price of about Rw.F. 2/kg, if available within a radius of no more than 50 km.

(ii) Fertilizer

Chemical fertilizer is presently not, or only marginally, available in Rwanda. Therefore, green manure and compost will have to be used for fertilizing the fish ponds; the availability of livestock manure will have to be assessed for each individual site.

For green manure, i.e., grasses, vegetable residues, other plants, which are available on a normal farm in Rwanda, no specific costs are assumed. The labour necessary to collect and apply it is part of operational labour inputs. For compost, which requires considerable labour inputs to prepare but is especially valuable, costs have to be taken into account, based on the opportunity cost of the labour necessary for compost production. For fertilizing a 1-ha pond, 20 to 30 tons of compost are necessary and the preparation requires 120 men/day approximately. Assuming that the raw material for compost preparation, i.e., all kinds of organic matters, grasses and crop wastes is available on the average farms at no extra cost, fertilization of 1-ha of pond for one year would cost about Rw.F. 12 000.

7.3 Estimates of Costs and Earnings

7.3.1 The foregoing analysis has, apart from discussing the general availability of the necessary production factors, assumed values (opportunity costs) for the different inputs. Relating projected inputs to estimated outputs will indicate the profitability of fish culture operations under local conditions. As the productivity of pond culture will vary from case to case, according to the skill of the farmer, the efficiency of the extension service and the specific availability of inputs/outputs will vary.

7.3.2 All inputs/outputs will be expressed in the calculations that follow in monetary terms, according to their assumed opportunity costs or present values, which in some cases have to be deduced owing to the largely non-monetary nature of exchange in rural Rwanda. Although this reduces the complexity of agricultural production within the rural milieu to mere cost benefits, it will indicate whether, financially, fish culture is profitable to the small-scale farmer.

7.3.3 Expenditures and revenues are projected for two types of model operation: a 500 m² family-run pond under fertilization with compost and a 5 000 m² collectively managed pond with feeding. The species cultured are assumed to be Tilapia nilotica with T. macrochir and T. melanopleura, stocked twice a year at a density of 2 fingerlings/m². Fertilizer and feed inputs are projected according to the factor analysis above; for feed inputs a food conversion rate (C.R.) of 10:1 was assumed, i.e., 10 kg of feed would produce 1 kg of fish.

Expenditures associated with pond construction are not included in this calculation.

For a 500 m² pond stocked with T. nilotica and using compost the following revenues and expenditures are projected:

Table 16

Revenue-Expenditure Projections for a 500 m² Family Pond

It should be noted that the only cash expenditure incurred by the family is the cost of fingerlings. If the farmer can be given sufficient training to keep the necessary number of fingerlings from the previous harvest, these costs would arise only once for initial stocking. On these assumptions, i.e., valuing all inputs according to their opportunity costs and purchasing fingerlings once a year, family fish farming of a 500 m² pond will break-even at a production level of 57 kg/year (1 150 kg/ha/year).

For a 5 000 m² pond stocked with T. nilotica, with feeding of rice bran and slaughterhouse wastes, a higher productivity can be expected.

Table 17

Revenue-Expenditure Projections for a
5 000 m² Collectively Operated Pond with Feeding

Calculated on a per ha per year basis, the break-even production would be 690 kg at the lowest intensity of cultivation, 786 kg at the next, 888 kg at the third, and 973 kg at the highest level of inputs examined.

7.3.4 From the foregoing figures, valuing all inputs according to their opportunity costs, and making deliberately unfavourable assumptions, fish farming will be profitable in itself if a production of about 1.2 t/year/ha can be achieved.

7.4 Comparison of Marshland Cultivation with and without Fish Farming

7.4.1 The comparison of marshland cultivation under the present production pattern and when used for fish culture allows a quantitative judgement on whether the latter offers a better return on land and labour to the farmer. For the ‘with and without fish farming’ comparison, no opportunity cost for land is considered in either case, but depreciation of initial investment for pond construction over 25 years is included. Initial investment for pond construction is depreciated linearly but no interest is added as inputs are almost entirely non-monetary, i.e., manual labour is provided by the family or the cooperative members.

Table 18

Volume and Value of Marshland Production With and Without Fish Farming
(Yearly Cost/Benefits for 500 m² with Fertilization)

Table 19

Volume and Value of Marshland Production With and Without Fish Farming
(Yearly Cost/Benefits for 5 000 m² with Feeding)

7.4.2 Although these figures are self-explanatory, it should be noted that for the ‘with fish farming’ calculations, all inputs have been valued according to their real or opportunity costs and only a moderate output is assumed. For the ‘without fish farming’ only the operational labour inputs are inserted as costs. In spite of this purposely applied bias, projected fish culture compares favourably with present marshland production, namely by producing more value from existing resources (land, water, labour, etc.), as demonstrated by the incremental values shown below (neglecting fingerling and feed costs).

Table 20

Incremental Values produced by Projected Fish Pond Operations as compared to Present Marshland Cultivation
(Rw.F./ha/year)

7.5 Comparative Returns from Fish and Other Crops

7.5.1 As shown in the foregoing, fish farming compares favourably with agriculture on marshlands. In the following table the projections of fish culture operation under local conditions will be compared with the average cost-benefit performance of food and cash crops presently grown in Rwanda. In the case of most of these crops, no competition for land use with fish culture will emerge. The relatively high grade of utilization of the labour potential of the family indicates, however, a possible conflict with respect to labour use. Therefore, comparing yields, returns, labour requirements and returns to labour, will allow to estimate whether, and to what extent, fish farming is beneficial to the farmer.

Table 21 shows that only banana production would yield a better return per man per day than fish culture and that only cinchona production would result in gross returns superior to fish culture.

With respect to the income generating capacity of fish culture it is useful to compare net return and cash return (percentage of return commercialized) of sweet potatoes, cassava, maize and beans, which are presently grown in marshy land, with the corresponding figures estimated for fish culture.

In addition, Table 22 shows the respective figures for rice and tea, cash crops which are to a very limited degree grown in the same environment at the moment and can be considered as possible alternatives to fish culture.

Table 21

Economic Performance of Different Food and Cash Crops as compared to Fish Raised in 500 m² Family Pond and in a 5 000 m² Cooperative Pond

Source: IBRD, 1977 and own estimates

Table 22

Comparison of income generating performance of fish culture and alternative marshland crops (ha/year)

¹ Gross return minus labour inputs valued at Rw.F. 100/man/day

Source: IBRD, 1977 and own estimates

7.5.2 As inputs subtracted from the gross return in order to arrive at the net return are almost entirely non-wage labour, i.e. non-monetary inputs, net returns indicate mainly the profitability of the different operations. For an indication of the total potential income the gross return is significant; for an indication of the probable cash income the value of the average percentage of the production projected to be marketed (for fish) should be the preferred criterion. What percentage of the yearly fish production will be marketed by the farmer or the cooperative is difficult to project, therefore different degrees of commercialization have been assumed.

7.5.3 By allowing the farmer's family to eat 50 g of fresh fish twice a week, the yearly consumption per family would be 26 kg, leaving about 65 percent of the estimated production from a 500 m² pond to be marketed. If each family member consumed 50 g of fresh fish (or its processed equivalent) five times a week (per caput yearly consumption of 13 kg/year), still 15 percent of the total production could be marketed. Assuming a medium degree of commercialization of 40 percent, a 500 m² pond, covering 5 percent of an average farm, would yield a cash income of Rw.F. 2 250, using about 4 percent of the available labour.

7.6 Cash Flow Analyses

7.6.1 For calculation of the cash flow the cost for pond construction can also be estimated, although the non-monetary nature of inputs and the only partly monetary nature of outputs limits its significance. Here again, labour, which is the only significant input, will be valued according to its opportunity cost, i.e., Rw.F. 100/man/day. For a rough estimate of the labour effort needed for pond construction, 20 man/days to build 100 m² of pond with a medium depth of 1 m is assumed, plus 10 percent (2 man/days) for feeder canals. According to this estimate a hectare of fish pond would cost approximately Rw.F. 220 000 (Rw.F. 11 000/500 m², Rw.F. 110 000/5 000 m²), which corresponds with pond construction costs in similar areas of Central Africa.

Table 23

Cash Flow of Rural Fish Culture over 25 Years
(Rw.F.)

7.6.2 The cash flow analysis shows an Internal Rate of Return of 25.8 percent for a family unit and 29.1 percent for the 5 000 m² unit. The initial investment for pond construction would be recovered within the fifth year of production (i.e., pay-back is five years).