Preliminary Financial Fea$ibility AnalyGis of an Independent lllarine Shrimp Hatchery l.ocated in South Carolina

by

Raymond J. Rhodes' Kathleen McGovern-Hopkins'

and Craig L. Browdy'

Teohnical Report Number 80 December, 1992

' Economic Analysis and Seafood Marketing Program Office of Fisheries Management Division of ~farine Resources

S.C. Wildlife & Marine Resources Department P.O. Box 12559

Charleston, SC 29422-2559

and

' Waddell Mariculture Research and Development Center ~tarine Resources Research Institute.

Division of ~tarine- Resources S.C. Wildlife & Marine Resources Department

P.O. Box 809 Bluffton, SC 29910

This work was partially fwided by the U.S. Department of Agriculture as administered by the Oceanic Institute!Gulf Coast Research Laborat.>ry Consortium. The views expressed in Ibis report do not neoessarily reflect those of the U.S. Department of Agriculture, Oce­anic Institute, or the S.C. Wildlife and Marine Resources Department. Any conunercial product. or trade name mentioned herein is not to be construed & an endorsement..

Table of Contents

LisL af Tahl~s ........................................................ ... .......... ........... ...................... ................ ..... .. ,.,., ...................... 111

Li st of F'ipre:s '"' ' r r•11••·················••11•••••••••.a• ................................. .. ......................... ,I t 't ... ''''I ' '' •• r 11 '""''I' ............ '~ .... ... ............ '~11

8 lJrnmary I •• I 11 111 f; ............................ . ... .. ............................................... ,. .. . . "' ............................. 11 1. 11 . 1 11 ' 11111111 ••• ""' ' ............ ...... ........ .. , . 1

Introducti OD 'I 111 rrL ............................ .. ...... .... . . ................ .. .... .. .... .. ,.,. .. . .. . ,. ............................ ....... __._.... ... . . ..... . ... . .. . . .. . ....... . . . . - - · ••••• • t 1

~\ltethod and Daro ............ ... ..... ...................... .... .... ........... ... .................................... .............. ...... .... ..... .. .... ... , ... . ,, ....... , 2:

Facility Desi gr.a. and Equipmenl '' 'I I I' I I •••••••••• .,. •• " .. ' ........... .... ................. ........ .... .. .. .... .............. t t' t t' 2

Produc-tiDn A~slllmpt!itkn ~ , , , , , , , ........ ,, 1 • • .. ..... . .._ .. , , . .. ; ..... ~ .......... .... ...................... .... .... I!! .......... ......... ,, ..... ,,. •• ,. 111 UI 3

~jar Financial and 0-pcratirlg As.s'OD1ptio_n_q, """ "'"" f'rtt •tU••H H HH••••••••••••••a ut.u .... ,.,.,. ........ ., 3

R~~ml ts ................................ ,. ....... 11 ... . . ... 1 ........ ,.. ,. •• • llllfollll ··· .. ............. - .. . ..... . , ...... ,,,,,, ,,,, , , ....... ... ......................... .... ................ 3

lnitia] Inve.s;tmen.t .................... , ,;1 ;1 1 ........ .. . .... .. .... ................. .. , . , .... . ..-••• •• • r••••• ••1•••••••.._, .............................. .... 3

~rating Costs ........................ "' .. ..................................................... .. ..... I ... .... ............ .... ......... ........... ,.,.,,

Projected Net Income and Diiac0>UPted Cash 1'1ow ........ ... ........ .. ...... ... " ................. 8

&nsiti\'i.ty Analysis ...... ........................ i'" ......... .................. . ......................... ...... ...... .. :1:1 •••••.t••·~··· ····· .. ••••• .. ... . . ..... . B

Disc-ussiu1n .. .. ... . ., ........... P" ....... .,. ,. .. .... ,,, ., ........... .................... ., ............. . .............. ,, , ................... ......... I , ..... .. ... . ... . .. . .. .. ...... . .. .. 8

.... t\.cJkflO\\' ledgem.e nts ................ .... 'I. ' I I 11 I I ............. ...... ........ ...... ......... I I ............................................ ........ . ....... ..... . .. .. 10

Lite:r&:tu-re Cited •1 II ·· ·· · ·· ···~· · ·, L ........ .... ................. . ,,, , 11 • • •••• •••• ..._1" .. .... .. ........................................ .. .. ........ '"9"'"'"""" !1., ......... 10

~ South Carolina Wildlife and M~rine ~rce:s Departmenl prt:Jb ibit.s dmisQimin.atioa on tbe bas-is ,of ro~e, tMJor. sex, natN!nal e>riglo, hal'ld3c3p i>r ~~ Oirect sU loqu.lrle!I to the Offie~ of:Personnel, PO Bc>x 167, Cci!umbia., SC 29.202

List of Tables fiW~ ~~

1. M~jor bR!;i.E! ca.liE p:rod.ucti.on a.ssumplions fot a hypothcUcal. marinei q.hri:mp hatcbeey m &uth 1C~ro:Iina ... ...................... ............ .. .... ......... .. ...... .. a ...... .... .. .... ..... i. ............ .... .. .. . .. .. .. ............... '! .. "!'"""'"'""'!"! ,., t It rf'rr••r ....... . ................ 5

.2. Major base -case .financial and opern~fonaJI assumptions for a South Ca.mli.na shrimp ha:t.checy ... _ ....... __ .............. .. ....... 1. ..... . .. .. 1. .......... ...... . . ... .. 1.1o1• 1 '"""'- 1 11 ...... . .. .......... . i.i.a.l .Lo.--...................................... .. ..... t I . .. t 11 I ..... . . .. 1111 .. . . 5

3. Su.mma_ry of estimated ilrntial investment fo:r :a bypothetk'!al m.a:rine shrimp haU:h· ~r-y constr-ueted in South Car olina .......................... ... .... .............................. . 6

4.

5. Sensitivity anaJys.is ,oftfu! pr<Jjec.1.rad 10-yee.r internal r~te of return (IRR) and net pn~1e.e n t va]u e (N PV} to changes i:ai feed costs, ·poetbrv.ae (PL) outp ut and PL market pric:es. f'or a. h.ypo thetical m~rine ~hrimp hatchery i n South Ca.rol.ina .. ........................... ................. 9 ...... .................... 11 ... . .... u•• •• u••·· ········· .. 9

List or Figures

~gure Pag~

1. GcneraJized .noo·r pbm of a hypothetical marine shrimp hatche-ry lo~ated in S(')uth Carolina.. U.S.A .......................... ·~ .. ..... .. ... ·---------- ·----------------- ·---------- ... ............ ., .......... 4

iii

It is a.ntiJcipat..ecl that prospective aquaculturi5l5, inve5w:rs. and perhap5 lending institutions, will desire in.fot'tiia­ti o.n. on the finandal feasibility of operat. ing a oommtll'"cial penaeid shrimp l~rvkul·ture facility located in South Carolina (SC). 'rhe-0bjective of this :re­port iii to present a preliminary projection of costs and inc<>mc generated by an indepenclant (i .a. not inte.grat.ed with a. SC .shrimp iro·w-olllt enterprise) ccmmcr· cial hatchery opeTatiog in coastal SC. The hypothetical hatcllery described in this ruport. includes mat1:1ralioo and l~rval rearing (LR) systems coo.lristinr of ton 12.&t.a.n matll!1ltloJi tanks and 16 8-ton LR ta.nits housed in Qne laTge, prefab­'ficated steel building with an ov.erall arI'ea of about 13,300 ft.2• Th9 total .i.W.tiaJ )n,.·cstm.cnt for con~tru.etinrr, equipping and !lp.et-at.i:ng lhis facility would be n~arly S.1 million. Total annual projceted cash operating costs for a 75 million postlanae (P'L) per year output \\•as $4·96,690. The ,pnnual, a11•erage cash cc st per PL would be approximately $6.60/ l ,ono PL for this olltpur... PrOjec~d net income aft.er taxes was only $94~6{10 for t he base c-aso output of 7 5 . .milllir0n PL pe?' }'>Car.

The. ten-ye=1r (afterTtax) internal rat~ of return (IRR). was 17%. For a bDJse ca!;f} afiQr-tax discQtmt 111te o-r 20.%. the pro· jeeted ten-year net present value: (NPV} was negative. The- .iiansitivir:y analysis of s~lccted va:ri:ables suggests that the p:ro· jec:ted IRR and NPV are moni sensitive to relative changes in PL mQrket prioes and PL output than in feed cost changes,

Based. on this preliminary a.rutlysis. the n@gati ve NPV for t-he base case out­put of75 million l1Uyea-r doei; indicate th.ut title size of hatchery (i.e. less thalll 9 mill ion Pllmonth) •w ouJ d ~ ~enerate a post.ive return on equity if potential

l

inv~"tors Grily based thcill" in ves.tment upon :ii .required rate· of r~t.um of 20% o.r more after income ta.Jtes. Future rnse:ati::h on SC shrimp hatcheries should include the financial fca.s:ibility of a larger hatch· ory (e.g. 20 million PL/month), integrat­ing a marine shrimp nu_rsery and/or grow-out op-e:ration with a. hatchery fodl­ity.

The futur.e demand fut PL ·produced in SC is uncertain. Da-.spit~ this uncertain­ty. a co.mmer..cial hatchery loca.tied in South 08.'J'(llina may bavo several advan­bl,g1es compared ro ha~heries in other states or oolUlt-ries. SC s.hrimp farmers may pre.fer SC produced PL because of ]ower shipping st ress and perhaps highc·r sumval :ra~s when t he PL are initially stock(!d QOmpared to PL from out-o-f-etate suppliers. Other possible advantages fur a SC hatchory include: 1) io~state techni· cal suppo1't from the Waddell .Mariculture Ccn~r (.see Rhodes. 1992), 2J the po!;iSibil­ity of developing a specialty .rnatket for Pen.au.es setifer-us PL, .un indigenous species.I' :{'Urchased by SC live bait fann­an>. andloir 3,) ouwf..staw PL ~uppliers may be more vulnerable to a dditional SC regulatory actions in the fut ure.

INTRODUC110N

A small marin.4! shrimp maricu1tll re in.dus·tcy b.~s. develQPed :in &uth Carolma (SC) producing ab01Ut 600,000 pounds of whole shrinip in.1991, with an ex-pond value n ear $1.5 million. The profit-ability of SC's commercial shrimp businesses is dependent. upon many factors including the .availability ·of \"iahlc po.st.larvae (PL} at a oompetitiva price. There is currently (1992) no commercial shrimp hatchery in SC. The SC fanl'l11 hav.e been gcner~lly dependent upon on oo.t~of-i:ots te lill ppli ers for PL of th@' species of choice, Petta eu vanname.i., a notl· imhgenou s marine

I

.shrimp. During May and J tme, SC shrimp farmers purchase PL's from com­mercial out-.ofp.state hat.cheri.cs and/or­sruall atn.ounts &om a hatchery opereited by the SC WUdH fe and Marine Resom·ces Department at the. Waddell Mari.culture Cen!...eT (WMC) near BJufRon,, South Carolina.

SC s brimp fanners have become, apprehansiive about t be future supply an d quality of imported PL,, f Q>r 1cxample, in 1989. several farms had to .reduce plan­.n.ed st.oclring densities ~nd/oT not stock all thefr ponds due to an apparent shortage of quality PL's rMcGovem·Hopkins et aL 1991). Also. environmenta1 CQnce?'l13 have increased in recent years regarding the pcrce-i ved impacts or Canning nnn­inclig~nous shrimp in the United States. Moreover~ indlustry awareness has in· creased !11~lati. ve to pos,sibJe negative imp.a.eta, of shrim1:p diseaJSes carried by PL from out-{lf.siate hatcheries on 1oommer­rial f ann productiorL ConYquently, i;1s c;onc.:e~ have increased , 11eseareh has b€en conducted to examine the t.ecluucal and financial f oosibility ,of producing coanm~rei.al quanti f.:ieti of the indigenous P. setiferus and/or specific pathogen free (Si>r') P. vafi,oomti. PL in lhe stale of South Carolina (Browdy et al. 1991).

lt i£i anticipated that prospective aqw:i.culturist.5, inveSk>T.5, and :perhaps 1end1ng institutions, will desire informa­tion. on the fin.ancia1 feasibiHty of a com­mercial PL produ.ction fadli ty l0oeated in South Carolina. A1though several eioo­

nollllic studies. hav~ ami.lyzed maturation andlol" hakhery systems for pena~id shrimp (e.g. Johns et al 1'981), no studies ha.ve analyzed the financial feasibility of penaeid larviculture in SC. The objattive of this repcrt is to pr~.sent a preliminary prl>jectiQn of C<:15ts and income generated by an independent (LC!'. nGL in:tegr.ated wi th ~ 1 SC shrimp grow-<iut eoterprise) commerda1 hatc.ho:ry operating in coastal

2

South Carolina with enough C.."ipacity to produee some of the PL needed by SC f atmars. aoout. 4.5 miUion PL during a 8-10 week period in 1992 (Rhodes, 1992). ~i\nnual inoome statements and cai;.h Oows haw been p,rojected ~n orde1' to estimate acc0-untiog profitability, return on equity capital, and ne.t pr,esent vaill!le.

.METHODS Al.1'.ID DATA

FACILITY DESIGN AND EQUIPMENT

The hypothetical facility dcsc'Tiibed in this paper is based u~n the commercial hatchery te-chnology predominant in the Western. hmnisphBre lLawrence ~d Hllfier, 1987, Mc-Vey and Fox. 1983. and Treece and Yates, 1988 L Production 9!.nd 00\Sf. e:.sti.Jnat.(!& wen~ predkated upon eocpe,:rienee st the WMC hatchery (McG-Overn-Hopkins et al, 1991) and oth,g.r oomme:rcial ha.f.cherle.s in. the US. ln this analysis. the si?.e and numbeir of tanks wen1! generally ox.panded cotnpared to the- \\~iIC hatchery. ThiiS does IlQ1 imply lhHt the ca.pacity of thls hypotheti· ca1 ha:tch~ry is the "o])timalll' design and/ or capa.c,.-1.ty fur South Carolina with re­ga__rd t_,g. economies of scale O!t other con..~d­crations (,e.g. , PL purchase patterns).

Mosl of the hatchery, including ma tu· ration and larval r~artng (LR) tanks, would bei hom: ed hi one ~ arge, pl'>efa brir , ... ~ted steel bui]diog Vli.th an overall ar,ca of about 13,300 ft.2 U'ig. 1). Th.e1 eo~t of this building with office space (Table 1) was based upon oost estimates in Kiliey et al ( 1991) and cost estimates provided by compmlies specializing :iin prefabr:ica.lio.n buildings.

Tan 12..5-ton m~turation tanks and 16 8-ton LR tan.ks would be used itn fhis facility. ThJ;ee reliervofr tanb capable of ht1lding 212 tons of saltwater 1em:h would be u.sod to st.or~ treated water. The saH-

v.·~ter treatmant system wo\l.l di include filter vessels and ultraviolet light steril­ization. The salt.watel" heating ·}~tem would ind ude one titanium heat ex· ch11rig'f;tl" for each storage tank and an e]eettic fTeshwater boilel'. Costs for the solt..watcr rut.ration an.d heating $}"Stam ~re ~sed upon estift'L9.~~ :&om CQmmer· cial vendors.

PRODUCTION ASSUMPTIONS

Production asswnption.~ .are summa­rfaed in T~bie L These data were used in estimating a base case PL ou.tput of 75 milJion over a nina month period. If lhe annual PL purcllas~& hy SC fiTOwers is about 45 million PL~ this hatchery could produce appronmatcly 38%, 17 PL mil­lion,. during" iiUli 8 W$ftk period. It is .as­sumed that this: hatchery would export PL to gro.wcrs in other st.ates and/or ~ounr.rie.s (e.,g.~ Me·xico).

Stoeking den.~ity ttf adwt animals in matu~ation tanks would be 7/m2 l'lesulting in 50,000 nauplii per spawn and a .spawn­ing rate of 2~ par- night IT.able 1 ). In the LR hmke, np.upm 5~cking density is .set a t 10011 with a survival of 5-0,.; f roin uauplii t.o PL5•

MAJOR FENANCIAL AND OPERATING ASSUMPTIONS

Maj o:r finanda1 and operating as­sumptions air~ prov.iidQ.(] in Table 2. The am ue 1 financial projections for thjs facility were generated using a L-Otus 1-2-3 ~i>11ei!ds heei template prepared by Applied Analysis. Inc.~ (Leung and Rowland, 19H9).

Actual production time (i.e. ~cl uding hatchery preparation and '"sbu i-dawn" ti me} is ha.~ed. upon a nine month season.

A twQ year "'learning curve" was approxi · mated 'by a.&Sm'ning the PL output oft.he first and sec.end operating yeArs' output. was 60'% and 8-0%. respectively,. of the base case PL ·output. lt is al;swned that all hatchery flQrS.Onnel (e.g., managn.ts, technicians, etc.) wmild be employed all year 02 months). Broodstock foed would be e:ompri sed Qf fresh and fro.ze:n squid and bloodwcrms, '¥.;th blood.worms co~ prising tha Lariest oomponont of tbei feed costs (Table 2).

The base case selling price of tho PL. $9.00/1,000 PL F .O.B. the hatchery git~t (Table 2) is based upon the .autlu~r.s' judgem.ent. Historically SC grower-a ha~e genera1ly paid $10/1,0-00 or higher for Qut-Qf-St$te P'L when survival mt~s and shipping costs ar-e considered. This hatch~ey would only be cape b]e of produc-­ing a.hou t 23%, 17 million PL~ o.f it'.s annual cm:tput to sell :t.o SC growers dur· ing the spring. Th~refioreJ i.t is asswned this hatchery w(luJ d need to. sell over 70% of H."s output to growers in otttor stah!<S an di or col.Dltries. Consequently. it was assumed loY.>e:r out-of~state seUing prJ.oos would reduce the annualized selling price to a level belo.w $10/1,000 when ,compot. ing with C>ut-of-!itate Pl. &ellers2•

RESULTS

INITIAL INVEST~IENT

The total initia11 in vestment for wn· st-rue-ting. equipping "'nd operatin,g this fadlity wouJd be near)}~ $1 mil.liGn (Table 3). The- steel buihling housing the fac.ility wou1cl ce>mpri se 38% of the total equip­ment and construction costs. $568,820. ln rontrast, maturation and hatchery equip­ment, mainly tanks, would repr~sent

' T1be semi t:wi.t~· 0.1'1Uy~1s in thls r~port < 5ee 'Fable 5) mtlu:d~ $-Cllfog priGe.; higher and Lo.i.r.·er lh1111 S9t" ,000.

3

Broodstock -anks

t>latl.laton Tarks

00000 c

00000 ---

0 0 0 0 ,. ~ r-

~ !»

6"

0 0 0 o~ ~ ~ r

J ! m "<;.

0 0 ~

0 o•J ~ ~

~ ~ ~ lR

~ ~

0 0 0 0 Qai Q ~-- ~d 2· SD

F\tc ;\gae ~ Ak;ne Ptoc:U;befi -~~ 1 i ..

""Jae Rese\ti"

. ' ii( I

. . I

I · Ti~t&.1 S;inVvale- S~crag:: Ta~

r'igur·a 1. Generalized tloo:r plan of a bypoth!!Ue.al marine shrimp hatchery located in So\lth Caro1ma, u .S.A.

4

Ta.i]e 1. Maj:'Or base case production assumptions fo'.li a hypothetical marine shrimp hatcli­ery in Sou.th Cariolina.

?.latu~tion and &.tdaer.y $aa.$on: Approximately cine (9) :rooniths.

Matgrj\)Pgn Outppt:

Acthrc Animals (Sex Ratio 1~ 1): 1,111 Moturntion S.tocking Density: 7 animals/m.2

Naapm per Spawn: 50,000 Sp3wniDg Rate Per Night: 2 .. 01% Te>taJ Nao.plii Per SeaS4:m: LS X 108

Hatchery Output:

Noupli'i SU:n'ival to PL: 50.0% Nauplii Stodrlng Density: 100 animWslliter-TotaJ PL Output Pel" S'J3son: 7 .5 X 107 (-8.3: million/month)

T.abfo 2. Major basis casf!: fi.ru:mcial and oper~t~onel. assumptirons for a South C.a:rolina shrimp hatch.ecy.

Electricity Cost: $US 0.066/K\V Po.s,tlanr·e Sel1ing Price: $9/1,000 D'epr"eciat.ion 'I'Teattnenr..: Straight.-.line Btoodwonrn Ct.st ft)r BT(:.odst-0r::k; .$US 62/kg Discount Rate: An.er Ta>::es: J 5% Ccrpor.ate Incom0: Tax Rat.e, State and Federal: 30% "'Looming Curve"' During 1st and 2nd YeaT

Hourly \Vago Pe:Jl'S()lmel: :21 % of gross wages Salary Personnol: 25% of m--qss sala_ries

about. i:~% ·of facility oosts (Table l ). It is BIS!iumed Lhat l.hls har.cll~:ry would

draw i'ts water fr.om an cs.tuari.:n.e water sou.rte. Est uarine waters in SC ienerally have a h~gh Jeve1 of swipended so'lids; c:on~equently, a. filt1"8tioni .system. is need for tre.Pting raw 5.;;31]tw.a;ter for 11Ue in a penaeid shrimp batc:hery (McGGv,Bm· H opkms et ~1. 1991 ). Since SC sn.Jtwaur

k:m.pe:.raturcs from Ja.nua.ry tb.rnugh June are belo\\' 2SoC~ this hatchery would alm TBq;l.lire r:orurta.nt heating -Of hatchery's reservoir (head!} w.a~r far at leH t 5 months. Th{!i salt.wa:t:.e:r source and beat~ menl sys.t.erru> would OODlprfo.e a.:ppl"C):tl· twll.sly 39% D'f the totaJ fu.cillity costs {Tabre 3).

T"able S. Summory ol o.tlftloled. i.Aitio.I inve•tm.ent for O hypot.hctical m.a.ri.ut.­sbrimp hatchery constntcted in South Carolin.a.

Uoeful Co"1 &rsent.' YcB.rs

Haichcry/1\taturat~oo BuUdlng' $118,750 15 Office & Laboratory Equipment 25,000 10 Prc,jcct Planning & Permil8 tli,000 5 Lllnd. 2 acres 10,000 NIA

Subtotal: $168,7§0 36%

lla!chea & ,l\1anat!tistA £ggigm!nt: l't.latu.ration Tanks, 10 $ 10,000 JO Spa..,.ing Tonk& 2ii 5,000 10 BrooclsU>ck Holding Tanko, 2 2,400 5 Batcbery Tank Heaters, 16 8,800 5 rlat<hery Tanl<s, 16 38,400 15 rumps 8,500 5

Subtotal: $ 73,100 I Ml>

SA4;water Source & Treu.tm~DI ~lr!U~m: Automatic F iltration Syttent $ 66,000 10 Heat Exchanger & Boiler 48,000 10 StQrage Tanks. 3 39,300 15 Water Stora.re Shed 25,900 15 S altwater Soun::e Pumps:, 3 2,;:22 5

Su.b•otal: 1181,7® 39\0

Other f.Qui:ement: Diesel Back·up Geoenc.or. J s 20,500 20 P ick.up Truck. 1 8,000 5 Phytoplankton Tanks, 60 8,400 5 J\li•cellaneous Equipment 6.400 ~ to 10 l\1J scellancous Tanks Z,680 10

S ubtotal: s 45,980 10%

'l'otal t';!cilitr Cott: $469,730

Annual Cash Qpcntlne: Cost: $4911.690

lgtal lnitial )!&,YSjlment S964.•20

1Peroe.n_t of '7otal Facility Cott". "nie hatchery bu.ilding include-• the shrimp maturation facilities..

6

TabJe 4. Projected annual income st3tement for operating years three through ten, inter· nal rate of retum, and net present value for a ~Uictieal marine shrimp hat.tJtery locat-Od in South Carolina.

Projtft&d Annual Production: Hatchery (PL's in Thousands) Maturation (Nauplli in Thousands)

(In Thousands) Prpjected Annual Sa}es:

Projected Expens es

Fuel & Utilities Feed Broodst.ock Purchases Hourly Wagos' Salaries' Chemicals Other Supplies Contingencies Depre,iation

Prqie<:-ted Taxable; Income;:

Estimated Inoomr. Taxes·

Projected lncome After Taxes:

Discounted Cash F1ow At1alysis2

$107.4 111.6 20.0 98.8

120.0 16.7 10.1 12.l 43.l

$539.8

JO.Year Projected Intern.a] Rate of Return:

$675

75,000 150,000

Percent of: ~ ~ 16% 20% l7% 21% 3% 4%

l5% 18% 18% 22% 2% 3% 1% 2% 2% 2% 6% 8%

$135.2

16.9%

Al\;cr Tax Diec:0unt- Rats:

JQ. Year Net. Present Value:

~ la WI!' 25%

±Sill ~ -$49 -$1 14 (In Thousands)

1 Includes payroll taxes, workman's compensation and fringe benefits. 2 Annual <:3sh operation costs were not included in this analysis. ' Base c:ase.

7

10PERATDIG COSTS

Total ruintlal prnjoct.ed operating l!'.11:­

penses for 75 million Pllyr. output was $539,800 including depreciati·on CToole 4). The t.lltal annual projected at&l ope .... ating ~t>i;t. was $496;690. The annual, av-erage cash i::ofjt per PI.. would be .ap· prorla:natoly $6.6'211,000 PL for a 75 million. Pl/year output. Salaries. and wages together comprised the largest percent..~e ·of operating exp~n86. 40~ ('Fable 4.). Utilities, principally cloclricity u~ed in heatina- sal.t.watel'. repreJented 20% of totaJ operHt.ing expen 5-es. Feed, mainly bloodworm.s for hroodstnck feed­ing , comprised about 21 % 1:1-f pI1ojectced Qperation cxpcns-cs {Table 4).

PROJECTED NRT COME AND DISCOUNTED1 CASH FLOW

Projecr..od net in~m.e aft.er ~es was $9.Ji,600 for the base oo.sc ouLput o.f 75 milHon PT, (Table 4). The pr'°ject.@d n et. incQme (N\er ta~es} per- 1,000 PL was

1. 2611,000 PL. The ~n-~ar (after in<00me taxes)

in1!.cmal raLe of return (IRR) and nel present. valuil CNPV) were pre>jected C'Tabk 4). 1'he [RR; 16.9%, wtlJS. l~l'I th~n the base ease rulior•tax: discount rate, 20%. The proj ected teo.-yeat NPV was neITTltive, ~$49.160. <Table 4);;i.

SENSITIVITY .. ALYSIS

The sen&itivit:y analysis of sel1eded variablei; (Table 6) suggests that the Jl'i'Ojecred IRR atld NPV are ttl!Ooo aensi­tive to relative changes in PL output and market prices than feed cost changes. For ex.ample, e G%increase in the selling

price of PL to, $91.5011.000 or-a 5% in· crease in PL out1nrt wowd :increase the pr<ij€!1~d IBR about 6 peroenta.g~ points (Ta.hie 5), while a 10% decrettse in feed ·costs would only rff.ull in a a.bout a 2 percentage point increase- in the IRR.

DISCUSSION

In ili:i5 pre'1min.a.ry analysis, th~ netatii.re NPV for the base C3S4 outpuL of 75 million PL for nine months does indi· cate tha:t this operation would !!Qt gener­ate .a post:iivc return om equity if potentiaJ iavcs.to:rs only har.ed their investment upon a required r-a:t.ie of return of 20% or moJ1e aft.er income taxes. The fieniiitivity analysis results sugges1 that increasing PL output by 5% relative to the base ~ would re~ult in. an IRR exceeding 20~ (T'aihle 5}. :ln addition, the profitability of a SC ibascdl ha.tebary might be :improved by expanding k!tal annual PL ontplllt by incf'\easing operating mo.nt.hs andf i:>?"

capacity. The fincmciQI r~.asibility of operating a larger facility noods to be investigated. For P.xample, Johns et al. ( 1981) has. shov.r-n tbat the ten-year .NPV ptojcctc:d for Te:Xas :hatcheries should increiu.e "''11h s.ca1 e andl/o r o])erating months.

Even if monthly output of :a SC haech­ery was expanded, the future demand for PL by SC growers will be cri t.ical to those co.nei.dering tbe financial feas ibility af funding ~lild opera:li:ng a commereirJ hait..chery in SC. A recent. study predicted that SC PL demand c::ould. reaeb 75 mil· lion }l J./year by 1997 (Rh.ode$, 1992). This p-rediction is partially based upe>n ~sion plans for a 160·acres s.hrlmp farm on Rdisto r stand . I t is not Clltrently

1 Tbe befm-e t..u !IRK for- tho base ca&e i& 24~, and the before ~ NPV irn:n:ucs. t.o ${81000 at. a 20%- dis­ttiun1. ~ Most analyst wouJd make the~ tax clho;iu,nt r.itc bjgher than the aft.er tu di!U':o1.ml mte.

8

(1992) clear if other new shrimp fanning sites will be developing in SC and/or if existing commercial farms .... -JU ex·pand their acreage and/or stocking densities. Given this uncertainty in SC, it v.·ould be prudent for those evaluating the feasibil­ity of establishing a hatchery in SC to also e .. ,aJuate existing and potential markets for SC produced PL in other st."ltes and countries. Moreover, aggrc-. aate PL demand by US shrimp farms may not continue to increase in the future if cu.rrent and perhaps future environmen·

tal regulations (House, 1992) constrain the exp.ans.ion plans of companies want­ing to grow-out CDarine sb.ri.rop in the US.

In contrast to the fuv.ire demand uncertainty, a commercial hatchery lo­cated in South Carolina may have several marketing advan~s compared to hat.cherieit in other states or countries. SC shrirop farmers may prefer SC pro­d·uced PL because of lower shipping stress and perhaps higher surnval rates when the PL are irutfally stocl<ed compared to PL from out-of-state suppliers. Ot.hcr

'Table 5. Sensitivity analysis of the proj ected 10-year internal rate of return ( ffiR) and net present value (NPV at.a 20% discount rate) to changes in feed costs, postlarvae (PL) output, and PL market prices for a hypothetical marine shrimp hatchery in 50-ulh carotina.

Alter Estimated Income Taies

Yadable NPY Cio s1,ooo>

Feed Cost:l !nCNaSed 10% -$75 Base Case ·S49 Decreased 10% -$23 Decreased 20% +$2 Decreased 30% +$28

Et. il11tD11i !Mil1is:t1Jal; 82.5 x 10' (10%) +$86 78.8 x 10• (5%) +$24 75.0 X IO' (Base Case) -$49 71.3 x 10' (·5%) ·$105 67.5 x 10'<· 10%) ·$163

J;!I, Prjce/1,000: $8.00 -$244 $8.50 -$147 S 9.00 (Base Cose) -$ 49 $9.50 +$49 $10.00 +$146

i Percent chaog~ r\l lati~·e to the base case of"'Feed'" expenses.

9

nm

15.2% 16.9% 18.6% 20.1% 21.7%

24.9% 21.5% 16.9% 13.0% 8.4%

0.8% 10.0% 16.9% 22.9% 28.2%

poo.siblo od<antages for a SC hat<htly u>dude: I) in-state teduUcal support fn>m mo W~!C (see Rhodes, 1992), 2) Ille po1'1ibility of developing a &pedaJty ma_,.. ket ror P. Geliftru.8 PL, an indigenout 1pcdes, purthasod by SC live ha.it. f3nn• ariJ, nnd 3) out-.of·s.t.at.e PL supplit1r1 moy be more vtili1crable to additional SC regul3tory actions in the futurt ..

ln addition, current t.ffort.a to develop u profitable nursery ._Mad.swrt• 1y1t.em for u1e by SC growen micbt alao lead to tx-pansion of the i.Jl.state marktl -win· dow" for PL whil• impn>vioC the pn>ftt· abilicy of grow-out operatiOD5. !tloreover, Ille financial and market clfecto o(inlb­"'8ting • hatchery v.;t.h a 1\UJ"M:r')' and/or ff"O~·-out operation needs to be analyzed for SC.

l'N)fitability of SC marine shrimp tcruw•out operations is !.tron1ly influ· cnced by survival ra~s (Rhodes, et al. 1987). Stokes eta!. (1991) has reported a }1igh degree ()(variability in fl'OW-OU1. perl'onn3nce (e.g. survival raw.a. harveet 11zt. etc.) between diffut:nt commercial h3tcM:rie1 as wcll as between ytan for individual bat<bories. ~aid> II Ille \\~fC and or.her laboratories i1 curttntly underway to d~velop high heaJLh. o.nd ,1renetically improved shrimp for Ute US private hat.choric&{Hou.se, 1992). 1'he Lront1fer oft.hose research driven impf'OvC· mcnt111 in shrimp PL to US hatcl1crie11 rnight provide a marketing advuntorc for comttlerciaJ hatcheries li-E!lling to US and forei~ shrimp growers.. Moreover, Lhe marketing of high health Pt. for tiC pow· en by SC hatchery may also impnve I.he overall productivity of the SC thrimp farming industry.

ACKNOWU:DGE!llENTS

Wo would like to than.k Mr. Oayjd Vt'b.itaker and ~!r. Steve Hopkiru., for th.cir review and comme.nu on this re.port. Ms. Z. FlorQnoa Ptnder provided word proc&ssing &upp0rt ond ~ft. Karen S"•anson prcpa~d the manuscript for publication.

Funding for thit ustarch was pro. yjded by Ille U.S. Deportment of Agricul­tun CSRS lhrousJ> a jlT'Ml '°Ille U.S. Marine Shrimp Fenn Program.

LITERATURE CITED

Browdy, C.L., A.D. S1<>kc1, J .S. Hopkin.• and P.A. Sandifer. 1991. Evaluo· tion orint.en11ive po11d mono-and polycult.ure of PettOP.UJJ setiferU8 and P. i:annomei in South Caro· lina. {AbstTOCt) \Vorld AquacuJture Society, 22nd Annual Conf. & Expo .• San Juan, Puerto Rico.June 16-20, 1991.

Rouse, C. 1992. U.S. lap in thrimp pn>duc:tion, but rueoreh could pay off soon. FoedstufT. June 29, 1992. pp.JO.

Johns, $.~f .. W. Orifli.n , A, Lawrence, and J. Fox. 1981. lludgotanalyois of penaeid shrin1p hatA;hery facilities. J. World M•ricul. Soc. 12(2):305-321.

Kiley, M.D .. J . Svallna, and S. Walbem. l99L 1991 Building Coot Manual. 15th edition. c...n.m..n Dool< eo .. Carlsbad. CA.

• i\Jnon.IC ot.her factors, t hls aasumu lhai t h t h.attherM!t' incttment.11.l ooaU o( ims,1rovl1'11t and innint.llining hl~h t1e11lth quality PL does nol t•Cetd lhc lncremP.ntal rcven1.1es derived from n11rktLi,., premium PL.

10

Lawrenoo, A.L. and Huner. J.V. :UJB7. Pcnacid shrimp ,culban in th.c U.niood States: A brigf ovemew str.essing species. sood pl"O:duction. and growout. In: Smderman {Ed.J R@p:rod:uction~ Maturation and Sead Production of CuJture Spe.­cies. Unitad States Department~ of CoJ'QPl~Ce NrOAA TeclurlceJ .Re· port. N atfonal Marine Fisheries Senrioo.. (47): 31-41.

Leung, P.S. and l.. W. }t{lwland. 1989. financial analysis or shrimp prn­duetion: Am el@-:etrnm~ ~a.chheet mod.et Co-mputers and Eleetrunics in AgricultUTe 3.:2.S7.M304.

McGov.e?"n~Hopldns. K., ·CrL. Browdy, J .lil Honoway .a11d! J .S. Hopkins. 199 l . IPenta:eid shrimp hat.ch-ery system devek1pment for &iuth CarolinD. (Abet.rm) \Vori;d AqiJacultun Society :2,2nd Annua] Cont & Expo., San J11Jan, Puerto Rico. June 16-20, 1001.

McVe:y .• J .P .. and J .M. Fox. 1983. H~kh­ery tech:rliq11!1elii fl1'1f' petLP.1eid shrimp· utilized by T~ A&M NMFS Oal\l\ef!'tc:m wborato_zy program. In: McVey. J .P. ed. CRC Handbook of Mariculture. Volume 1, CrustaiceaD Aqnaooltun. CRC IP-ress. Inc. ~ Boca RatoJ4 FL pp. 129-154.

Rhodes,. R.J., P.A. Sandifer a:nd .J.M. Wliet~t'-ODe. 1981. A preliminary tinandil analysis of .semi·intensivO' penaeid shrimp farming in South CairoliP.3. S.C. Marin0 .ft&. Ctt. , Tech. Rpt. No. 64.

Rhodes. R.J ., 1992. Fea.Siibility of esta.b-· li~hif1g a marine shrimp hatchery iu. South Carolina: Swnmairy of find.in.gs by The H !lcbea Feasibfl·

11

iu Study Commbtee. Office of .Elshcrics Management. Division. of Marintl lilesourcost S.C. Wildlife&. lfarino RC!:;ll-OW"Ces: l)Q:pt. t Charles· 'kin, SC (Photocopy), Soptamber • 1992.

Swlu~s. A.D., J.S. Hopkins, C.L·, Il;rowdy, and P ~4.. Sandifer. 1'001. Comm.er· cia1 farming oE /'e:IJ.(J£u .. s va111U1-mei io S-0uth Carolina: the hatch~ry ~tock dil.9mrnca.. (Abstnl.t.i) Wo!l"ld Aquac.'U.l!tu re Society, 22nd Annual CQE!. & Expo., SliD JtLPl, Puerto Rioo, June 16-20. 1991.

'li<eece, G.D. and M.E. Yates. 1988. Laboratory manua1 for the w1ture ofpanaoid drrimp ]arvare. TAMUL SC-88-202 .• Saa Grao.t CoUege P.ro:gr.un. Ter.ii:as A&M University. College Station.. TX.

A total of 200 copies of this document was printed at a total cost of $126.96. The unit cost was $.634 per copy.