TECHNICAL PAPERS (Cont.)

ECONOMICS OF MILKFISH CULTURE IN THE PHILIPPINES

Renato F. Agbayani

Southeast Asian Fisheries Development Center,
Aquaculture Department, Tigbauan, Iloilo
Philippines

Introduction

The Philippines is both a producing and consuming country of milkfish. In 1984, statistics from the Bureau of Fisheries and Aquatic Resources (BFAR) revealed that there were about 207,000 ha of brackish-water ponds in the Philippines, 90% of which are devoted to milkfish culture. In 1980, the per capita consumption of fish was 20 kg per year (Smith and Chang, 1984) or 54% of per capita animal protein consumption. Milkfish is acceptable to all the socio-economic strata of the Filipino society.

Discussion

This paper discusses the costs and returns of three phases in milkfish culture as practiced in the Philippines namely:

• Nursery
• Stunting or retarding the growth of milkfish fingerlings
• Modular culture system

The economic indicators used are average rate of return or return on investment and payback period. The economic analysis was based on experiments undertaken at the Leganes Research Station of SEAFDEC Aquaculture Department and verified in three sites located in the provinces of Negros Occidental (2 sites) and Cebu (1 site) (Baliao et al., 1987; Agbayani et al., 1988).

Nursery

Table 1 shows the costs and returns of nursing milkfish fingerlings with two culture durations (two and three months) at a stocking density of 25 per m². The selling price of milkfish fingerlings in the province of Iloilo in late 1986 was 0.50 each. The cost of nursing fry to fingerling size were 0.21 and 0.24 for culture periods of two and three months respectively. The higher cost for the three-month culture period was primarily due to the additional feeding of rice bran and trash fish during the third month.

The cost components as a percentage of variable cost are 80% fry, 11% lime and fertilizer, and 5% labor. The average cost of fry from the wild is 0.10 each. The cost of manual labor (agricultural rate) ranges from 20 to 36 per day.

The average rates of return were 47.80% and 41.17% based on an estimated investment of 113,775 and 118,410 per hectare for the two and three months culture durations, respectively. The investment was estimated to be 85,000 for the pond costs and a caretakers hut and a working capital (cost of inputs) of 28,000 to 33,000 per ha.

In the Philippines, milkfish nursery operations are practiced both as an integral part of the milkfish culture system and as a profit-center operation for nursery operators.

Table 1. Cost and returns of nursing milkfish fingerlings (Philippine pesos per ha).

For the nursery operator, the above-mentioned average rates of return will apply. For the grow-out operator, the average rates of return are 30.5% and 22.2% for the two and three month culture periods respectively. The lower rates of return of the grow-out operator are due to the higher transfer cost of the fingerlings resulting from the 50% mark-up. The 50% mark-up represents the opportunity cost of the grow-out operator in undertaking the nursery aspect of milkfish culture. The milkfish grow-out operator may not realize actual profits from the nursery operation, but will save through the lower cost of raising fingerlings (0.31 each) versus the market price of 0.50 each. The actual profit will be realized upon harvest of the marketable size milkfish.

Table 2. Cost and returns, of stunted milkfish fingerlings for 6 months at varied stocking densities (Philippine pesos per 144 m²)*

* Based on a 50% mark-up.

Stunting

Stunting or retarding the growth of milkfish for fingerling production has been practiced in the Philippines for some time. This practice assures the milkfish grower of a ready inventory of fingerlings for year-round production. This practice has been necessitated by the irregularity of fry supply from the wild, which adversely affects continuous production of the ponds. Stunting has also been shown to be a profitable activity in milkfish culture operation.

Tables 2 and 3 show the comparative costs and returns of stunting fingerlings at various stocking densities and durations. The growth rates of milkfish fingerlings stocked at a density of 15, 20, 25, and 30 per m² were 0.065, 0.066, 0.065 and 0.050 g per day per fish, respectively. The survival rates were 84.7, 86.9, 78.9, and 54.4% in the same order. Stunting duration was 6 months. Table 2 shows that all treatments showed positive rates of return with exception of the ponds stocked with 30 fingerlings per m². A stocking density of 20 per m² registered the highest rate of return of 33.54% and the 25 per m² was a close second with 31.12%.

Table 3. Cost and return of stunted fingerlings at periods of different stocking duration (Philippine pesos per 144 m²).*

* Based on the total cost plus a 50% mark-up.

Table 3, on the other hand, shows the costs and returns of stunting fingerlings at different periods of six, nine, and 12 months. The six and nine month stunting periods showed positive returns of 33.5% and 18.87% respectively. The 12-month culture period showed a negative rate of return.

The best combination of stunting milkfish fingerlings is 20 per m² stocking density and over a period of six months.

Modular Culture System

In 1980, the average milkfish production in brackish-water ponds in the Philippines was estimated to be 800 kg per year (Chong et al., 1984). The estimated potential yield was 2,000 kg per ha per year. There was a yield gap of 1,200 kg per ha per year. Milkfish growers practicing the modular culture system produced 1,400 to 1,800 kg per ha per year in five or six croppings.

Table 4 shows the production data at four different sites in the Philippines, which range from 278 to 341 kg per ha per crop or 1,670 to 2040 kg per ha per year from six crops. Survival rates range from 90 to 97%. Stocking density of 3,000 fingerlings per ha and pond preparation procedures were the same for all sites.

Table 4. Production data on milkfish Modular Culture System in the Philippines.

(1) g/day/fish
(2) kg/ha/crop

Table 5 shows the costs and returns of one of the sites in Silay, Negros Occidental having an area of 2.71 ha with seven croppings. The cost of production is about 13 per kg or 70% of the wholesale price of 21 per kg in 1987. The major cost items as a percentage of variable cost are 52% for pond preparation (liming and fertilization), 40% for the cost of fingerlings and 8% for labor.

The total investment requirement per hectare ranges from 18,000 to 20,000 as shown in Table 6. The capital investment (pond development and other structures) was about 52% of total investment and the rest was for working capital (cost of fry, fertilizers, labor etc.). Investment in fingerlings comprised 72% of working capital. This is primarily due to the necessity of buying fry needed for at least five crops and subsequently nursing and stunting them as discussed earlier.

Table 5. Cost and returns at the Silay Zone B, Negros Occidental (7 crops, 2.71 ha). Costs in Philippine pesos.

(1) man days
(2) compartment

Table 6. Investment requirements (in Philipine pesos).

Table 7. Comparative profitability (in Philippine pesos).

(I) six crop
(II) with interest

Otherwise, production scheduling in the modular system will be disrupted.

The four different sites showed acceptable profitability levels with or without loans as shown in Table 7. Interest rates for lending to aquaculture projects range from 17 to 20% per year. The return on investment (ROI) and payback period without acquiring a loan are 68.81% and 1.25 years, respectively. With a loan, the ROI and payback period are 61.16% and 1.37 years. In a straight-run culture, the ROI and payback period are 56% and 1.64 years, respectively (Bombeo-Tuburan et al., 1988).

Conclusion

All phases of milkfish culture as practiced in the Philippines are economically viable, whether undertaken separately or as integrated system.

The modular culture system, aside from the higher productivity and profitability, offers other advantages, to wit:

• better pond management in terms of pond preparation and predator control after every transfer of fish from one compartment to another;

• improved stock assessment;

• better production and financial planning.

References

Agbayani, R.F., D.D.Baliao, N.M.Franco, R.B.Ticao and G.Guanzon. 1988. An economic study of the modular pond system in milkfish production in the Phillippines. (Submitted for publication).

Baliao, D.D., N.M.Franco and R.F.Agbayani. 1987. The economics of retarding milkfish growth for fingerling production in brackish water ponds. Aquaculture 62: 195–205.

Bombeo-Tuburan, I., R.F.Agbayani and P.F.Subosa. 1988. Evaluation of organic and inorganic fertilizers in brackish water ponds. (In press Aquaculture).

Chong, K.C., M.S.Lizarondo, Z.S.Dela Cruz, C.V.Guerrero and I.R.Smith. 1984. Milkfish production in the Philippines: A multidisciplinary perspective on continuous low yields and constraints to aquaculture development. ICLARM Reports 15.70 pp.

Smith, I.R., and K.C.Chong. 1984. Southeast Asian milkfish culture: Economic status and prospects. In Advances in milkfish biology and culture. Edited by AQDpp 1–20.

ECONOMICS OF MILKFISH CULTURE IN THE PACIFIC ISLANDS

K. Roger Uwate

Forum Fisheries Agency,
Honiara, Solomon Islands

Introduction

In some Pacific islands, milkfish culture has been practiced for many years. It appears to have been a traditional aquaculture activity in such Pacific islands as:

• Cook Islands (Patanga, Tepuka; Van Pel, 1955);
• Fiji (Lau, and Rewa Delta; Baas Becking, 1950);
• Kiribati (Clutter, 1972); and
• Nauru (Kennedy, 1961).

Traditional milkfish culture activities usually included catching fry and stocking them in enclosed areas.

More recently, the region has experienced various attempts to initiate sustainable milkfish aquaculture. Table 1 lists political entities in the region which have had milkfish culture projects (Uwate et al., 1984; Tanaka, 1987; Uwate, 1988).

In addition, there has been much consideration of milkfish culture in Pacific islands. Most Pacific islands have also had consultancies and reports completed regarding milkfish culture (Uwate et al., 1984; Uwate, 1988).

Pacific Island Milkfish Economics Studies

Very little has been done in terms of milkfish culture economics in the Pacific islands. In Guam, commercial milkfish aquaculture is ongoing. However, no economic analysis of these operations could be found. One might assume that since they are private sector farms that have operated over time, they must be profitable (Author's note: after presentation of this paper, one reference to milkfish culture economics in Guam was identified, see Fitzerald, 1988).

The only work that could be located on the economics of milkfish culture in the Pacific islands is for the Temaiku Bait Fish Farm in Tarawa, Kiribati (PIDP, 1983; Uwate et al., 1986).

Temaiku Milkfish Farm

The economic performance of the Temaiku milkfish farm was assessed in 1983, 1986 and 1988. Table 2 summarizes the financial performance of the farm for 1982, part of 1983, 1985, and for 1987. Results indicate that the farm revenues are significantly lower than operating costs.

Some aspects of production economics were also examined. Costs of producing bait and food fish were estimated by allocating expenses between bait and food fish production activities. The results are provided in Table 3.

As indicated in Table 3, the farm-gate price did not cover production costs. More recently, the farm-gate price for food fish was raised to AUD$2.50 per kg (circa 1986).

Table 1. Pacific Islands with experience in milkfish culture

Source: Uwate et al (1984); Tanaka (1987); and Uwate (1988).

This increase would make the production costs of food milkfish approach its production costs. Data for food milkfish production costs in 1987 were not a available.

In addition to unit production costs, other aspects of production economics of the Temaiku Farm have been examined.

In 1985, milkfish culture trials using the lablab method were initiated at the Temaiku Bait Fish Farm in Tarawa (Juario et al., 1986b). The objective of this experiment was to determine if lablab could be grown under atoll conditions. Significant design and logistics problems encountered included: (1) inadequate supplies of chicken manure, (2) significant salinity difference between ponds, (3) irregular stocking times and rates, (4) variable experimental periods between ponds, and (5) partial and irregular harvests of some ponds.

Table 2. Income statement for Temaiku Baitfish Farm for selected years (in AUD$)

Notes:
1. for 12 month period ending 31/12/82; source PIDP (1983);
2. for 5 month period ending 31/5/83; source PIDP (1983);
3. for 9 month period ending 31/12/85; source Uwate et al. (1986);
4. for 12 month period ending 31/12/87; source Steve Pollard (1988).

Despite these limitations, it was estimated that direct production costs for bait sized milkfish may be between AUD$0.89 and AUD$1.89 per kg using the lablab culture method (Table 4) (Uwate, 1986).

Additional experiments were conducted using different treatments of fertilizers including: (1) chicken manure, (2) chopped leaves, and (3) chopped tilapia (Juario et al., 1986a). Significant problems were also encountered with the design and completion of this experiment, including: (1) no replication of experiments, (2) inadequate fingerling supply, (3) no mincer for chopping, and (4) a 35-day instead of a 60-day culture period. This reduced the validity of results and reduced interpretation to weak inferences (Uwate, 1986).

Table 3. Comparison of unit production cost at Temaiku Bait Fish Farm based on allocation of expenses(*1) and farm-gate price (A$/kg)

* Notes: 1. costs do not include depreciation;
2. PIDP (1983);
3. Uwate et al. (1986);
4. Uwate and Teroroko (1986).

Estimated costs and returns for these experiments are provided in Table 5 (for high stocking-rates) and Table 6 (for low stocking rates).

This appears to be the extent of economic studies relating to milkfish culture in the Pacific islands region.

Economic Considerations

Commercial projects

Several countries in the Pacific islands region have had experience with milkfish culture. To date, success in establishing on-going economically viable milkfish farms has been limited. This situation is similar to that faced by most aquaculture development projects in the region. As a result, economic analyses of aquaculture development projects has been recommended (Recommendation 8 from the South Pacific Commission's Eighth Regional Technical Meeting on Fisheries, 1975; Uwate, 1984).

The quality of the analysis is dependent on how good estimates are and how well they are analyzed. Problem areas that affect quality include (Gittinger, 1982):

• underestimating costs;
• excessively optimistic projections;
• failure to account for variability of climate;
• over-optimistic implementation schedule;
• failure to account for adverse effects of project implementation; and
• rate of translating technical assumptions into project performance.

Here the concept of “GIGO” may be applicable: “garbage in equals garbage out”. Unrealistic assumptions can be made in all areas of the project. This can make garbage out of an analysis.

Table 4. Estimated direct production costs of 60-day lablab culture trials of milkfish bait at Temaiku Bait Fish Farm (A$)

* notes: 1. converted to per cycle basis assuming 2 month cycle;
2. no chicken manure available for ponds NP2 to NP4 which were fertilized only with dead tilapia;
3. based on 60 buckets/trip × 3.5 kg/bucket = 210 kg/trip.

It has been suggested that expected expenses be over estimated and revenues be under estimated for aquaculture projects (Rhodes, 1983). This has been recommended because unrealistic hopes for high sales and market prices with “normal” expenses have resulted in many bankrupt aquaculture firms.

Considerations for planning aquaculture in the Pacific islands have been identified (Uwate, 1985). These include the following aspects:

• market;
• technical;
• organizational;
• implementation;
• financing;
• financial; and
• socio-economic.

Market aspects include both a market study, and a market plan. In the market study, an assessment is made of (1) how large the current market is (volume of sales), (2) pricing practices at different levels of the existing marketing system, as well as (3) the market interaction of alternative products. In the market plan the “4 P's” of marketing are addressed: the nature of the product, the price, promotional strategy, as well as place of sales. Estimates are then made on projected sales.

Technical aspects include: (1) species selection, (2) site selection, (3) selection of culture technology, and (4) making reasonable projections of input requirements and anticipated production.

Organizational aspects include: (1) business form; (2) business structure; (3) personnel requirements; (4) legal requirements; (5) sources of supplies; (6) company objectives, as well as (7) long term plans.

Implementation includes specific plans for how the project will be implemented and management controls to ensure that this plan is achieved within the timetable and budget set.

Financing aspects relate to how the company is to be financed and what combination of debt and equity capital will be used. In addition, sources of debt capital and terms must be examined here.

Financial aspects deal with the internal financial performance of the company. Technical and market assumptions are combined to predict the financial performance of the firm. In addition, various operational scenarios are often examined to determine the sensitivity of results to changes in initial assumptions.

Finally, socio-economic aspects can be examined. Economic aspects relate to adjustment of financial accounts for evaluation from the social perspective. This is usually only completed for larger public sector projects.

The above aspects are applicable to projects that are both export and/or local market oriented, and to large-scale as well as small-scale farms.

Subsistence Projects

One alternative that may be considered in milkfish aquaculture in the Pacific islands region is subsistence milkfish culture. This would be a logical extension of traditional aquaculture practices noted at the beginning of this paper. This concept is not new. It was discussed by Kiribati Fisheries Division in the early 1980s. In addition, a proposal for village level subsistence ponds was developed in Yap. To date, however, the concept has not become reality.

Table 5. Estimated direct production costs for 35-day comparative fertilization trials with high stocking rates (A$)

* notes: 1. feeding costs included in pond maintenance labor cost.
2. size of 35 day grow-out of bait inadequate for pole-and-line vessels, additional 30 day grow-out needed, thus transport cost zero.

Documentation on the economics of subsistence or traditional milkfish culture in the Pacific islands region could not be located. However, there are certain economic considerations that may be considered when planning subsistence culture of milkfish. These may include:

• current sources, supplies of animal protein (market);
• site, culture system selection, input requirements (technical);
• management (organizational);
• execution (implementation);
• development funds (financing);
• operational funds (financial); and
• cultural factors, opportunity costs (socio-economic).

In terms of current sources and supplies of animal protein, the following items may be considered:

• identification of the types of animal protein consumed at the village level;
• estimation of the amount of animal protein consumed by type, in the village;
• identification of sources of each type of animal protein and the estimated volume provided by each source;
• determination of the preference for milkfish as a protein source compared to other fish species, and other animal protein sources, e.g. chicken, pork or beef; and
• identification of periods of availability for each type of animal protein, and factors that affect availability.

Technical parameters that could be considered include the following:

• identification of the site, and determination of its availability and suitability;
• identification of the culture system most suited for the environment as well as village society;
• estimation of input requirement needed to operate the subsistence milkfish pond(s) and availability of inputs (such as fry); and
• identification of pond management requirements.

Management considerations for subsistence milkfish aquaculture may include:

• identification of the social structure of the village;
• consent and approval of the project by village leaders;
• development of a management plan for operation of the project;
• establish responsibility of the project management at the village level; and
• provide realistic input and output estimates to village leaders.

Execution plans include the following:

• develop plan for pond construction with appropriate timetable and budget; and
• develop plan for stocking (if applicable), managing, and harvesting the pond(s).

At the village level, it is improbable that village funds will be available to cover initial capital costs. External funds will probably be needed to cover, at a minimum, construction costs. These funds need to be identified and secured prior to initiation of the project. These funds may be available from the local government, economic assistance funds, or, if the village deems it necessary, from the local development bank or commercial bank.

Operational funds are needed only if the proposed subsistence milkfish project requires ongoing cash inputs. The need for these funds can be identified in the planning phase. Once they are estimated, plans must be made on how the village will meet these recurrent costs.

Due to the difficulty in obtaining operational fund or subsistence operations, it may be advantageous to design the culture system to minimize, if not eliminate, the need for such funds.

Table 6. Estimated direct production costs for 35-day comparative fertilization trials with low stocking rates (A$)

* notes: 1. feeding costs included in pond maintenance labor cost.
2. size of 35 day grow-out of bait inadequate for pole-and-line vessels, additional 30 day grow out needed, thus transport cost zero.

Finally, socio-economic factors may be considered. These may include:

• the cultural acceptability of the product;
• the cultural acceptability of the culture method, management requirements, and responsibility for the project; and
• the opportunity costs for village involvement in this project, e.g. village inputs versus production from milkfish culture compared to alternative animal protein producing activities in the village.

The considerations listed above are by no means definitive. However, if included in planning subsistence milkfish culture, the probability of a successful operation may be improved. Much of the analysis is subjective. There are, however, economic tools available for valuation and assessment of non-market activities such as subsistence milkfish farming (see Gittinger, 1982).

With proper planning and realistic assessment of projects and their benefits, only reasonable subsistence projects should be initiated. This should minimize the risk and embarrassment of project failure. In addition, limited funds available for this type of project can be conserved and applied only to projects with a high probability of success. These projects should then be able to achieve their goal of providing needed additional animal protein to the village for a sustained period of time.

Conclusion

There is a tradition of milkfish culture in some Pacific islands. This usually included the collection of fry and stocking in enclosed areas. In more recent times, many Pacific islands have initiated milkfish culture projects. Some are still ongoing, but many have failed. In addition, many Pacific Islands have had consultants report on milkfish culture possibilities in their islands.

Documentation on the production economics of milkfish culture in the Pacific islands region is limited. Guam has ongoing private farms that have sustained themselves over time.

Most of the economic analyses of milkfish culture in the region has centered on the Temaiku Bait Fish Farm in Tarawa, Kiribati. Past studies indicate that economic performance has been poor with revenues not covering direct expenses. Per kg production costs were higher than the per kg farm-gate price. With the recent doubling of the farm-gate price (circa 1986), production costs may now be met by this new farm-gate price.

Some economic analyses have been completed on various grow-out trials at this farm. Problems in the design and execution of these grow-out trials have weakened the validity of results. The application of economic tools to these dubious results suggest the possibility of further reducing unit production cost by employing alternative culture techniques.

Milkfish culture is a component of aquacultural development in the region. Various agencies have recommended that aquaculture development include economic analysis of projects to determine their economic viability before they are begun. Guidelines are available to assist Pacific Island governments in planning and evaluating proposed aquaculture development projects.

In addition, economic guidelines are provided for planning subsistence milkfish culture programs. Guidelines are not definitive, but, if followed, may increase the probability that a successful subsistence level project will be achieved.

References

Baas Becking, L.G.M. 1950. Examination of sites for fish ponds (in Fiji).

Clutter, R.I. 1972. Reef and lagoon productivity: South Pacific Islands. Food and Agriculture Organization of the United Nations. Rome. FI:DP/RAS/69/012/10.

Fitsgerald, W.J.Jr. 1988. Comparative economics of four aquaculture species under monoculture and polyculture in Guam. J. World Aquaculture Society 19 (3): 132–142.

Gittinger, J.P. 1982. Economic analysis of agricultural projects. Baltimore, Maryland: Johns Hopkins University Press. 505 pp.

Juario, J.V., T. Teroroko, B. Naburennara, and E. Tekaraba.1986a. Bait production using chopped tilapia, chopped leaves and chicken manure. Kiribati Fisheries Division. 10 pp.

Juario, J.V., T. Teroroko and E. Tekaraba.1986b. Bait production using the lablab method. Kiribati Fisheries Division. 12 pp.

Kennedy, T.F. 1961. Farmers of the Pacific Islands. Wellington: A.H. and A.W. Reed.

Pacific Islands Development Program. 1983. An economic critique of the Temaiku Baitfish Farm. Submitted to: Fisheries Division, Republic of Kiribati. 64 pp.

Rhodes, R.J. 1983. Primer on aquaculture finances: planning for success, Part I. Aquaculture Magazine 10(1): 16–20.

South Pacific Commission (SPC).1975. South Pacific Commission's Eighth Regional Technical Meeting on Fisheries.

Steve Pollard and Associates Pty. Ltd. 1988. The Kiribati Temaiku Baitfarm review. An operational, technical, financial and economic review of the Temaiku facilities. EEC Project No. 5100.36.74.012.

Tanaka, H. 1987. Some notes on aquaculture development in the South Pacific. South Pacific Commission. Nineteenth Regional Technical Meeting on Fisheries, 3–7 August 1987, Noumea, New Caledonia. SPC/Fisheries 19/Information Paper 5. 9 pp.

Uwate, K.R. 1988. Viable aquaculture technologies in the Pacific islands region. Paper presented at the Seventh Session on the Indo-Pacific Fisheries Committee Working Party of Experts on Aquaculture, 1–6 August 1988, Bangkok, Thailand. 89 pp.

Uwate, R. K. 1986. Economic implications of fertilization trials of milkfish ponds in Temaiku, Tarawa. Submitted to Fisheries Division, Ministry of Natural Resources Development, Republic of Kiribati.

Uwate, R. K. 1985.Considerations for preparing an aquaculture feasibility study in the Pacific islands region. Pacific Islands Development Program, East-West Center, Honolulu, Hawaii. 245 pp.

Uwate, R. K. 1984. Aquaculture assessment project: final report. Pacific Islands Development Program, East-West Center, Honolulu, Hawaii.

Uwate, K.R., J.V. Juario, and T. Teroroko. 1986. An assessment of the Temaiku Bait Fish Farm in Tarawa, Kiribati. Submitted to Fisheries Division, Ministry of Natural Resources, Republic of Kiribati. 53 pp.

Uwate, K.R., P. Kunatuba, B. Raobati, and C. Tenakanai. 1984. A review of aquaculture activities in the Pacific island region. Pacific Islands Development Program, East-West Center, Honolulu, Hawaii. 475 pp.

Uwate, K.R. and T. Teroroko. 1986. Market considerations for bait and food fish products of the Temaiku Fish Farm, submitted to Fisheries Division. MNRD. Republic of Nauru.

Van Pel, H. 1955. The fisheries industry of the Cook Islands. South Pacific Commission. Noumea, New Caledonia.