Economic engineering applied to the fishery industry


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Table Of Contents


FAO FISHERIES TECHNICAL PAPER - 351
FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Aurora Zugarramurdi
Maria A. Parin
Fish Technology Research Centre (CITEP)
National Institute of Industrial Technology (INTI)
and
College of Engineering
National University of Mar del Plata
Mar del Plata, Argentina

Hector M. Lupin
Fishery Industries Division
FAO Fisheries Department

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS
Rome, 1995

The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country territory city or area or of its authorities or concerning the delimitation of its frontiers or boundaries.

M-47
ISBN 92-5-103738-8

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the copyright owner. Applications for such permission with a statement of the purpose and extent of the reproduction, should be addressed to the Director, Publications Division. Food and Agriculture Organization of the United Nations. Via delle Terme di Caracalla, 00100 Rome, Italy.

FAO 1995

This electronic document has been scanned using optical character recognition (OCR) software and careful manual recorrection. Even if the quality of digitalisation is high, the FAO declines all responsibility for any discrepancies that may exist between the present document and its original printed version.


TABLE OF CONTENTS


PREPARATION

INTRODUCTION

What is Economic Engineering?
Why Apply Economic Engineering to the Fishery Industry?
To what Type of Fisheries can Economic Engineering be Applied?
What are the Limitations of the Approach Proposed?
How to Use this Manual?

1. PAST, PRESENT AND POSSIBLE FUTURE OF THE FISHERY INDUSTRY

1.1 Brief on the Historical Development of Fish Production and Utilization
1.2 Brief Situation on World Fisheries Resources and Captures
1.3 Brief Situation on Current World Fish Utilization and Marketing
1.4 Fish Technology, Economic Engineering and the Future

2. PRODUCTION ENGINEERING

2.1 Plant Capacity and Location

2.1.1 Information required from market studies
2.1.2 Plant location

2.2 Required Technical Information
2.3 Production Technologies for Fishery Products
2.4 Input Requirements

2.4.1 Raw material
2.4.2 Ice consumption
2.4.3 Labour
2.4.4 Utilities
2.4.5 Packaging

3. CAPITAL INVESTMENT COSTS

3.1 Introduction

3.1.1 Definitions

3.2 Fixed Investment

3.2.1 Pre-project study and analysis expenses
3.2.2 Main equipment
3.2.3 Equipment installation
3.2.4 Piping (installed)
3.2.5 Instrumentation and control
3.2.6 Electrical installation
3.2.7 Construction (including services)
3.2.8 Auxiliary services
3.2.9 Land

3.3 Estimate of Fixed Investment

3.3.1 Estimate of the cost of equipment and installations
3.3.2 Methods of estimating fixed investment
3.3.3 Level of accuracy in estimation by factors

3.4 Investment Costs for Fishing Vessels
3.5 Investment Costs for Fish Containers
3.6 Investment in Fish Plants
3.7 Working Capital

3.7.1 Stock of raw materials
3.7.2 Products being manufactured
3.7.3 Semi-finished or test products
3.7.4 Finished products
3.7.5 Stock of spare-parts and operational materials-in stores
3.7.6 Cash
3.7.7 Outstanding bills or credit to buyers
3.7.8 Credit from suppliers

3.8 Estimating Working Capital

4. PRODUCTION COSTS

4.1 Cash Flow and Production Costs
4.2 Variable or Direct Costs

4.2.1 Raw material
4.2.2 Direct labour
4.2.3 Supervision
4.2.4 Utilities
4.2.5 Maintenance
4.2.6 Supplies
4.2.7 Royalties and patents
4.2.8 Packaging

4.3 Fixed Costs

4.3.1 Indirect costs
4.3.2 Management and administration costs
4.3.3 Sale and distribution costs
4.3.4 Global estimate of fixed costs

4.4 Case studies on Production Costs

4.4.1 Icing costs utilizing insulated containers
4.4.2 Capture costs for coastal fishing vessels

4.5 Model for Estimating Production Costs in Fish Plants

5. MICRO-ECONOMIC ANALYSIS OF PRODUCTION

5.1 Production Function in the Short Run
5.2 Basics of Returns to Scale
5.3 Basics of Cost Functions

5.3.1 Total costs and unit costs
5.3.2 Cost curves in the short run in the fishery industry

5.4 Average Cost Curve in the Long Run

5.4.1 Cost curves in the long run for actual plants

5.5 Micro-economics Applied to a Whole Fishery

5.5.1 Mathematical models for evaluation of the fish resources

6. ANALYSIS AND SELECTION OF ALTERNATIVES

6.1 Selection of Alternatives

6.1.1 Analysis of present-worth
6.1.2 Point of equivalence
6.1.3 Optimization techniques

7. PROFITABILITY

7.1 Profit of a Business
7.2 Cash Flow Diagrams

7.2.1 Statements of sources and application of funds

7.3 Methods of Estimating Profitability

7.3.1 Rate of return
7.3.2 Present worth (PNV)
7.3.3 Discounted cash flow rate of return (DCFRR)
7.3.4 Pay out time

7.4 Risk Consideration
7.5 Advantages and Disadvantages of the Different Methods of Estimating Profitability
7.6 Break-even Analysis
7.7 Profitability of Artisanal Fisheries
7.8 Profitability for Small and Medium Fish Plants
7.9 Inflation in Profitability Calculation

7.9.1 Effect of inflation on the present-worth (PW)
7.9.2 Effect of inflation on the IRR. Real Internal Rate of Return
7.9.3 Effect of the adjustment of working capital on the IRR
7.9.4 Inflation relationships in continuous form
7.9.5 Effect of financing of working capital on the IRR
7.9.6 Effect of loans on the investment on the IRR
7.9.7 Effect of the non-indexed loans on the investment on the IRR
7.9.8 General conclusions on inflationary situations

8. QUALITY AND SAFETY ECONOMICS

8.1 Introduction
8.2 Fish Safety and Quality
8.3 Quality Economics Analysis
8.4 Production Cost and Quality Cost

8.4.1 Design and investment to produce quality (fixed cost)

8.5 The PAF (Prevention-Appraisal-Failure) Model of Quality Costs

8.5.1 Prevention costs
8.5.2 Appraisal costs
8.5.3 Failure costs
8.5.4 Relation between the PAF costs
8.5.5 Quality cost indexes
8.5.6 Limitations to the PAF model

8.6 The Cost of Applying HACCP
8.7 Social and Political Costs of the Lack of Food Safety and Quality

8.7.1 Epidemiological data
8.7.2 Estimated costs
8.7.3 Places where food was contaminated/mishandled

8.8 Environmental and Political Factors that may Contribute to the Costs of the Lack of Safety and Quality

8.8.1 Political factors
8.8.2 Environmental and ecology factors

APPENDIX A. EXAMPLES OF FISH MARKET STUDIES

APPENDIX B. INTEREST AND ECONOMIC EQUIVALENCE

B.1 Financial Equations

B.1.1 Interest
B.1.2 Time value of money
B.1.3 Simple interest
B.1.4 Compound interest

B.2 The Meaning of Equivalence
B.3 Derivation of Interest Factors

B.3.1 Compound-interest factor with single payment
B.3.2 Present worth factor with single payment
B.3.3 Compount-interest factor with equal-payment series
B.3.4 Sinking-fund factor with equal-payment series
B.3.5 Capital recovery factor with equal-payment series
B.3.6 Geometric series

B.4 Nominal and Effective Rates of Interest

B.4.1 Discrete compound rate of interest
B.4.2 Continuous compound rate of interest
B.4.3 Comparison of interest rates

B.5 Inflation and Interest

APPENDIX C. COST DATA

C.1 Cost of Equipment and Plants
C.2 Cost of Raw Material
C.3 Labour Rates in the Fishery Industry
C.4 Cost of Utilities
C.5 Cost of Packaging in the Fishery Industry

REFERENCES