- CHAPTER IV -
FINANCIAL AND ECONOMIC FEASIBILITY
OF MARINE SHRIMP CULTURE IN SURINAME

1 - METHODOLOGY

1.1. SELECTED PROJECT SIZES FOR ANALYSIS AND JUSTIFICATION OF THE APPROACH

Suriname has proper characteristics such as : thousands of suitable lands available at a low cost, relatively cheap labour and construction costs, high energy costs and high requirements in imported goods. For these reasons, it was necessary to study various commercial shrimp culture models to get information, for answering to the following questions :

A - What are in relation to the farm size ? :

-- The required capital costs ;

-- The expectable financial internal rate of return (FIRR) ;

-- The expectable profit ;

-- The necessary inputs in foreign currency ;

-- The final earnings if any of foreign currency.

B - Is there a minimum size for the activity to be profitable (and the product to be exportable) in Suriname ?

C - Is the activity economicaly profitable for the country in terms of creation of employments (construction and operation of the farms) and earnings of foreign currency ?

Obviously, during that mission it was not possible to study many models. It was finally decided to study and compare the 2 following typical shrimp culture models.

- 1 semi-industrial farm with 50 ha of grow-out ponds ;

- 1 industrial farm with 500 ha of grow-out ponds.

1.2. COST ESTIMATE

The utilized financial prices for the 2 studies are Suriname tax-free prices of November 1986.

Output prices (selling prices) are ex-farm prices. They have been computed from the average international prices (C.I.F. prices - transportation cost - processing cost). The détails and sources of information are shown in ANNEX 1. The aimed market is the USA market with frozen head-off shrimps and the considered average ex-farm price is US $ 6,26/kg.

1.3. FOREIGN COMPONENT

The total expenses in foreign currency have been assessed by utilizing a percentage of foreign component in the cost of each item (construction and operating costs).

The considered factor is directly in relation to the availability in the country of the concerned product and its components.

The value of the percentages of foreign component is shown in the following table.

1.4. TERMINOLOGY

- Investment costs : The value of inputs lasting more than 1 year.

- Benefits : the amount of sales resulting from the activity = quantity × unit price.

- Operating costs : The value of inputs used in the production cycle (every year) such as feed, energy, wages, etc…

- Cash flow : the value of the nominal cash flow in year n = total benefits in year n minus total inputs in year n (investment cost + operating costs).

- Discounted cash-flow : Discounting is the method to convert the nominal cash-flow value into the present value. The utilized formula is this :

Discounted cash flow (n) = nominal cash flow (n) × (1 + i)^{- n}

(i = discount factor)

- Net present value (N.P.V.) = cumulated discounted cash flow.

- Financial internal Rate of Return : FIRR The FIRR is the discount factor for which the N.P.V. is equivalent to 0.

2 - FINANCIAL AND ECONOMIC ANALYSIS OF A 500 ha GROW-OUT FARM

2.1. MAIN CHARACTERISTICS OF THE FARM

2.1.1. Required facilities : (see details in ANNEX 2)

The farm is composed with :

- 500 ha of grow-out ponds (10 ha each) ;

- 20 ha of pregrowing ponds (1 ha each) ;

- One pumping station ;

- An operation building ;

- Housings for staff ;

- The required equipments, vehicles and boats.

2.1.2. Implementation planning : (See following page : construction and production planning)

- The farm will be implemented in 3 phases. The first phase will be composed with 200 ha of grow-out ponds and the second and third phases with 150 ha each.

- The construction of each phase will last 2 years (2 dry seasons) : The first year to drain, dry and clear the land and the second year to build the facilities.

- The total construction period will be 5 years.

- The evolution of the production parameters and the staff recruitment planning are adapted to this implementation planning.

2.1.3. Main production parameters :

- Water renewal : 10 % per day of the water volume in ponds ;

- Production yield in standard year : 2,5 T/ha/year. For each new pond the increase of the production yield will be as follows :

-- 1st year of production : 1,5 T/ha/year

-- 2nd year of production : 2 T/ha/year

-- 3rd year and later : 2,5 T/ha/year

- Feed conversion rate : 2,5 in standard year. The evolution in each new pond will be :

-- 1st year : 3

-- 2nd year : 2,75

-- 3rd year and later : 2,5.

GROWING FARM : 500 ha

File: 500PLANG
INDUSTRIAL SHRIMP FARM (500 ha):
CONSTRUCTION and PRODUCTION PLANNING

- Required juveniles (post-larvae) : 220 000 PL/ha/year in standard years (transport mortality included). The evolution in each new pond will be :

1st year : 160 000 PL/ha/year, 2nd year and later : 220.000 PL/ha/year.

2.2. PRODUCTION COST AND PROFIT IN STANDARD YEAR

2.2.1. Investment and depreciation costs of the whole farm :

The total value of the investment cost amounts to 14,4 million S.F1 with a percentage of foreign component of 57 % (see ANNEX 2).

The depreciation cost per annum in standard year is 1,5 million S.F1. The calculation of the depreciation cost is shown in the following table.

2.2.2. Profit and loss account in standard years

The details of the profit and loss account in standard years are shown in the table of the following page. The calculations are made without financial costs (the payment of interest is not included) and without tax on profit.

The following main ratio must be considered (without financial costs and tax on profit).

A - General parameters :

- Total profit/total income = 33 %

- Total production cost = 7,52 S.F1/kg or 4,18 US $/kg with 75 % in foreign component.

B - Foreign currency balance :

- Input in foreign currency :	3,14 US $/kg
- Income in foreign currency :	6,26 US $/kg
- Earnings in foreign currency :	3,12 US $/kg
	of whole shrimp.

2.3. INTERNAL RATES OF RETURN

2.3.1. FIRR on total costs (local + foreign components)

The FIRR of the project including :

- The planning of costs (investment costs + operating costs) with their local and foreign component ;

- The planning of benefits (in foreign component as the product is exported).

is shown in the ANNEX 3 of the report.

The computed value is 26 %.

2.3.2. IRR of the foreign component

The IRR of the project in foreign currency including :

- The planning of costs (foreign component of the investment and operating costs) ;

- The planning of benefits (100 % in foreign currency).

is shown in the ANNEX 4 of the report.

The computed value is 64 %.

GROW OUT FARM : 500 HA

- Profit and loss account in standard year -

(In S.F1)

2.4. KEY ECONOMIC RATIO

2.4.1. Creation of direct employment

One farm with 500 ha of grow-out ponds covers a total surface of about 760 ha and creates 154 direct employments at the production level i.e. 0,20/ha of land.

That ratio does not include the created jobs at the construction level and the secondary jobs (induced) in various fields such as feed production, processing of shrimps, etc…

2.4.2. Total earnings of foreign currency at the national level

Considering that about 10 % of the processing cost will be earned in foreign currency ; the total profit in foreign currency with one kg of whole shrimp will be : 3,17 US $/kg.

Formula : 1 kg × 3,12 US $/kg + 1 kg × 0,67 (1) × 0,7 US $/kg × 10 %

Nota : The transportation cost (SURINAME - USA) is not considered as paid in foreign currency.

⁽¹⁾ : % of tail weight in total weight.

3 - FINANCIAL AND ECONOMIC ANALYSIS OF A 50 ha GROW-OUT FARM

3.1. MAIN CHARACTERISTICS OF THE FARM

3.1.1. Required facilities : (see details in ANNEX 5)

The farm is composed with :

- 50 ha of grow-out ponds (10 ha each) ;

- 2 ha of pregrowing ponds (1 ha each) ;

- One pumping station ;

- One operation building ;

- Housings for staff ;

- The required equipments, vehicles and boats.

3.1.2. Implementation planning : (see following pose : construction and production planning)

- The farm will be implemented in one phase only and the total implementation period will last 2 years (one dry reason to prepare the land and one dry season to build the facilities).

- The evolution of the production parameters and the staff recruitment planning will be adapted to the implementation planning.

3.1.3. Main production parameters :

- The values of the parameters and their progressive evolution are similar to those already described for one farm of 500 ha in section IV.213.

3.2. PRODUCTION COST AND PROFIT IN STANDARD YEAR

3.2.1. Investment and depreciation costs of the farm

Total investment costs and depreciation costs are shown on the following table.

GROWING FARM : 50 ha

File: SOPLANG
SEMI-INDUSTRIAL SHRIMP FARM (50 ha):
CONSTRUCTION and PRODUCTION PLANNING

3.2.2. Profit and loss account in standard year

The details are shown in the table of the following page. Alike for the 500 ha farm, the calculations are done without financial costs and tax on profit.

The following main ratio are considered.

A - General parameters :

- Total profit/total income : 23,5 %

- Total production cost : 8,61 S.F1/kg or 4,8 US $ with 71 % in foreign currency.

B - Foreign currency balance :

- Input in foreign currency :	3,40 US $/kg
- Income in foreign currency :	6,26 US $/kg
- Earnings in foreign currency :	2,86 US $/kg of whole shrimp.

3.3. INTERNAL RATES OF RETURN

3.3.1. FIRR on total costs (Local and foreign components)

The details of the calculation of the FIRR are shown in ANNEX 6 of the report.

The computed value is 17 %.

GROW OUT FARM : 500 HA

- Profit and loss account in standard year -

(In S.F1)

3.3.2. IRR of the foreign component

The details of the calculation of the IRR in foreign component are shown in ANNEX 7 of the report.

The computed value is 53 %.

3.4. KEY ECONOMIC RATIO

3.4.1. Creation of direct employment :

One farm of 50 ha of grow-out ponds covers about 76 ha of land and creates 21 direct employments at the production level i.e. 0,28/ha of land. Alike for a farm of 500 ha, that ratio includes neither the jobs at the construction level nor the secondary jobs (induced jobs in other activities).

3.4.2. Total earnings of foreign currency at the national level

- The total profit in foreign currency with one kg of head-on produced shrimp will be : 2,9 US $/kg

Formula : 1 kg × 2,86 US $/kg + 1 kg × 0,67 × 0,7 US $/kg × 10 %

4 - PERSPECTIVES OF DEVELOPMENT AND POTENTIAL IMPACT OF MARINE SHRIMP CULTURE IN SURINAME

The main financial and economic characteristics of one industrial farm (500 ha of ponds) and one semi-industrial one (50 ha of ponds) are shown on the following page. The analysis of that table leads to make the following comments :

4.1. PROFITABILITY OF MARINE SHRIMP CULTURE IN SURINAME FOR PRIVATE INVESTORS

Marine shrimp culture will be highly profitable in SURINAME with a financial internal rate of return ranging between 17 % for semi-industrial farm (50 ha) and 26 % for industrial farms (500 ha). Such an internal rate of return should be very attractive for the investors as the present interest rates in Suriname are about 10 %. In addition, even the total dependence from abroad for the supply of juveniles is easily borne by the activity (in financial terms).

For instance : as a basic hypothesis the considered import price for juveniles is 10 US $/1 000 P.L. Provided that price be doubled the FIRR of a 500 ha farm should fall from 26 % to 16 %. It means the industrial farms still remain profitable, on a financial point of view.

However, as regards the smaller farms (for instance one 50 ha farm), they are far more sensitive to the variation of several parameters such as selling and juveniles prices.

For instance :

- If selling prices decrease by 10 %, the FIRR falls from 17 % to 9,5 % ;

- If the P.L. price is doubled (from 10 US $ to 20 US $/ 1 000 P.L.). The FIRR falls from 17 % to 4,5 %.

Under these conditions, the activity is no longer profitable for semi-industrial farms in Suriname.

COMPARISON OF THE KEY FINANCIAL AND ECONOMIC PARAMETERS
BETWEEN A 500 HA GROW-OUT FARM AND A 50 HA GROW-OUT FARM

(1) Depreciation cost included and financial costs not included
(2) At a national level, including earnings on processing cost.

In conclusion, there are large perspectives of profit for marine shrimp culture in SURINAME and it is advised to the potential investors to see big and not too small. A size of 250–300 ha of ponds seems to be a minimum objective to be financially solid and competitive on the international market.

4.2. POTENTIAL IMPACT OF MARINE SHRIMP CULTURE FOR THE COUNTRY

A - Earnings of foreign currency

The activity is highly profitable as regards earnings of foreign currency. For instance the IRR on foreign component ranges between 64 % and 53 % and the earnings of foreign currency per kg of produced shrimp are about 3 US $/kg.

Provided about 30.000 ha of land be utilized, on long term, for shrimp culture (ref. section III 2.2.2.) they could allow every year a production of 55 000 tons of shrimps and about 165 millions US $ (30.000 ha × 0,73 × 2 500 kg/ha/year × 3 US $/kg) of earnings in foreign currency.

B - Created jobs at the production level

Provided 30.000 ha be utilized for shrimp culture on long term, about 6 000 jobs would be created for the operation of the farms.

It must be pointed of out that are not included :

- The created jobs for the construction of the farms ;

- The induced jobs as regards feed production, processing, etc…