Adeogun, A.O.

Jim-Saiki, L.O.

Ogunbadejo, H.K.

English

Aquatic Commons

A METHODOLOGY FOR ECONOMICS OF ASH CULTURE N NIGERIA:
CASE STUDY OF TWO ASH FARMS N LAGOS STATE
Ogunbadejo, H.K, Jim-Saiki, L.O. and Adeogun, A 0.
Nigerian Institute for Oceanography and Marine Research,
Victoria Is/rind, RMB 12729, Mari,ui Lagos
ABSTRACT
his paper deals with cost structure and financial analysis ofAmeso and Kaboom fish farm projects inI Lagos State. During the period under study, (year 2000), Ameso fish farm's return on total asset was
86.1% while total asset turn over was 1.6. For Kaboorn fish farm, return on total asset was 50.9% whereas
total asset turn over was 1.1. Profit (after tax at 35%) ofNl 92, 523.87 and N293, 738.09 were realized by
the fish farms respectively. The percentage of net profit to gross revenue was 3 5.7% and 27.7%, while the
ratio of net profit to variable cost were 1.9:1 and 1.5:1 forAmeso and Kaboom fish farms respectively.
INTRODUCTION
With the present fish demand in Nigeria of about 1.5
million tons and domestics productions of about 0.5
million tons (Arnienghexne, 2002), a critical
percentage of shortfall already exists. Reliance on
fish importation to offset the gap between demand
and supply has not been an easy road to tread. This
is due to the declining value of the naira in the
ibreign markets, the dwindling foreign exchange
earnings and the increasing population of Nigeria.
It becomes necessary to look "inward" for other
processes of increasing domestic fish production
towards achieving self-sufficiency and food
security for Nigeria. Fish farming, a process of
increasing domestic fish production is also an
efficient means of producing animal protein. Its
role in improving human diet was well as
generating rural employment has been recognized
and is being pursued in Nigeria and most African
countries (Arowosoge et al, 1986). Generally, the
fishing industry in Nigeria is expected to serve as a
source of domestically produced food, a role that is
vital in the process of seeking not only balanced
diet, but also balanced economic development.
The objective of a project depends on the point of
view of the entity for which the project is
131
undertaken. The over-riding objective of a
private fish farmer is profit maximization.
Therefore, its economic viability is a very
important requirement for the adoption of fish
farm project for economic benefits.
METHODOLOGY
This study was based on two selected fish farms
in Lagos State. These are Ameso and Kaboom
fish farms in Ikorodu and Epe respectively. Field
surveys were conducted and further information
was gathered by use of questionnaires, interviews
and compilation from the records of the two
farms.
The output Structure: The output from a fish farm
project is a function of the inputs applied in the
production process. The level of output depends
on environmental factors (soil, pH, water salinity,
etc), stocking rate, supplementary inputs (feed,
fertilizer, etc), labour, managerial expertise and
the underlying technology used (Smith, 1981).
The relationship between inputs and outputs is
commonly referred to as the production function.
The general mathematical form of production is:
Y = f(L, K, F); where Y = Output, L = Labour, K =
Capital and F = Feed.
Output is a function of variable and fixed inputs.
Fish farmers will maximize profits if limited
resources (e.g. capital) is optimally utilized such
that the marginal returns from the various activities
are equal. In this way, the opportunity cost of
capital (i.e. the cost of the alternative forgone) does
not exceed its value in the use chosen.
The Cost Function: The cost of production of any
enterprise is measured in terms of the total fixed
and total variable costs (Akinwumi 1970 &
Olayide et al 1982). The fixed cost as the name
implies does not, change with the level of
production in the short run. The cost of producing
one unit of output normally depends on the price of
the factors used and the scale of the producing
enterprise (Olayide eta! 1982). The variable cost is
expenditure that is actually incurred in the course
of production and this varies with the quantity
produced. In this case, cost of fingerlings, fish
feed, salaries and wages, etc. The total cost (TC)
TC=TVC+TFC
Where TVC Total Variable Cost and TFC Total Fixed Cost
(2.1).
A production function can be derived, if the total cost is expressed as a function output since; cost is a mirror
image of the production function (Tisdel 1972). This can be stated as:
TC = TC(Q) (2.2)
When equation (2.2) is made explicit, the marginal cost can be derived. The marginal cost and marginal
revenue are important production economic parameters for deriving the necessary and sufficient profit
maximization condition of the firm (Koutsoyannis 1985).
The Revenue Function: The total revenue (TR) is the total receipt from the sale of the firm's products. It is
the product of price (P) and the output (Q). This can be represented as follows:
TRPxQ(i.e.P(Q) (2.3)
But price, from economic theory, usually varies with the level of output. When price is made a function of
output, we obtain the demand function thus: P = D = P(Q) (2.4)
Substituting equation (2.4) into (2.3) we have TR P (Q)xQ (2.5)
The Profit (rr) Maximisation Condition: The profit/loss is the different between receipts and costs
and this can be expressed asr = TR IC (2.6)
Where 'ii = Profit/loss. IR >TC = Profit; TR <IC = Loss. Substituting, profit becomes n
P(Q)xQ (2.7)
Partial differentiation of equation (2.7) with respect to output (Q) as we have:
?/dQ = dTR(Q)/dQ dTC/dQ = 0 (2.8)
Then we have MR MC 0. The necessary condition for profit maximization is when MR =m MC.
132
Break-even Analysis: Break even occurs when total revenue equals total cost. That is, when the
firm makes zero proflt In break-even analysis, the break even sales in naira or units is
determined. From equation * (2.6), ii TR TO.
WhenTR TC>O (profit); TR TC<O (loss); TR TC =)(break even).
But R. RQ. where R Revenue. P = Price per unit and Q Number of units sold
C = Mq + b Where C Cost, iii variable cost per unit, q number of units produced and b fixed cost.
Mathematically, we can substitute in equation 2.6 as follows:
rr=IR-C
=Pq (rnq+b)
-Pq mq b
q(P-m) bO
At break-even point, profit equals zero i.e., Q(P-rn)-h0 q-(P-m) = b or q = P-rn
Where q is the break even quantity and Pq mqis known as coridtribution (i.e. sales variable cost).
RESULTS AND DISCuSSION
Financial Analylsis for Year 2000 — 2003: Ameso and Kaboom Fish Farms
Ameso
Acquisition of land
Surveying (topographic)
Sub-Total
Kaboom
(2 plots) 100,000
32,500
132,500
(3 plots) 240,000
50,000
290,000
Pond Construction:
(i) Land clearing
(ii) Concrete Ponds (construction)
(iii) Earthen ponds (construction
Sub-total
15,000
120,000 2(3OxlOm)
135
22,000
180,000) 5 x Sm
4 x 4m
8 x Sm
180,000) 2nos
370,000
1niiinrn ent/Plant
(a) Nets 20,000 20,000
(b) Rakes, cutlasses, shovels 1,500 2,500
(c) Weighing Balances 10000 10,500
(d) Pumping machines (5HP) - 40000
(e) Deep Freezer
Sub-total 51,500
20,000
9&000
25,000
133
Farm Managemdflt
Farm Manager (salary PA) - 84,000
FarrnAttendant(PA) 60,000 60,000
Fishermen (wages/labour) 10,000 40,000
Pre-operational expenses 20,000 30,300
Fuel & other expenses 28,100 50,000
Sub-total 118100 264,300
thration..l Cost
(a) Fishery Sector
Fingerlings (4,500 @ N10) 45,000 56,200 7025 @ N8
(b) Feeds 1 bag of 25kg/month 14,400 18,000 (10 months)
(c) Fertilizers 2 npk bags 3,500 3,500
Sub-total 82,900 77,700
Re yen tie:
Clarias:- 2.7 tons (N20 0/kg) = N540,000 (5.3t @ N200/kg) N1,060,000
Cost, Revenue and Returns:
Variable cost Ameso Kaboorn
Fingerlings 45,000 56,200
Feeds 14,400 18,000
Fertiliser 3,500 3,500
Hired labour 10,000 40,000
Fuel & other expenses 28,100 80,300
Total Variable Cost 102,000 198,000
134
Fixed Cost
Arnortisation 225,409.84
Depreciation of poonds & tanks (7yrs) 17,142.86 51,428.57
Depreciation of facilities (3yrs) 17,166.67 32,666.67
Land clearing/surveying 47,500 72.000
Salary 60,000 144,000
Totai 141,809.5 496,105.08
Total cost (Fc+Vc) 243,809.53 694,105.08
Gross Revenue 540,000 1,060,000
Returns
Operating profit 438,000 862,000
Net income 296,190.47 365,894.92
Net profit 192,523.81 237,831.70
Return on capital investment 3 8.5% 22.4%
Return ontotal assets 86.1% 50.9%
Total. asset turn over 1.6% 1.1%
a. Operating profit Gross revenue— Variable cost
b. Return on total assets PBIT/Total Asset x 100
c. Total asset turn over Sales/total Assets
PROFIT AND LOSS ACCOUNT
Ameso Kaboom
Sales
Fish (A) 540,000 1,060,000
Direct Cost of Production:
Fingerlings 45,000 56,200
Feed 14,400 . 18,000
Fertilizer 3,500 3,500
Hired labour 10,000 40,000
Sub total (,B) 72,900 117,700
Indirect Cost of Productioli:
Sales 60,000 i44000
Depreciation 34,309.53 84,095.24
Other expenses 76,600 152,300
interest on Loan 110,000
Sub total (c) 170,909.53 490,395.24
135
Profit before tax A-(B±C) 296,190.47 451,904.76
Less tax @ 35% 103,666.66 158,166.67
Profit after tax 192,523.87 293,738.09
ROCE 38.5% 26.7%
% of net profit to gross revenue 27.7
Ratio of net profit to variable cost 1.9:1 1.5:1
Loan Amortisation:
P = A[1 (1+I)]/I where P = Principal, I = Interest, N = Number of years, A loan
armortisation.
If P 440,000, I = 25%, n = 3 years, then
440,000 A1 (l+25y3].25
440,000 = A (1.952)
A = 440,000/1.952 = N225,409.84
Loan Amortisation schedule: (Kaboom Farm)
Year Principal amt
owing b/f
Interest @
25% P.A.
Installment
Payment
Principal
Payment
Principal
Amount
owing c/f
1 440,000 110,000 225,409.84 115,409.84 324,590.06
2 324,590.16 81,147.54 225,409.84 144262.3 180,327.86
3 180,327.86 45,081.97 225,409.84 180,327.86 -
Economic Analysis
R = Pq Ameso Kaboom
= 200 x 2.7 tons 540,000 1,00060,000
C=mq+b
= 102,000 + 141,809.53 243,809.53 694,105.08
Profit R—C
Rq — (mq±b) 296,190.47 365,894.92
Break even Analysis
Arneso Kaboom
Sales 200 200
Variable cost 38 37
Contribution 162 163
Total break even Fixed Cost 241,809.5' 736,105.08
Contribution 162 163
1,492.65kg 4,515.98kg
136
Opportunity Cost
Opportunity cost is the benefit that would have
obtained, if the resources used for the project had
been used for alternative investment available else
where in the economy. The total amount of funds
committed into the project by Ameso farms was
N500,000. If placed with a reputable bank at 15%
rate of interest compounded half yearly, using the
2nformular: FV = P(1+r/n)
Where FV = Future value, P Principal, r = ratae
of interest and n = numberof year.
The investment could have generated the sum of
N77,812.50k per annum. While Kaboom farms
would have generated about N102,712.50 per
annum.
SUMMARY AND CONCLUSION
The size of farm was hypothesized to play an
important role in farm success because it reflects
availability of capital, access to credit and
managerial ability. The sampled farms were small.
Also, experience was thought to be a determinant of
profitability in fish culture because experience
REFERENCES
would allow the farmers to adjust to changing
economic condition and adopt the most efficient
culture practice. The availability of funds or credit
at low rate of interest and technical knowledge and
skill holds the key to successful fish culture in
Nigeria.
Koutsoyianus, A. (1985) Modern Micro-economics. 2 Edition E.L.B .S/Macmillan, Hong Kong 581 p.
Olayide, S. 0. and Heady, e. 0. (1982) Introduction to Agricultural Production Economics, University of
Ibadan Press, Nigeria. P319.
Olowe R A (1997) Financial Management Concepts,Analysis and Capital Investments iefly Jones
Nigeria Limited, Lagos.
Smith Law, R. (1981) Micro-economics of Existing Aquacultirc Production Systems.
Basic Concepts and Definitions. Proceedings of a Workshop held in Singapore 2 5 June, 1981.
Tisde], C. A. (1972)Microeconomics: the Theory of Economics ofAllocation. John Widey And S on s,
New York P. 242.
137



A methodology for economics of fish culture in Nigeria: case study of two fish farms in Lagos State

http://aquaticcommons.org/867/1/FISON2003_131-137.pdf

A methodology for economics of fish culture in Nigeria: case study of two fish farms in Lagos State

Abstract

Similar works

Full text

Available Versions

Aquatic Commons