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 ~fa rine 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, Oce-
anic 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 •t U ••H H HH••••••••••••••a ut.u .... ,.,.,. ........ ., 3

R~~ml ts ................................ ,. ....... 11 . . . . . . . . 1 . . . . . . . . ,.. ,. • • • l l l l f o l l l l · · · .. . . . . . . . . . . . . .- . . . . . . .. . , ...... , , , , , , , , , , , , . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . .... ................ 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-ussiu n .. .. .... ., ...........

1
P" . . . . . . . .,. ,. .. .... , , , . , ....... . . . . . . . . . . . . . . . ...... . . . ., . . ........... . .............. , , , . . . . . . . . . . . . . . . . ... . . . . . . . . . I , . . . . . .. . . . . . . . . . . . .. .. . . . . . . . .. .. 8

. .t\.cJk flO\\'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 ,o f
ro~e, tMJor. sex, natN!nal e>riglo, h al'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 C~ro:Iina..............................................................
1
a ...... .... .. .... ..... i. ..... . . ..... .... .. .. . .. .. .. ............... '! .. "!'"""'"'""'!"! ,., t I t rf'rr••r ....... . . ... ............ 5

.2. Major base -case .financial and opern~fonaJI assumptions for a South Ca.mli.n a shrimp
ha:t.checy . ._.......__ ................ ...... . 1. . . . .. . .. .. 1. . . . . . . . . .. ...... . . . . . .. 1.1o1• 1 '" " "'- 1 11 ...... . . . .......... . i.i.a.l .L o.--............................................. 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.a e (PL)
outp ut and PL market pric:es. f'or a. h.ypo thetical m~rine ~hrimp
hatchery i n South Ca.rol.ina .. ... .......................... ............... u••••u••···········. 9 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 11 . . . . ....

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'tiia-
ti o.n. on the finandal feasibility of operat.
ing a oommtll'"cial penaeid shrimp
l~rvkul·ture facility located in South
Carolina (SC). 'rhe-0bj ective of this :re-
port 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 i n
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.e rall 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 75. .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 i n feed cost changes,
Based. on this preliminary a.rutlysis.
the n@gati ve NPV for t-he base case out-
put 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
p ost.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), integrat-
ing a marine shrimp nu_rsery and/or
grow-out op-e:ration with a. hatchery fodl-
ity.
The futur.e demand fut PL ·p roduced in
SC is uncertain. Da-.spit~ this uncertain-
ty. a co.mmer..cial hatchery loca.tied in
South 08.'J'(llina may bavo several advan-
bl,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!;iSibil-
ity of developing a specialty .rnatket for
Pen.au.es setifer-us PL, .un indigenous
species.I' :{'Urchased by SC live bait fann-
an>. 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 e ar $1.5 million. The profit-ability
of SC's commercial shrimp businesses is
dependent. upon many factors including
the .availability ·o f \"iahlc po.st.larvae (PL}
at a oompetitiva price. There is currently
I
(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
.s hrimp. During May and J tme, SC
shrimp farmers purchase PL's from com-
mercial out-.ofp.state hat.cheri.cs and/or-
sruall 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
h ave increased in recent years regarding
or
the pcrce-i ved impacts Canning nnn-
inclig~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 1oommer-
rial f ann productiorL ConYquently, i;1s
c;onc.:e~ have increased , 11eseareh has
b€en conducted to examine the t.ecluucal
and financial foosibility ,o f 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 informa-
tion. on the fin.ancia1 feasibiHty of a com-
mercial 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.v e analyzed the financial feasi bility 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,r ojected ~n orde1' to estimate
acc0-untiog profitability, return on equity
capital, and ne.t pr,e sent 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 predomi nant 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.p acity of thls hypotheti·
ca1 ha:tch~ry is the "o])timalll' design and/
or capa.c,.-1.ty fur South Carolina with re-
ga__rd t_,g. economies of scale O!t other con..~d­
crations (,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'>efabrir
,...~ted steel bui]diog Vli.th an overall ar,ca
of about 13,300 ft.2U'ig. 1). T h.e1eo~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 steril-
ization. The salt.watel" heating ·}~tem
would ind ude one titanium heat ex·
ch11rig'f;tl" for each storage tank and an
e]eettic fTesh water boilel'. Costs for the
solt..watcr rut.ration an.d heating $}"Stam
~re ~sed upon estift'L9.~~ :&om CQmmer·
cial vendors.
PRODUCTION ASSUMPTIONS
Production asswnption.~ .are summa-
rfaed in T~bie L These data were used in
estimating a base case PL ou.tput of 75
milJion over a nina month period. If lhe
annual PL purcllas~& hy SC fiTOwers is
about 45 million PL~ this hatchery could
produce appronmatcly 38%, 17 PL mil-
lion,. during" iiUli 8 W$ftk period. It is .as-
sumed 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 .spawn-
ing rate of 2~ par- night IT.able 1 ). In the
LR h mke, 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 as-
sumptions air~ prov.iidQ.(] in Table 2. The
am ue1 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.
' T1be semit: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
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
andior 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. &ellers 2•
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 bui hling housing the fac.ility
wou1cl ce>mpri se 38% of the total equip-
ment and construction costs. $568,820. ln
rontrast, maturation and hatchery equip-
ment, mainly tanks, would repr~sent
 Broodstock - anks

t>latl.laton Tarks

00000
c

00000 ---

0 0 0 0 ,. ~
~
r-
!»
6"
0 0 0 o~
r
~ ~
m
J!
0 0 0 o•J~
"<;.

~
~
~
~ ~ lR
~ ~

0 0 0 0 F\tc ;\gae
- ~d
Qai
~- Q
2· SD
~
Ak;ne Ptoc:U;befi
""Jae Rese\ti" -~~ 1 i ..

. ' 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 hatcli-
ery 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:~% ·o f 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
S ubtotal: $ 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.o r. 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 Annu al Production:

Hatchery (PL's in Thousands) 75,000
Maturation (Nauplli in Thousands) 150,000

(In Thousands)
Prpjected Annual Sa}es: $675

Projected Expens es Percent of:

~ ~
Fuel & Utilities $107.4 16% 20%
Feed 111.6 l7% 21%
Broodst.ock Purchases 20.0 3% 4%
Hourly Wagos' 98.8 l5% 18%
Salaries' 120.0 18% 22%
Chemicals 16.7 2% 3%
Other Supplies 10.1 1% 2%
Contingencies 12.l 2% 2%
Depre,iation 43.l 6% 8%

$539.8

Prqie<:-ted Taxable; Income;: $135.2

Estimated Inoomr. Taxes·

Projected lncome After Taxes:

Discounted Cash F1ow At1alysis2

JO.Year Projected Intern.a] Rate of Return: 16.9%

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

~ l a WI!' 25%

JQ. Year Net. Present Value: ±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
 10 PERATDIG COSTS
Total ruintlal prnjoct.ed operating l!'.11:-
penses for 75 million Pllyr. output was
$539,800 including depreciati·o n 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 feed-
ing , comprised about 21 % 1:1-f pI1ojectced
Qperation cxpcns-cs {Table 4).
PROJECTED NRT COME AND
DISCOUNTED CASH FLOW
1
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 sel1e ded
variablei; (Table 6) suggests that the
Jl'i'Ojecred IRR atld NPV are ttl!Ooo aensi-
tive to relative changes in PL output and
market prices than feed cost changes.
For ex.ample, e G%increase in the selling
1
Tbe befm-e t..u !IRK for- tho base ca&e i& 24~, and the before ~ NPV irn:n:ucs. t.o ${8 1000 at. a 20%- dis-
ttiun1. ~ Most analyst wouJd make the~ tax clho;iu,nt r.itc bjgher than the aft.er tu di!U':o1.ml mte.
8
price of PL to, $9.5011.000 or- a 5% in·
1
crease in PL out1nrt wowd :increase the
pr<ij€!1~d IBR about 6 peroenta.g~ points
(Ta.hie 5), while a 10% decrettse in feed
·costs would only rff.ull in a a.bout a 2
percentage point increase- in the IRR.
DISCUSSION
In ili:i5 pre'1min.a.ry analysis, th~
netatii.re NPV for the base C3S4 outpuL of
75 million PL for nine months does indi·
cate tha:t this operation would !!Qt gener-
ate .a post:iivc return om equity if potentiaJ
iavcs.to:rs only har.ed their investment
upon a required r-a:t.ie of return of 20% or
moJ1e aft.er income taxes. The fieniiitivity
analysis results sugges1 that increasing
PL output by 5% relative to the base ~
would re~ult in. an IRR exceeding 20~
(T'aihle 5}. :ln add ition, the profitability of
a SC ibascdl ha.tebary might be :improved
by expanding k!tal annual PL ontplllt by
i ncf'\easing operating mo.nt.hs andfi:>?"
capacity. The fincmciQI r~.asibility of
operating a larger facility noods to be
investigated. For P.xample, Johns et al.
(1981) has. shov.r-n tbat the ten-year .NPV
ptojcctc:d for Te:Xas :hatcheries should
increiu.e "''11h s.ca1e andl/o r o])erating
months.
Even if monthly output of :a SC haech-
ery was expanded, the future demand for
PL by SC growers will be cri t.ical to those
co.nei.dering tbe financial feas ibility af
funding ~lild opera:li:ng a commereirJ
hait..chery in SC. A recent. study predicted
that SC PL demand c::ould. reaeb 75 mil·
lion }l J./year by 1997 (Rh.ode$, 1992).
This p-rediction is partially based upe>n
~sion plans for a 160·acres s.hrlmp
farm on Rdisto rstand . It is not Clltrently
 (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 feasibil-
ity 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 want-
ing to grow-out CDarine sb.ri.rop in the US.
In contrast to the fuv.ire demand
uncertainty, a commercial hatchery lo-
cated in South Carolina may have several
marketing advan~s compared to
hat.cherieit in other states or countries.
SC shrirop farmers may prefer SC pro-
d·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> nm

Feed Cost:l
!nCNaSed 10% -$75 15.2%
Base Case ·S49 16.9%
Decreased 10% -$23 18.6%
Decreased 20% +$2 20.1%
Decreased 3 0% +$28 21.7%

Et. il11tD11i !Mil1is:t1Jal;

82.5 x 10' (10%) +$86 24.9%
78.8 x 10• (5%) +$24 21.5%
75.0 X IO' (Base Case) -$49 16.9%
71.3 x 10' (·5%) ·$105 13.0%
x
67.5 10'<· 10%) ·$163 8.4%

J;!I, Prjce/1,000:
$8.00 -$244 0.8%
$8.50 -$147 10.0%
S 9.00 (Base Cose) -$ 49 16.9%
$9.50 +$49 22.9%
$10.00 +$146 28.2%

i Percent chaog~ r\l l ati ~·e to the base case of"'Feed'" expenses.
9
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.
• 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
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 Agricul-
tun 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;h ery 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.
Lawrenoo, A.L. and Huner. J.V. :UJB7.
Pcnacid shrimp ,c ulban 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 prn-
duetion: 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 .
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.

McVe:y.• J.P. and J .M. Fox. 1983. H~kh­

ery tech:rliq11!1elii fl1'1f' petLP.eid shrimp·
1

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.g s by The H !lcbea Feasibfl·

11
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