A Feasibility study of the proposed mullet farm in Vava'u, Tonga › bitstream › 10125 › ... · 2020-06-27 · A FEASIBILITY STUDY OF THE PROPOSED MULLET F RN IN VAVA' U, 'It

PIDPPacific Islands Development Program

A FEASIBILITY STUDY OF THEPRDP3SID MULLET FARM IN VAVA' U, MUNGA

QQEast-West Center • 1777 East-We,1 Road • Burns Hall. R@um 4028 • Honolulu. Hawaii 96848

A FEASIBILITY STUDY OF THEPROPOSED MULLET F RN IN VAVA' U, 'It A

Submitted to:

Fisheries DivisionMinistry of Agriculture, Fisheries and Forests

Kingdom of Tonga

Submitted 0y:

Pacific Islands Deve1opent ProgramEast-West Centerbonolulu, Hawaii

December 1983

Table Q. LrIL

age

Listof Tables .......................................... iv

Listof Figures ......................................... v

I. Lv ODUC'ION ............................................ 1

I I. PROJECT BA(-i0rRXM ........................ .............. 2

III. SITE îAFACTF^.ISTICS ..................... ............... 5

Physical Characteristics ........................... 5Current Land Uses ................................... 10Natural Forces ...................................... 10

IV. MAR.KE'T CONSIDERATIONS ................................... 14

Local Market ...... ................................... 14International Market ................................ 14Elasticity of Denand ................................ 15

V. DE<TIIIOPh1h'T OPTIONS ..................................... 16

Mullet Culture Options .............................. 16Size of Operation ................................... 17

VI. FIXED ASSETS AND THEIR COST'S ............................ 18

FarrnFacilities ........................ 18Road Construction Costs .................. 18Pond Design and Construction ........................ 18Utilities ........................................... 24Fixed Assets Srrnary ................................ 26

VII. \T RIABLE COST'S .......................................... 30

Feeds ............................................... 30Fertilizers ............606.6 ........................ 30FryCollection ........................6666.......... 32Fuel ................................................ 33Manpower ............................................ 33Utilities........................... ................. 33

VIII. PRODUQ'ION .ATZ3 RE VENUE L TIMATE.S ........................ 38

IX. THE FARM BUDGET ......................................... 40

X • E I R.E Ch ITALJ .. . .. . . .... .. . . .. . . . . . . . . . . . . . ... . . . . . . . 43

iiPacific Islands Development ProgramEast-West Center

C

XI. FINANCIAL ANALYSIS •........................•........••. 45

Balance Sheet ....................................... 45Ir^coiee Statement .................................... 45Cash F1Cw Analysis .................................. 49

XI I. SUM, ^1. RY AND CONCLUSIONS ................................. 54

XIII. REFERBNCFS CITED ........................................ 57

in.Pacific Islands Development ProgranEast—test Center

List t Tb1es

1. Storm Occurrence in Tonga ............................. 11

2. Facility Construction Cost Estimates at Vava'u ........ 19

Pacific Islands Development ProgramEast-West Center

iv

List Qf Figures

Was A•

1. Map of Vava'u, Tonga .................................... 6

2. Map of Proposed Mullet Farm Site on Vava'u, Tonga ....... 7

3. Tidal Level Extremes for Neiafu, Tonga (1981) ........... 8

4. Range of Tidal Changes for Neiafu, Tonga (1981) ......... 9

5. Cost Estiirates of Concrete .............................. 20

6. Equipment Rental Rates and Road Construction Estimates .. 21

7. Crude Soil Movement and Sluice GateConstruction Estimates .............................. 23

8. Associated Utility Installation Costs ................... 25

9. Construction and Initial DevelopmentCosts .............. 27

10. Equipment Costs for Initial Development ................. 28

11. Depreciation of Fixed Assets ............................ 29

12. Potential Fish Feed Sources and Feed UsageCost Estimates ...................................... 31

13. Estimates of Fry Stocking Costs and Re quirements ........ 34

14. Annual Fuel, Oil, Labor, and Electrical Cost Estimates .. 35

15. Estimated Variable Utility Costs ........................ 36

16. Production and Revenue Estimates ........................ 39

17. Budget for Proposed Mullet Farm (T$) .................... 41

18. Capital Recovery on Bank Note .... ..............,........ 46

19. opening Day Pro Forma Balance Sheet ..................... 47

20. Year 1 Pro Forms Income Statement ....................... 48

21. End of Year 1 Pro Forma Balance Sheet ................... 50

22. Year 1 Cash Flow for 10 ha Farm, AssumingAllSales Made in Month 12 .......................... 51

23. Year 2 Cash Flora For 10 ha Farm, AssumingThree harvests During the Year ...................... 52

vPacific Islands Develop'nent ProgramEast-West Center

The Pacific Islands Development Program (PIDP) has been mandated by

the Standing Car nittee of the Pacific Islands Conference of 1980 to examine

aguaculture in the Pacific Islands region. Its initial efforts included

compiling reviews on aquaculture project in the region. The second phase

was to develop two case studies on specific aquaculture projects in the

region. The Eaitfish Farm in Tarawa, Kiribati was the first case study.

Tonga was identified as the location of the second.

Tonga case study was designed to complstient activities of both the

Government of Tonga and PIDP. The Government of Tonga had been considering

initiating an aquaculture project for several years but desired more

0 information prior to an actual commitment. PIDP, on the other hand,

desired real data as a basis for its aquaculture case study.

Communication and discussions with the Tonga Fisheries Division

resulted in the identification of a specific project that would benefit

both parties. The project identified was a proposed 200 ha mullet farm in

Vava' U.

As a result of these discussions, PIDP, with the support of the Tonga

Fisheries Division, initiated this feasibility study.

Pacific Islands Developaent ProgramEast-West Center

El

II. PJECT BAS ^^D{Jh'C

Since 1979, the Government of Tonga has been interestea in mullet

farming in Vava u (S. Fakahau, personal cormunication, 1983) . The

Goverment has sought aid and assistance in developing this concept, but

has not been able to secure any concrete support.

In March 1980, D. Popper, FAD/LNDP AAûaculture Expert, visited Vava' u

(letter dated 24 Peril 1980 from A. J. Hopson to the Principal Fisheries

Officer). Popper was to assess sites for molly and milkfish culture.

According to Hopson (letter cited above), the site could equally be

suitable for mullet culture.

Popper ioentif ied the mangrove area 2 km southwest of Le.imatu I a as the

most suitable site in Vava'u. Hopson (letter cited above) suggested that

the Prime Minister change the location of the proposed site from Ko1oa to

Vaipu'ua inlet.

In early 1980, the Prime Minister was to visit Hawaii (letter dated 24

March 1980 from T. T. Simiki to Principal Fisheries Officer) . One

objective of the trip was to persuade people in Hawaii to visit Tonga and

do a preliminary investigation on the possibility of raising mullet. The

proposed project site was a mud flat area in Vava'u that was exposed during

low tide and covered by .91 in of water during high tide.

In early 1980, the Prime Minister of Tonga visited the Oceanic

Institute in Hawaii and observed mullet farming (Savingracn dated 15 April

1980 from T. T. Simiki, Director of Agriculture, Fisheries and Forests) .

The Prime Minister directed the Fisheries Division to develop a project in

Vava'u between Tu'anekivale and Makave villages.

2Pacific Islands Development ProgramEast-West Center

In June 1980, R A. Shleser of Oceanic Institute (letter dated 13 June

1980 to Fisheries Division) indicated that if transport and per lien were

available, he could visit Tonga for preliminary investigation of runlet

farm potential.

In July 1980, A. J. Hopson, Fisheries Research Officer (letter dated 1

July 1980 to the Director of Agriculture, Fisheries and Forests), indicated

that he would visit Hawaii. His trip would be less expensive than

Shleser's proposed visit.

Also in July, A. J. Hopson noted (letter dated 7 July 1980 to the

Director of Agriculture) that it might be possible to arrange assistance in

mullet culture from West Germany with the help of Dr. U. S. Tschortnner.

In August 1980, W. A. Hole (letter dated 4 August 1980 to the Acting

Secretary to Government) requested monies for the Shleser visit. Later in

August, the Director of Agriculture, Fisheries and Forests (letter dated 15

August 1980 to Principal Fisheries Officer) requested a delay in the visit

from the Hawaii mullet experts. He also requested that Hopson put together

a preliminary economic evaluation of the proposed project.

In late August, A. J. Hopson (letter dated 22 August 1980 to R.

Shleser, Oceanic Institute) informed the Institute of his proposed visit on

14 and 15 October 1980.

The result of Hopson's visit was the acquisition of a mullet culture

film made by the Oceanic Institute. However, in a 20 March 1981 r o a

typographical error was discovered in the invoice. The film cost was $350,

not the $35 indicated on the invoice. As a result the film was not

purchased.

In March 1983, B. Hickson (letter dated 24 March 1983 to the Director

4 of Agriculture, Fisheries and Forests) noted several items that the


goverment could consider in aquaculture develogrient. They included:

1. the economic feasibility of raising fish for local markets;

2. the necessity of continued government subsidies; and

3. the current mariculture technical egertise already present in

Tonga.

In 1983, S. Fakahau presented a project description on the proposed

mullet farm in Vava' u. The project costs were estimated at T$2,000,000.

Funding for the project was to be requested from. the Government of Japan.

in July 1983, the Pacific Islands Le elognent Program (PIDP) obtained.

modest funding to develop an aquaculture case study in Tonga (letter dated

7 July 1983 from K. R. Uwate, PIDP, to Director of Agriculture) . With

cooperation from the Fisheries Division, it was decided that the PIDP

aquaculture case study be a feasibility study of the proposed mullet farm

in Vava I u.

Considerations for the proposed project outlined ty S. Fakahau,

Principal Fisheries Officer (personal comunication, 19 August 1983) ,

included the following situations:

1. the Government usually provides one time funding for projects;

2. projects usually run on a revolving account;

3. a five-year project with the Japanese was under negotiation; and

4. some areas should be kept in a native state.

The PIDP aquaculture tear of K. R. Uwate and P. Kunatuba visited Tonga

from 19 to 30 August 1983 to collect background materials for the study.

This report is the product of that study.

4Pacific Islands Development ProgramFit-West Center

III. SITE CHPD,ACTUPSTICS

The site iaentif led for the proposed project is a 200 ha (500 acre)

bay on the island of Vava' u. The bay is located about 6 km northeast of

the town of Neiafu (see Figure 1) .

Area estimates were completed by PIDP based on the Vava' u group base

map prepared by the British Ministry of Overseas Surveys (1975) .

Boundaries of the bay used in its area estimation include. the high water

mark of the bay, the causeway between Tu' anekivale and Holeva (Koloa

Island) , and an imaginary line between the villages of Houma and Koloa (see

Figure 2). Area estimates obtained, based on the "counting squares"

method, indicated that the bay had a water area of about 480 ha (about

1,200 acres) , not the 200 ha previously indicated.

The site is a tidal flat area with a channel running south in the

middle of the bay. The bottom is sand and gravel. The upper bay, however,

has a silt/mud bottom. Most of the bay is above water during low tide and

is subsequently submerged during periods of high tide.

Tidal information was examined for Nei a€ u, Vava'u (U.S. National

Oceans Survey 1981). Figure 3 illustrates the tidal level extremes in

1981. Extremes in tidal changes are presented in Figure 4. Tidal changes

range from about 0.5 m to 1.2 m in most months.

Along the edge of the bay is a mangrove area. In addition, the north

side of Koloa Island, which faces the bay, is also a mangrove area.

Acquisition costs are zero, since the land is owned by the Government.

The primary water supply to the proposed facility will be the ocean.

In addition, freshwater wells are available to provide a limited amount of

5Pacific Islands Developnent ProgramEast-West Center

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Figure 1. Map of Vava' u, Tonga

6Pacific Islands Development ProgrcnFast-Wert Center

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• KOLDA ISLANDKOLOA

1 km

Figure 2. Map of Proposed Mullet Farm Site on Vava' u, Tonga

Pacific Islands Deveiognent ProaraFit-West Center

7

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Figure 3. Tidal Level ExctrHnes for Neiafu, Tonga (1981)

J F M A M J J A S 0 N D

MONTH

8Pacific Islands Development ProgranFast-Wert Center

Figure 4. Rance of Tidal Changes for Neiafu, Tonga (1961)

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11

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=11

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1 F M q M 1 1 A S 0 N D

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9Pacific Islands Developrent ProgranEast-West Center

freshwater. Large quantities of fresh water are not critical to the

operation of this proposed facility.

Orrent land uses

In some places in Tonga, such as the Port of Refuge area adjacent to

Neiafu, there are government restrictions on the collection of seafood

(fish, clans, etc.) . No such restrictions exist on the proposed mullet

farm site.

The current use of the tidal flats area is limited to collection of

various seafood such as shellfish, seaweed, sea cucumber, jelly fish, and

crab (see Kunatuba and [7wate 1982b; tiwate and Kunatuba 1983c) . The seven

villages along the bay including Hourna, pia' akio, Ta' anea, pia' alaufuli,

Tu' anekivale, Holeva and Koloa use the bay as a source of seafood. In

addition, Leimatu' a and Holonga villages (by the airport) transport people

to the bay to collect various seafood.

Natural Forces

o Cyclones iStorms

According to Franco et al. (1982) hurricanes (cyclones) were the

most common natural disaster in Tonga. Tonga experienced a hurricane every

two to three years. According to Franco et al. (19M) , the hurricane

season was March to April. Image from hurricanes was usually minimal.

However, about once every five years the Kingdom exprienced heavy aamage.

According to Visae (1925), two to three storms visited the Tonga

region annually. Franco et al. (1982) noted that most storms traveled

east, southeast, or south when they reached Tonga; few traveled in a

westerly direction. Storm frequency is provided in Table 1.

10Pacific Islands Develognent ProgramEast-West Center

Table 1. Storm Occurrence in Tonga

0

Stcrrrs

January 16

February 7

March 16

April 6

May 1

June 0

July 0

August 0

September 0

October 0

November 4

December 3

Source: Franco et al. 1982.


o Storm Suge

Tonga also experiences storm surges, especially during cyclones.

Damage potential is large, especially in the outer areas. The proposed

farm area is partially sheltered. Damage from cyclones and stcrm surges is

considered possible.

The occurrence of drought conditions can be a potential problem to

water-based activities such as fish farming. June, July, and Decerber are

usually dry months. However, actual drought conditions are rare in Tonga.

Franco et al. (1982) noted that droughts have occurred in Tonga in 1926,

1930, 1951-53, and 1977-78.

Freshwater supplies are not critical to this proposed project,

since most water requirements can be met by lagoon and ocean water. In

addition, well water is abundant in Vava' u.

o Earthc_uake

Tonga is in an area of high seismic activity (Franco et al. 1982) .

Recent tremors include: October 1977, June 1980, 5epte nber 1981, and June

1982. Occasionally, damage has resulted from earthquakes.

o semi

Tonga has experienced tsunamis (Franco et gal. 1982) . Tsunamis

produced by earthquakes in the Tonga trench were reported in May 1917, June

1917, and April 1919.

o Volcano

Volcanic eruptions occur in Tonga. According to Franco et al.

(1982), eruptions have been experienced on the following islands: Late

(1854), Tofua (1906) , Falcon (1927) , Fonua Lei (1847, 1939, 1974) , and

12Pacific Islands Develognent ProgramFast-West Center

Nivafo'ou (1930, 1946) . Two of these islands (Late and Fonua Lei) are in

the Vava' u group. No active volcano, however, is on the island of Vava' u.

13Pacific Islands Development ProgrmEast-West Center

IV. MARKET ooNSIDE IONS

Mullet is considered a delicacy in Tonga (see Kunatuba and Uwate

1983a) . Mullet price is high compared with other fish. It can reach

T$2.50/kg at the retail level.

Mullet is supplied primarily by subsistence fishermen. Quantity

estimates of mullet to the local market are in the range of 110 mt/year.

Ex-vessel mullet price is T$0.95/kg at the Tonga Cooperative

Federation. Retail price at the Vuna market is T$1.40/kg. Mullet at this

market is priced at the same level as other fish. However, mullet sold

locally by individual fishermen could reach T$2.50/kg.

International Market

The international market for mullet is limited (see Kunatuba and Uwate

1983a) . Prices range from US$1.30 to US$2.10/kg, but markets were limited

to Saudi Arabia and Bahrain. These prices included cost and freight. The

product form was instant quick frozen whole fish.

Currently, Tonga has trade agreements with Australia and New Zealand

(SPARTECA) . These may be potential markets for mullet export, except that

both these countries are mullet exporters. Australia and New Zealand are

the primary suppliers of mullet imports to Hawaii.

Hawaii has a limited mullet market. However, mullet is not a high

valued fish in Hawaii. Its retail market price may reach US$4/kg.

Wholesale price may be half of this (US$2,/kg). Considering the T$0.95/kg

ex-vessel price, and freight and handling costs to Hawaii, export

possibility may exist. This is especially true if South Pacific Island

14Pacific Islands Development ProgramFast-West Center

Airways (SPIA) does not levy shipping charges for freight from Tonga to

Honolulu.

The other rr rketable forms include smoked mullet (snack-USA) or mullet

roe. Mullet roe is a valuable Japanese import which, when fully processed,

is called "karasLuni. "

Elasticity of Demand

In the marketing of most products, there exists a relationship between

price and quantity sold. As the price is increased, quantity sold

decreases. As the price is lowered, quantity sold is increased. How much

each changes in response to the other is referred to as the elasticity of

demand.

This price-quantity relationship may be relevant when considering

market response to farm production. If farm production is small compared

to current market volume, then no or little price adjustment may be

necessary at the market place. Thus the current ex-vessel price of

T$.95/kg may be maintained.

If farm production is a significant part (rrore than 10 percent) of

current local market vol e, then some price adjustment may be necessary in

order to sell all mullet in the market. Score price reduction may be

observed at the market place.

If farm production approaches current local market volume, dranatic

reduction of mullet prices may be observed at the market. These price

reductions may exceed 50 percent of current prices.

The exact response of price to incenses in quantity is defined as

elasticity. Its mathematical derivation is beyond the scope of this study.


Mullet farming has been a tradition in the Asian and the Mediterranean

areas (see Uwate and Kunatuba 1983 a) . It has also been attempted

throughout the Pacific Islands region (Lkaate and Kunatuba 1983b).

Several types of culture have been attempted at the experimental level

(pen, cage, and pond culture) , but commercial operations have been limited

to pond culture. in addition, fry supplies have limited expansion of this

industry.

Perfection of experimental culture techniques may be possible in

Tonga, given enough resources and time. However, in such a remote location

with limited resources, it may be more prudent to channel energies into

already successful culture systems (i.e., pond culture).

In addition, given the specific area identified for this project, cage

and pen culture may be impractical without significant capital input. As

noted in the site consideration section, much of the tidal flat area is dry

during low tides. For pen and cage culture to work, a certain minimal

water level is required. At this site, extensive excavation would be

required to create an area with adequate depth for pen and cage culture.

In consideration of the above, the only logical culture method that

will be considered here is pond culture.

Monoculture versus polyculture is another option that can be

considered. As noted in the background paper on mullet culture ( ate and

Kunatuba 1983 a) , mullet are often raised in polyculture with carp,

milkfish, and eel. Since this is a brackisb/rrarir water area, the carp

polyculture option is not available.

16Pacific Islands Development ProgranEast-West Center

It should be noted that milkfish compete for food with mullet; their

biological niches overlap. Since mullet market price is higher than that

of malkfish, to sacrifice mullet production for milkfish production would

be illogical.

Eel polyculture has also be considered. It should be noted that the

eel is carnivorous and requires a high animal protein diet. With its low

local market value and high feed conversion (7:1, 14:1) , the economic

success may be quite limited.

As a result of these polyculture considerations, the scenario to be

considered here will be a monoculture pond operation.

Pquaculture ventures, as with most other industries, may benefit from

scales of economy. In other words, the venture may have cost advantages of

one size over another.

In this evaluation, three farm sizes were arbitrarily selected as a

basis for the following cost analysis. The farm sizes selected include 10

ha, 100 ha, and 500 ha (pond area).

By selecting this range of sizes, it is hoped that insight into scales

of economy can be obtained.

17Pacific Islands Development ProgrtunEast-West Center

VI. F ' IR TS

Farm Facilities

The desi gn of a facility is quite arbitrary. Hciever, facilities of

all sizes require certain key components. In this evaluation, farms of 10

ha, 100 ha and 500 ha, have the following structures: (1) house, (2)

office, (3) feed shed, and (4) maintenance shed.

Cost estimates for on site facilities were obtained from the Ministry

of Works. Two different Ministry of Works (Nf) sources were used, one at.

the headquarters in Tongatapu and the other in Vava'u. Cost estimates were

based on Vava'u prices. They are presented in Table 2. There were large

differences in the per it estimates provided try these two information

sources. Total facility costs, presented in Table 2, were based on the

larger per unit cost estimate.

In addition to facility costs, local oEnent costs were calculated

based on information provided by the Ministry of Works in Vava' u

(Figure 5) .

Construction costs vary depending on facility desi gn. Figure 6

provides cost estimates of various heavy eriuigtient. For road construction,

about two days time of bulldozer, grader, and roller are required.

The design and the layout of the facility are difficult without

detailed topographical maps and soil analysis (core samples) of the area.

Detailed topographical maps are usually made prior to the design phase

so that accurate estimates can be made of soil movement requiranents.


Table 2. Facility Construction Cost Estimates at Vava'u

gym. NNuku'alofa Nava'u Total Costs

(T$/i) (T$/a^) (T$)

250 323 30,039

itE-n

Concrete house (93rn2 )

2 bedroom includingplying and wiring

Office (45.5rr2)

Feed shed (46.5n^)

Maintenance shed (4S .5n) )

Coral road

250 323 15,020

260 215 12,090

260 161 12,090

1.25 0.61*2 -

Source: Ministry of Works

Notes: 1. Based on higher per tuiit cost estimate.

2. Assumes .3048 in deep coral.

19Pacific Islands DeveIoinent ProgramEat-West Center

Figure 5. Cost Estimates of Concrete

SandT$36/load x 1 oad/5 ton x ton/ra3 = T$ 7.2/nr3

CanentT$8/bag x 6 bag/m3 = T$48/ir?

CoralT$6/d

2 • MIXThTRE ? TIO

2 sand: 4 coral: I cement

3. ' (T$/n )

Sand $7.2/n? x 2/7 = $ 2.06Cement $484rP x I./7 = 6.86Coral $6/r. x4/7 = 3.43

T$12.35/i?

Source: Ministry of Works, Vava' u.

20Pacific Islands Development ProgramEast-Wt Center

0

Figure 6. F13uipnent Rental Rates and Road ConstructionEstimates

Bulldozer Grpder poll g

F tJIpr RE ThL IXtlES1

Fuel Consumption( it/hr)

Government Rate(T$/hr)

Private SectorRate (T$/hr)

35 20 10 -*2

7.50 4 4 5

20 8 8 10

Hours required 16 16 16

Rent (T$)Government rate 120 64 64Private rate 320 128 128

Fuel (T$.50/lt) 280 160 80

Labor (T$5/hr) 10 10 10

Government Costs 410 + 234 + 154 = T$ i 98

Private Costs 610 + 298 + 218 = T$1,126

Notes: I. Source: Ministry of Works, Vava'u.

2. Information not avail able.


Soil analysis is required to determine the composition of materials

available for pond construction. The bottom substrate will determine if

the pond water level will fluctuate with tidal action or rein constant.

jQ j facility . In the 10 ha facility, two 5 ha grow-out ponds are

envisioned. Within each pond, an area of about 0.5 ha will be closed off

as the nursery area.

100 , facility. In the 100 ha facility, ten 10 ha ponds are

envisioned. Again, a small area of about 1 ha will be closed off as a

nursery areas for each pond.

^QQ facility . In the 500 ha facility, twenty-five 20 ha ponds are

envisioned. Each pond will have an area of about 2 ha closed off as a

nursery area.

For pond construction, the drag line, bulldozer, and roller are

required. The drag line can move about 12 ar of material per hour (= 1 rrr^

per 5 minutes).

it should also be noted that at the time of this report, the drag line

and other heavy equipment were available in Vava' u. However, most are

based in Nuku'alofa and will be returned there once typhoon recovery

projects are completed. Rental rates of the drag line and other heavy

equipment do not include transport charges from Nuku'alofa, which must be

considered. In addition, there may be a considerable waiting period (a few

months) before certain heavy equipment becomes available.

Figure 7 provides very rough estimates of soil mNement requirements

and associated costs.

22Pacific Islands DeveloFment ProgramEast-West Center

Figure 7. Crude Soil Movement and Sluice GateConstruction Estimates

la

Voline (rr) 10,000 100,000 500,000

CostsGovernment rate (T$) 60,000 600,000 3 ,000 ,000Private rate (T$) 90 ,000 900 ,000 4 ,500 ,000

SWIcE GATES

MainQuantity 1 2 4Cost (T$1,000 each) 1,000 2,000 4,000

SecondaryQuantity 4 20 50Cost (T$400 each) 800 4,000 10,000

Total Sluice Gate Costs (T$) 1,800 6,000 14,000


f

In addition to soil movement costs, each pond will be connected to a

channel via a concrete sluice gate. Concrete required for each sluice gate

is estimated at about T$65. Total costs including labor, are estimated at

T$200 to T$300 each. Cost estimates are also provided in Figure 7.

Utilities

Electricity available in Vava'u is single phase 230-240 volt or three

ptase 415 volt. However, there are no electric power poles past the

village of Ha' alaufuli. Houma and Tu' anekivale do not have electricity.

Ba'akio is considering a joint financing arrangement to have electricity

supplied to its people.

Installation cost estimates are provided in Figure 8. Per pale

estimates do not include land clearing costs. Poles are installed at 50

meter intervals. In addition, the rates charged for electricity are

provided in Figure 8.

According to the Tonga Electric Power Board, there is about a

six--month delay for ordering poles and supplies. In addition, a 0.6 in

cleared area is needed adjacent to the road for electric power poles and

lines. In Tonga, compensation is given to landowners when coconut trees

are sacrificed for power poles and lines. Compensation is variable ($40 to

$50), depending upon the age of the tree and its fruit-bearing capacity.

Compensation is under the direction of the Department of Lands and Survey.

As a side note, the Tonga Electric Power Board indicated that it would

take about two months to actually run electric wire from pia' alaufuli to

Tu' anekivale (a distance of about 2.5 kin).

In addition, communication links are limited. Telephone installation

costs are provided in Figure 8. It should be noted that in the short run


Figure 8. Associated Utility Installation Costs

1. ELECTRIC LE INSTALL) TIOI

Pole T$117.00

Wire (3 high tension wire)$1.32/m x 3 wires x 50m 198.00

Cross Arm 6.74

Insulators3 each x 7.76 23.28

Pins3 each x 3.44 10.32

Installation16 man hours x 1.29/hr 20.64

Per Pole Costs T$375.98

2. or? F TRIC E4_, i E U*2

Step Down Transformer50 kva, 3 phase T$700.00

Metering Box3 phase 8.63

Total Other Equipment Costs T$708.63

3. PEONE*3

Installation T$30

Notes: 1. Source: Tonga Electric Power Board, Vava'u.

2. Source: Tonga Electric Pacer Board, Vava'u.

3. Source: Tonga Cable and Wireless. Telephone links noavailable outside Neiafu.

25Pacific Islands Deveiognent ProgramEast-West Center

(2 to 3 years) telephone communication will not be available outside

Neiafu.

Currently, no village is linked by telephone. There are plans to link

villages by telephone within the next five years. This would probably be

financed by an aid package. In addition, there are plans to link remote

villages by radio phone during 1984 - 1986.

No cost estimates were available for underground cable insta]lation.

Fix A set Surr r ry

Fixed assets can be divided into two major categories: (1) buildings,

and (2) eûipttent.

A sL rnary of plant and building costs is provided in Figure 9.

Figures are based on government rates. Included in this table are

pond-related items (construction and sluice gates).

Farm equipment is listed separately from buildings (see Figure 10) .

This list is not definitive, but it includes all major farm equipment

items. odd pieces of equipment and tools are included in the

"Miscellaneous Equipment" category provided.

Depreciation was caculated using the straight line method. For

buildings and plants, a twenty-year life with no salvage value was assured.

For equipment, a five-year life with no salvage value was assumed. A

depreciation schedule is provided in Figure 11.

26Pacific Islands Develo anent ProgramEast-West Center

Figure 9. Construction and Initial Development Costs

Itn 1_ =(T$) (T$) (T$)

house 30,039 30,039 30,039

Office 15,020 15,020 15,020

Feed Shed 12,090 12,090 12,090

IJ,aintenance Shed 12,090 12,090 12,090

Coral Road

Equipment Fabar- 798 798 798Materials 3,750 3,750 3,750

Ponds 60,000 600,000 3,000,000

Sluice Gates 1,800 6,000 14,000

Electrical Supply

To Site*2 7,520 7,520 7,520

Transformer/Equipment 708 708 708

Tel epbone (n/a) (n/a) (n/a)

T$143,815 T$688,015 T$3,096,015

Notes: 1. Assume 1,000 x 3 in coral road.

2. Assumes (1) 1,000 in (20 poles) ; and (2) no compensation(T$40-50/tree) is paid for trees removed for electricpoles (on government land) .

27

Pacific Islands Development ProgranEast-West Center

Figure 10. Etlui.gnent Costs for Initial Development

Item 1Q.Y 1 1 aK(T$) (T$) (T$)

P.U. Truck 10,000 20,000 20,000($10,000 each)

Boat 5.5 in 3,000 3,000 3,000(1 each)

Outboard 15 HP 1,012 1,012 1,012(1 each)

Holding Tanks 3,000 6,000 10,000($1,000 each)

Water Quality Kit 250 250 250(1 each)

Nets/Seines 2,000 4,000 6,000($1,000 each)

MiscellaneousEquipnent 10,000 10,000 10,000

T$29,262 T$44,262 T$50,262

28Pacific Islands Developent ProgranFart-west Center

Figure 11. Depreciation of Fixed Assets

BUIIL I.'JG/ PLANT*1

House 1,501.95 1,501.95 1,501.95

Office 751.00 751.00 751.00

Feed Shed 604.50 604.50 604.50

Maintenance Shed 604.50 604.50 604.50

Coral Road 227.40 227.40 227.40

Ponds 3,000.00 30,000.00 150,000.00

Sluice Gate 90.00 300.00 700.00

Electrical Supply 411.40 411.40 411.4

'JXXTAL 7,190.75 34,400.75 154,800.75

QUIPM^*2

Truck 2,000.00 2,000.00 2,000.00

Boat 600.00 600.00 600.00

Outboard 202.40 202.40 202.40

Holding Tanks 600.00 1,200.00 2,000.00

Water Quality Kit 50.00 50.00 50.00

Nets/Seines 400.00 800.00 1,200.00

Misc. E uipnent 2,000 .00 2 ,000.00 2,000 .00

SUBTOTAL 5,852.40 6,852.40 8,052.40

IDTAL 13,043.15 41,253.15 162,653.15

totes: 1. Straight line depreciation, 20-year life.

2. Straight line depreciation, 5-year life.

29Pacific Islands Development ProgrnEst-West Center

VII. V_PJABL E 5 S

Use of feeds in mullet culture is minimal (see Uwate and Kunatuba

1983a and b). Fry less than 30 mm are carnivorous, feeding on

micro-crustaceans. Fry will take high protein corêrcial feeds. Adult

mullet, however, feed primarily on detritus and micro-algae. Thus the

benefits of carr ercial feeds are minimal.

High protein commercial feeds are available in the region. Figure 12

lists potential sources of fish feed and their associated prices. As noted

earlier, however, use of feed would be minimal and limited to fry stages.

Feed usage was calculated assuming that only fry in nursery ponds were

fed. other asstnnptions included:

1. fry fed until 3 gin each;

2. fry feed conversion was 2 gm feed: 1 gm fry; and

3. feed (fish meal) was obtained from American Samoaat US$800/nt..

Figure 12 also provides a suizirary of feed usage and associated costs,

and notes how feed usage estimates were calculated.

In freshwater mullet culture, fertilization is an important management

tool for increasing production.

Fertilization is most effective in pond systems in which the water

flow through the system is minimal. If the water exchange rate is too

high, fertilizer is washed out before it does any good.

30Pacific Islands Development ProgrwEast-West Center

Figure 12. Potential Fish Feed Sources and Feed UsageCost Estimates

1. P^ThTLL ZS FE 9X310ES

Country ZI Feed Iype Cost

Fiji Waituri Feed Fish Meal F$600/mt

Pacific Fishing Fish Meal F$460/mt

American Sanoa B&B Trading Fish Meal US$800/mt

Papua New Guinea Lae Feed Mills Trout Starter X476/jilt

Trout Grower E465/mt

2. FEEZD USG ^T FS'FTMATES

la Uk bg

Fry Quantity 20,000 200,000 1,000,000

Feed Usage*l(kg) 120 1,200 6,000

Cost *2

( US$) 96 960 4,800

Notes: 1. Source: PIDP files.

2. Based on the following calculation:Qty fry x 3 gin fish/fry x 2 gin feed/1 gin fish x 1 kg/1,000 gin.

3. Assumes US$800/mt fish meal from 1 nerican Samoa.


In this case, the limestone/sand/gravel nature of the area will

probably make fonds "leaky." in this case, water levels will probably

fluctuate with the tide.

In addition, there may be a problem with acid conditions in the pond

if mangrove areas are converted to ponds. The water exchange rate would

have to be high to offset these acid conditions.

Given these two conditions, the effectiveness of fertilization may be

lost. As a result, in this evaluation, the use of fertilizers in ponds is

not considered.

The effectiveness of fertilization in tide—fed ponds is one item that

may be examined later through research. For now, however, it will not be

considered.

• Collection

Since no practical technique exists for artificially spawning mullet,

a fry collection scheme is envisioned to provide seed stock for this

proposed facility.

Seasonality and abundance of mullet fry are unknown quantities in

Vava'u. Prior to any serious consideration of developing this facility,

information on fry abundance must be obtained. As noted throughout the

mullet culture literature (Uwate and Kunatuba 1983a) , fry supplies are

considered to be the greatest limiting factor in mullet culture today.

A periodic sampling effort is suggested to determine the quantities of

mullet fry available and seasonal abundance in Vava'u. Due to the

proximity of other islands in Tonga (linked with reliable air transport),


S

this study can be expanded to these other islands. If Vava' u fry stocks

are inadequate, they Tray be supplemented with fry from other areas.

Once this basic information is available, alternative strategies can

be analyzed on fry collection and its associated costs. Decisions must be

wade on whether fry collection will be done by farm workers or by villagers

on a piece-real basis (X$ per 1,000) .

For this exercise, costs are assumed to be similar to mil.kf ish fry

collection costs for the rNmaiku Baitfish Farm (Tarawa, Kiribati) .

Milkfish fry costs range from about T$6.87/1,000 fry to T$13.21/1,000 fry.

These estimates include payments to village collectors as well as farm

collection costs (from villagers).

Estimates of fry stocking requirements are provided in Fi gure 13.

Fuel

Fuel costs (based on figures fran Neiafu) were T$.47/lt. Oil was

T$2.38/lt. Figure 14 presents rough cost estimates of fuel and oil

consumption.

Manpower requirements include professional staff, technicians, and

tanporary (seasonal) workers. 1&or estimates are provided in Figure 14.

It is anticipated that part of the duties of the temporary workers

will be to provide guard services for the facility.

amities

Electricity costs are based on a two-level tariff schedule. It is

presented in Figure 15. For over 525 kWh, the tariff per unit decreases.


Figure 13. Estimates of Fry Stocking Costs and Requirements

la ha Q 5Qb9

A. Total Fish Harvested* 7,500 75,000 375,000

B. Fry Mortality 0.5 0.5 0.5

C. Fry Requirenent 15,000 150,000 750,000( A,/b)

D. Fry Cost (T$/1,000 Fry) 13.21 13.21 13.21

E. Total Fry Costs (T$) 198.15 1,981.50 9,907.50(C x D)

*Assume production of: 250 kg/ha x 3 f islV1 kg = 750 f isr/ha.

34Pacific Islands Development Progra;iEast-West Center

Figure 14. Annual Fuel, Oil, and Labor Cost Estimates

M

FUEI3OIL

Fuel Cost (T$) 1,100 7,000 14,000

Oil Cost (T$) 400 2,800 11,200

I ^^2

Professional, StaffQuantity 1 1 1Cost

(T$30,000 each) 30,000 30,000 30,000

TechniciansQuantity 1 2 4Cost

(T$4,000 each) 4,000 8,000 16,000

Tenporary WorkersQuantity 2 8 20Cost

(T$960 each) 1,920 7,680 19,200


Figure 15. Estiriated Variable Utility Costs

• 1. ELEP JCT`? RIFF R C'?URE*1

Kilowatt

0 to 525 kWh

over 525 kWh

2. FARM Fr, t'RIC L USGF

ESTIMATES

kW1 rt cnth 300

T$/rrbnth 58.53

kWY^/year 3,600

T$/year 702.36

3. TE NE _ *2

Unit(T$/kWh)

.1951

.1825

400 500

78.04 97.55

4,800 6,000

936.48 1,170.60

Item Sit(T$)

Annual maintenance T$50/year

Charge to Tongatapu 0.75/3 minutes

Local calls*3 0.10/3 minutes

4. TL HO E FSTD—=S (Neiafu to Tongatapu)

Farm e Cost(T$/year)

10 ha 400

100 ha 500

500 ha 600

Notes: 1. Source: Tonga Electric Power Board, Vava' U.

2. Source: Tonga Cable and Wireless. Telephone links notavailable outside Neiafu.

3. Charge will be levied after 1974/1975.


Estimates of electricity usage and annual costs is also provided in Figure

15.

Telephone charges are also provided in Figure 15. It must be

re er ered that in the short rum, on-site telephone aorrnnLmication is

inlikely. Despite this limitation, comunication between Vava' u and

Nuku'alofa will be necessary, especially in the it keting and shipping

area. As a result, allowance is made for telephone usage. These estimates

are provided in Figure 15.


Total production was estimated based on reported yields (see Uwate and

Kunatuba. 1983a) . A yield of 250 kg%ha/yr was used in calculations. Figure

16 presents calculations for estimating production and revenues.

In the revenue estimates used, allowance was trade for the elasticity

of de sand for mullet (as discussed in the market considerations section of

this report) .

It is assumed that the local mullet market is about 110 mt/year.

Production of the 10 ha farm was estimated at 2,500 kg/yr (2.5 mt/year) .

This is small compared to 110 mt/year, thus no reduction of farm or

ex-vessel price was anticipated.

Production estimates from the 100 ha farm were about 25,000 kg/ha/year

(25 mt/year) . This was a significant volume in cc parison to total local

mullet sales (110 mt/year). Thus a farnVex-vessel price reduction of

T$.10/kg was included in the calculation. The farw,/ex-vessel price used

was T$.85/kg.

Finally, production for the 500 ha farm was estimated at 125,000

kg/year (125 mt/year) . This is larger than the estimated entire local

mullet market (110 mt/year) . A reduction of T .35/kg was estimated for

this level of production. The mullet price at the farm/ex--vessel level was

estimated at T$.60/kg.

38Pacific Islands Development ProgramEast-west Center

Figure 16. Production and Revenue Estimates

Production(kg/ ha) 250 250 250

Total Production(kg) 2,500 25,000 125,000

tarket Price(T$/kg) .95*1 .85*2 .60'3

Revenue(T$) 2,375 21,250 75,000

Notes: 1. Current ex-vessel price.

2. Assume a T$.10/kg price decrease with 20 percentincrease in total mullet market.

3. Assume a T$.35 price decrease, with 100 percentincrease in quantity of mullet to local market.


IX. FAP 'D F'r

A sums ary budget is provided in Figure 17. The nir.,bers used in each

category are conservative. As a result, the bottom line irritates that

none of the farm sizes analyzed appears profitable.

In most feasibility studies, analysis is limited to this farm budget

and its bottom line of can the venture pay its variable cost (recurrent

operating budget) . In this case, line "C" of Figure 17 would be the

determining factor if a project was to be initiated. If the value of line

"C" is positive, then the project will undoubtedly be i nitiated. This is

especially true if the facility was firanced and developed with aid monies.

`These projects (income above variable costs) are initiated and can be

operated in the short term (1 to 3 years). However, since no allowance was

rude for replacement and repair of equipment e: facilities, the project may

develop cash problems when deferred maintenance requires attention.

In some aquaculture projects, even if the value on line "C" is

negative, the project is initiated. In these cases, someone must be

willing to continually support the project financially. This would be the

case here if any scenario was initiated. In all three scenarios, income is

less than variable costs. For the project to exist in the short run,

someone must subsidize the difference (the negative value of line "C").

This can be quite a significant subsidy.

Even if a project has income above variable costs or the difference is

continually being subsidized, the project's lon g -term prospects for

viability dray be mini mal if income doesn't meet total Costs (positive "net

return," line "F," Table 17).


Figure 17. Budget for Proposed Mullet Farm (T$)

it

A. SFss RECEIPTS $2,375.00 $21,250.00 $75,000.00

B. VARIABLE

Fry

Feed

Fertilizers ers

Fuel/Oil

Wages

Telephone

Electricity

198.15

96 .00

0

1,500.00

35,920.00

400.00

702.36

T$38,816 .51

1,981.50

960.00

0

9,800.00

45 ,680.00

500.00

936.48

TY59,857.98

9,907.50

4,800.00

0

25,200.00

61,200.00

600.00

T$J.02,878.10

<36,441.51> <38,607.98> <27,878.10>

D. FL ^S'TS

IrLDR CIATIaN

Buildings

E uipnent

7,190.75

5,852.40

13 ,043 .15

$51,859.66

<T$49 ,484 .66 >

34,400.75

6,852.40

41,253.15

$101,111.13

<T$79,861.13>

154,800.75

$266 ,731.25

<T$191,731.25>

41

Pacific Islands Development ProgramFast-West Center

For long-term operations, the project must be able to recover capital

for replacement or repair of facilities. This is almost always overlooked

in projects fended by aid or government subsidies. As a result, projects

whose income does not meet total or just variable costs are considered

feasible and are initiated. As a result, short-term, let alone long-term,

success is rarely achieved.

Thus at a minimum a project should be considered feasible only when

income is above total costs (positive net returns, lire "F," Figure 17).

If a project is really desired (even if income does not cover variable

or total cost), then the agency desiring its initiation should be aware and

willing to subsidize on a continuous basis, the difference (negative net

return, line "F," Figure 17).


Capital to initiate a project can be obtained fromfrora a variety of

sources. It can be obtained from aid monies, the private sector, the

goverrznent, or the development bank. In addition, any combination of the

above capital sources can be used.

Aid monies and government grants rarely require payback and are

usually spent all on construction costs. Funds from the local development

bank are usually tied to a note that must be repayed, usually with

interest.

The Development Bank in Tonga is a potential source of funds. The

Bank has basically two types of loans. The first type is for more than

T$2,000 with payback over three years. The interest rate is now eight

percent, but can go up to ten percent ty law. The second loan is limited

to less than T$2,000 over three years. The interest rate is 0.5 percent

per month.

Of special note is that the bank usually does riot finance more than 75

percent of total fixed assets. It gives only limited assistance on working

capital. There is no limit on funds requested. The bank, however,

considers the contribution of the owners (loan requestors) in evaluating

any loan application.

Monies from the private sector may be as (1) a loan (note) or (2) as

owner equity. Loans, as with DeveloFment Bank notes, must be paid back

with interest. Owner equity implies a degree of ownership, which includes

associated risks. Owner equity can be in the form of stock ownership, such

as in a corpDration, or as a partnership where only a few share liabilities

and risks.


The government may participate in a similar fashion. It can be (1) a

source of capital lean or (2) in an an- rship position (such as a sole

owner, stockholder, or participant in a joint venture). This may be in

addition to providing grant fids for the venture.

in this specific case, the government of Tonga is requesting

T$2 million in aid from the government of Japan. The Tonga government

would probably pick up the difference between construction and operating

costs and aid monies.

44Pacific Islands Development ProgranEast-West Center

in XI. FIN IAL ANALYSIS

As stated earlier, most farm budgets are limited to looking only at

revenues and various costs (as presented in the Farm Budget section). In

addition to this rather simplistic vies., of farm budgets, other tools are

available to obtain a more complete picture of the financial results and

impacts of initiating projects.

The following analysis is based on the assumption that the venture

required financing and venture capital. The criteria of the Tonga

Development Bank was used in determining Bank note value and repayment

schedule (Figure 18) . The note value was calculated as 75 percent of

capital assets (see Figures 9 and 10).

In Figure 18, a three-year repayment period is the base. Annual

repayments are separated into interest and principle for each year.

lance Sheet

The balance sheet is a one-time picture of the assets, liabilities,

and owner equity of a farm. Figure 19 provides an opening day balance

sheet of the proposed project, after construction of facilities.

Owner equity is the amount that must be invested into the farm above

the value of the bank note. Owner equity is about half of total assets for

each of the three farm sizes examined.

Ircorr Statement

The income statement compares income with e enses, to determine

profits or losses of the operation. Figure 20 is a pro forma income

statement for end of year one of operations.

45Pacific Islands Development Program.East-West Center

Figure 18. Capital Recovery on Bank Notes

1X ASSETS

&iilaing/Plant 143,815.00 688,015.00 3,096 ,O15 .00

uiprent 29,262.00 44,262.00 50,262.00

lbta3 Fixed Assets 173,077.00 732 ,277.00 3 ,146 ,277.00

v' , 3-year, 10%

(75% of Fixed Assets) 129,807.75 549,207.75 2,359,707.80

PAnnual Payment 52,197.62 220,844.57 948,873.44

Payment Breakdown

Year 1

Interest 12,980.78 54,920.78 235,970.78

Principle 39,216.84 165,923.79 712,902.66

Balance 90,590.91 383 ,283.96 1,646,805.14

Year 2,

Interest 9,059.09 38,328.40 164,680.51

Principle 43,138.53 182,51.6.17 784,192.93

Balance 47,452.38 200,767.79 862,612.21

Year 3

Interest 4,745.24 20,076.78 86,261.22

Principle 47 ,452.3 8 200 ,767.7 9 862 ,612.21

Balance 0 0 0

46Pacific Islands Development Prograr,East-West Center

102,878.10235,970.78

712,902.66<75,000.00>

00

lb,l^1.D4

5,000.00

0

00

981,751.54

Figure 19. Opening Day Pro Forma Balance Sheet

A. CURREINTT ASSETCash - first year requirements

Cash expense 38,816.51 59,857.98interest expense 12,980.78 54,920.78Other cash payment

(principle on note) 39,216.84 165,923.79Cash sales <2,375.00> <21,250.00>Cash required to carry

Accounts Receivable 0 0Cash front credit sales 0 0

i. V

88,639.13

Cash reserve 1,000.00Capital to carry

Accounts Receivable 0Prepaid expenses and preparation

Business license 0Miscellaneous permits 0

TOTAL ^JRRENT ASSETS 89,639.13

B. FIXED ASSETSBuilding/Pl ant 143 ,815 .00Equignent 29,262.00

TOTAL FIXED ASSETS 173 ,077.00

Ley, 4.n5

2,000.00

0

00

261,452.55

688,015.00 3,096,015.0044,262.00 50,262.00

732,277.00 3 ,146 ,277.00

C. SET (B+C) 262,716 .13 993 ,729.55 4 ,128,028.54

D. CUPE2T LLkBILITIES 0 0 0

E. LONG TER LIABILITIESBank Note 129,807.75 549,207.75 2,359,707.80

F. . (C-D-E)Owner Euity 132,908.38 444,521.80 1,768,320.74

v s r4 262,716.13 993 ,729.55 4,128,028.54

47Pacific Islands Development Progra^nEast-West Center

Figure 20. Year 1 Pro Forma Income Statement

11 Is 11Q U1 _

A. 2,375.00 21,250.00 75,000.00

B. PE

Variable Costs

Interest on Note

Depreciation

Total Expenses

38,816.51 59,857.98 102,878.10

12,980 .78 54,920.78 235,970.78

13 ,043.15 41,253 .15 163 ,853 .15

64,840.44 156 ,031.91 502 ,702.03

C.(A-B)

D. At+ORTIZATIOP;

E. EAPL-' GS( C-D)

<62,465.44> <134,7E1.91> <427,702.03>

39,216.84 165,923.79 712,902.66

<101,6 82.28> <300,705.70> (1,140,604.69>

s48

Pacific Islands Development ProgramFit- ►rest Center

Income is negative for all three proposed farm sizes (see raw "C,"

Figure 20) . If amortization of the bank note is considered, then net

losses (negative net earnings) are even greater (see row "E," Figure 20) .

A pro forma balance sheet was also completed at the end of year one

(Figure 21). It incorporates financial changes that occurred in the

venture between the opening day pro forma balance sheet (Figure 19) and the

end of year one (Figure 21) . Most changes are presented in the Year 1

Income Stateient (Figure 20) .

Comparing the opening day and year one pro forma balance sheets, total

assets (row "C," Figures 19 and 21) have decreased in all proposed farm

sizes.

The most interesting item to note in the balance sheet is owner equity

(row "F," Figures 19 and 21). Owners, whether private individuals or

government, need to invest the amounts indicated in row "F," Figure 19, for

the operation to be initiated. After only one year, their investment

decreased in value. For the 10 ha farm, owner investment decreased in

value T$62,485.44 (47 percent) ; for 100 ha it decreased T$134,781.91 (30

percent); and for 500 ha it decreased T$426,702.01 (24 percent) .

.Cash Flow his

Finally, a cash flow analysis was done on the 10 ha proposed farm. In

year 1 (see Figure 22) it was assi.zned that all sales were cash and occurred

in month 12. Even with a beginning of the year cash balance of

T$89,539.13, by month 12 only the T$1,000 cash reserve was left.

In the cash flow analysis for year 2 (see Figure 23), three harvests

for the year were assumed (months 4, 8, and 12) . In addition, various

sales payments are illustrated in Figure 23 to provide insight into how


Figure 21. End of Year 1 Pro Forira Balance Sheet

A. CURRENT ASSETSCash 0 0 0Cash Reserve 1,000.00 2,000.00 5,000.00

TOLL C JPP.E23T ASSETS 1,000.00 2,000.00 5,000.00

B. F1 SBuilding/Plant 143,815.00 688,015.00 3,096,015.00<Depreciation> <7,190.75> <34,400.75> <154,800.75>

136 ,624.25 653 ,614.25 2,941,214.25

Fquignent 29,262.00 44,262.00 50,262.00<Depreciation> <5,852.40> <6,852.40> <8,052.40>

23,409.60 37,409.60 42,209.60

TOTAL FIXED ASSETS 160,033.85 691,023.85 2,983,423.85

C. (A+B) 161,033.85 693,023.85 2,988,423.85

D. CLRREr LIABIL.ITIES 0 0 0

E. WNC TEPj LIABILITIESBank Note 90,590.91 383 ,283.96 1,646,805.10

F. = (C-D-E)Chaser Fruity 70,442.94 309,739.89 1,341,618.75

G. T^L LIABIIETIES S(D-E+F) (=C} 161,033.85 693,023.85 2,988,423.85

50Pacific Islands Develop ent ProgramEast-Wt Center

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52Pacific Islands Development Prograr:Fast-West Center

credit sales could affect cash flow. In month 4, all sales were on credit.

As a result, collection was spread over five months. In month 8, 50

percent of sales was on credit and the other 50 percent was for cash.

Finally, in month 12, all sales were for cash. The impact of these

different sales peyments is illustrated in the cash inflow portion of the

year two cash flow staterent (Figure 23) .

For year two, an additional loan of about T$88,645.71 would be

necessary to keep the firm operational in year 2. Without this additional

cash, the venture would have no cash to operate in month I of year 2. Its

T$1,000 cash reserve would be completely drained that month.

53Pacific Islands Develojinent ProgramEast-West Center

The site of the proposed farm is not optical. The tidal flats area

has a gravel/sand bottom. The use of this material in pond construction

would result in "leaky" ponds whose water level would probably fluctuate

with the tides. This would complicate pond r.. agement.

In addition, although the site is somewhat protected from storm

damage, it is still relatively exposed. Sites such as the backwater area

of this Port of huge may offer more shelter.

Surveys of tidal area usage conducted by PIDP indicate that a

significant amount of seafood is gathered at the proposed site. if a farm

is constructed, what happens to the villagers who row depend on the area as

a food and cash crop source? Will the negative impact to villagers of far,

construction be offset by the benefits of the farm?

The local fish market is undergoing transition as the Tonga

Cooperative Federation expands into this area. It is, however, still

relatively finite in terms of volume and price.

The mullet market, a all portion of the fish market, was estimated

at 110 mt/year with a retail price of T4i.40 to T$2.50/kg. The farm would

have to compete against fishermen and their ex- vessel price of T$.95/kg.

In addition, if production was a significant proportion of the estimated

110 mt/year mullet market, a price reduction might be experienced due to

the elasticity of demand. This could be quite damaging to the artisanal

fishery.

The international market was also limited with low market prices and

high freight costs.


For this study, a monoculture pond syster{ was exanined using three

• farm sizes (10, 100, and 500 ha) . Construction and operating expenses were

estimated and analyzed.

The fare, would encounter major e enses in getting utilities to the

site. In addition, some difficulty would probably be encountered on the

availability of heavy equipment.

The farm budget developed (Figure 17) indicated that all three

proposed farm sizes could not meet variable costs with sales (gross

receipts) . The deficit was between T$28,000 to T$39,000. When capital

recovery was considered, an even greater deficit resulted (T$49,000 to

T$192,000)

Venture capital was available in the form of government grants,

foreign aid, and loans from the Development Bank. Detailed financial

• analysis was done based on owner Equity and a Development Bank loan

providing capital. Results of this analysis indicated that, in addition to

running out of cash by end of year 1, returns to owner equity would be a

negative 24 to 47 perent. This means that for every $1 invested, it would

be worth only $.76 to $.53 at the end of one year.

Much of the financial analysis was done to illustrate financial tools.

But they also provide insight into what may happen down the road in years 1

or 2, items often overlooked in simple one-page budgets (like Figure 17) .

it should be added that if an aid or grant paid for the construction

of the facility and the government was willing to subsidize the operation

(annually at T$30,000 to T$40,000) , the farm could be initiated and

sustained in the short term. This would not be an uncommon event. In

Kiribati, the government is subsidizing the operating costs of the Tanaiku

Baitfish Farm at about A$40,000 per year. This farm's revenues fall quite

Pacific Islands Development ProgramEast-West Center

55

short of neeting variable costs. In addition, in Papua New Guinea, the

Goroka Trout Farm has never broke even (where revenues = variable

expenses) , let alone made a profit. last year it was subsidized by the

provincial and village governments at K$30,000 (the difference between its

operatir^g costs and revenues) .

Thus if the mullet farm is a valuable project and worth an annual

expenditure of T$28,000 to T$39,000 to the Tonccan government, it could be

initiated.

It should be noted that cost and revenue estimat es used throughout

this study were conservative. Any cost or revenue estimate could be easily

manipulated to give a positive picture of the farm, but those manipulated

estimates might not relate to reality. By using conservative estimates,

• hopes and expectations are not inflated and the high risk typically

associated with aauaculture ventures is reduced.


XIII. PEES

" Franco, A. B., M. P. P.annett and J. Makasiale. 1982. Disasterprepares ess and disaster experience in the South Pacific. PacificIslands Development Program. East-West Center.

Kunatuba, P. and K. R Cate. 1983 a. A cursory ex&aination of the fishand ash protein market in Tonga. Pacific Islands DeveloprentProgram, East-West Center.

Kunatuba, P. and K. R. Uwate. 1983b. Vava' u housewife survey of tidalarea usage. Pacific Islands Development Program, East-West Center.

United States National Oceans Survey. 1981. Tide tables. Western andCentral Pacific.

t. ate, K. R. and P. Kunatuba. 1983 a. A short review of world mulletcultures. Pacific Islands Development Program, East-West Center.

[ ate, K. R and P. Kunatuba. 1983b. A review of mullet cultureactivities in the Pacific Islands region. Pacific Islands DevelopmentProgram, East-West Center.

. Uwate, K. R. and P. Kunatuba. 1983c. Vava` u village officer survey oftidal area usage. Pacific Islands Development Program, East-West

• Center.

Visher, S. S. 1925. Tropical cyclones of the Pacific. Bernice P. BishopMuseum Bulletin No. 20. Honolulu, Hawaii.

Pacific Islands Development PrograinEast-West Center

57

THE EAST-WEST CENTER is a public, nonprofit educational institution with aninternational board of governors. Some 2,000 research fellows, graduate students,and professionals in business and government each year work with the Center'sinternational staff in cooperative study, training, and research. They examinemajor issues related to population, resources and development, the environment,culture, and communication in Asia, the Pacific, and the United States. TheCenter was established in 1960 by the United States Congress, which providesprincipal funding. Support also comes from more than 20 Asian and Pacificgovernments, as well as private agencies and corporations.

Situated on 21 acres adjacent to the University of Hawaii's Manoa Campus, theCenter's facilities include a 300-room office building housing research andadministrative offices for an international staff of 250, three residence halls forparticipants, and a conference center with meeting rooms equipped to providesi multaneous translation and a complete range of audiovisual services.

PACIFIC ISLANDS DEVELOPMENT PROGRAM

The purpose of the Pacific Islands Development Program (PI DP) is to help meetthe special development needs of the Pacific Islands region through cooperativeresearch, education, and training. PI DP also serves as the Secretariat for the1 980 Pacific Islands Conference, a heads of government meeting involvingleaders from throughout the Pacific region, and for the Pacific Islands Con-ference Standing Committee, which was established to ensure follow-up ondevelopment problems discussed at the Conference.

PI DP's research, education, and training activities are developed as a directresponse to requests from the Standing Committee. P1 DP's projects are plannedin close cooperation with the Committee to ensure that the focus and theorganization of each project address the needs identified by the heads ofgovernment on the Committee, a process which is unique within the East-WestCenter and in other research and educational organizations serving the Pacific.

A major objective of the program has been to provide quality in-depth analyticalstudies on specific priority issues as identified by the Pacific Island leaders andpeople. The aim is to provide leaders with detailed information and alternativestrategies on policy issues. Each Island country will make its own decision basedon national goals and objectives. Since 1980, PI DP has been given the task ofresearch in six project areas: energy, disaster preparedness, aquaculture, govern-ment and administrative systems, roles of multinational corporations, andbusiness ventures development and management.

Documents

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