Profitability Assessment: A Case Study of African Catfish (Clarias gariepinus) Farming in the Lake Victoria Basin, Kenya

Abstract

This paper presents a profitability assessment tool developed for the purposes of evaluating the feasibility of fish farming investment and operations. As a test case, small scale African catfish (Clarias gariepinus) farming in the Lake Victoria basin, Kenya is used. The analysis formulated assumptions were based on secondary data on catfish production. The data was collected by reviewing both printed and electronic articles from research publications in the library. Other information was derived from the personal experience of the author in catfish research. A budgetary unit of 1-ha (12 ponds) catfish farm was used. To evaluate the profitability of the venture, indicators of investment returns such as net present value (NPV), and internal rate of return (IRR), payback period and debt service coverage ratio were determined. A sensitivity analysis on stocking density, survival rates, cost of feed, and cost of fingerlings and sales price was also conducted. The findings of the analysis indicate that, based on the assumptions, catfish farming is financially feasible. The results obtained indicate a positive NPV and acceptable IRR and a pay back period of 5 years. A debt service coverage ratio of more than 1.5 was obtained thus indicating that the cash flow is adequate. Sensitivity analysis on price, sales and investment obtained, indicate that the enterprise is highly sensitive to stocking density, survival rates and sales price but less sensitive to costs of fingerlings and costs of feeds used in the production. It is also economical to operate twelve ponds than one pond due to gains from economies of scale.