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Regional Enterprise Budget and Business Plan Development 10MEAR3

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Regional Enterprise Budget And Business Plan Development

Marketing and Economic Analysis Research 3 (10MEAR3)/Activity/Kenya

Collaborating Institution
Moi University, Kenya
      Mucai Muchiri

University of Arkansas at Pine Bluff
     Carole R. Engle

Objectives
1) Collect and organize the information necessary to prepare enterprise budgets and business plans for several fish production systems.

2) Promote business-oriented thinking among farmers and encourage record-keeping much needed for effective extension efforts.

Significance
There is a great deal of interest in the development of successful aquaculture businesses in the East Africa region. With the development of the new core site in Kenya, there is an important opportunity to utilize economic planning tools as a basis for an integrated research-outreach effort designed to have a quick and substantial impact on the region. Recently, a workshop organized in Sagana, Kenya, identified and emphasized the need for business planning as critical to the success of the aquaculture sector in the country. This activity will identify the gaps in information that are critical to the development of comprehensive business plans for aquaculture businesses. PD/A CRSP field research studies could then be designed to fill in the gaps in production information to fully support the incipient aquaculture businesses in Kenya and the East Africa region.

Quantified Anticipated Benefits
The proposed activity will produce enterprise budgets and pro forma financial statements for business plans that can be used as guides for prospective and existing fish farmers. A sound business plan is required by financial institutions to obtain credit. The information developed under this work plan will not only provide farmers with the appropriate tools to show profitability, but also help lending institutions to better assess the viability of aquaculture projects and reduce the rate of failure in loan repayment. Furthermore, this effort will identify the gaps in the existing database on fish farming in Kenya and the region. These gaps can then be addressed through subsequent CRSP-funded research. This will reduce the time for the overall project to demonstrate an impact in the region.

Activity Plan
Location: The majority of the analytical work will be conducted at the University of Arkansas at Pine Bluff (UAPB). However, there will be close collaboration with the PD/A CRSP Africa project and Moi University. Several trips to Kenya over the course of the activity will be made to collect additional information as needed and for the training component implemented as part of this activity.

Methods: The Regional Plan for East Africa identifies "Regional Enterprise Budget Development" as a key activity for the new Africa site. The effort to develop enterprise budgets and pro forma financial statements for business plans has been initiated. A workshop was organized at the Sagana Fish Farm, Sagana, Kenya, September 17-19 1997 with the main objective being to provide joint input into the ninth work plan. Additional objectives were to 1) identify local constraints to the development of aquaculture, 2) define the current state of knowledge about selected production systems, 3) establish the mechanism of data collection and analysis, 4) regionalize aquaculture objectives and 5) recommend actions to be taken to attain local and regional objectives. Recommendations of this workshop emphasized the need for aquaculture business planning along with a reinforcement of the linkages between research and extension. Following the recommendations of the workshop and in accordance with the Regional Plan for Africa, this activity will lead to the collection of production and economic data relevant to selected production systems. A standard form will be designed for data collection. Data collected will enable the development of enterprise budgets necessary for business planning. During this effort, the information gaps will be addressed.

Enterprise budgets will be developed for the production systems selected. Production systems will utilize tilapia as the primary species in either monoculture or polyculture with Clarias spp. Two principal levels of production systems will be analyzed: 1) non-cash systems based on on-farm inputs; and 2) commercial systems based on purchased feeds and fertilizers. Standard conventions and procedures as presented in Kay (1994) will be used to develop the budgets. However, the presentation of the budgets will follow both the U.S. and the host country's methods of budgeting. For those cost and return items for which data are lacking or deemed insufficient, sensitivity analyses will be conducted to present a range of potential economic outcomes from a particular enterprise. These same items will be those identified as constituting gaps in existing knowledge and for which additional research may be recommended. The enterprise budgets developed will be published for distribution with instructions to farmers on how these can be adapted to their particular situation and farm.

From the enterprise budgets, pro forma financial statements (including annual cost and returns, estimate of total required capital, balance sheets, income statements, and cash flow budgets) will be developed for the production systems and average farm sizes selected. These statements will be in a form usable for presentation in an aquaculture business plan or loan proposal. Any additional gaps in the knowledge base identified in this activity will further be specified as those needing additional research. The financial statements will be published with instructions containing a spreadsheet for farmers to enter farm-specific data as needed.

A summary of marketing information will be prepared for each of the production systems/scenarios proposed. Fundamental market information required to present the market plan component will be included. This will include information on prices, product forms, market channels, volume requirements for various market channels, potential target market segments, etc.

A workshop will be organized and held in Kenya by the PD/A CRSP representative and the project Co-PIs. The workshop will be used to present and train participants to interpret the enterprise budgets, financial statements and marketing information compiled. While there is a wide range of educational levels among Kenyan farmers, the general educational level is higher than that commonly assumed in developing countries. The general level of record-keeping is likewise higher than commonly assumed. It will further present methods for using this information to acquire financing for aquaculture businesses and to use this planning base for decision-making on the farm.

Regional Integration

This activity responds directly to the first objective listed in the Regional Plan for East Africa. Although the 1997 Sagana workshop did not include representatives from other African countries, recommendations of the workshop addressed regional objectives and concerns and included tentative plans for future collaboration in Tanzania and Uganda. This effort to develop enterprise budgets and financial statements for aquaculture will ensure that production systems selected will be appropriate and relevant to Kenya. The marketing information will be from the potential markets accessible to the proposed production units and will be compiled by major potential target markets.

Schedule
7/1/01 Initiate project.
6/30/02 Enterprise budgets will be compiled along with the necessary sensitivity analyses for the production systems selected.
4/30/03 Pro forma financial statements will be completed. Marketing information reports will be completed and made available. A workshop will be organized. Final report will be submitted.

Literature Cited
Kay, R.D. and W.M. Edwards, 1994. Farm Management, 3rd Edition. McGraw-Hill, Inc., New York.

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