Profitability assessment and efficiency analysis of tilapia farming in Bangladesh: An application on data envelopment analysis

This study was carried out to find out the financial profitability and technical efficiency of tilapia fish farmers in the selected area of Bangladesh. A total of 70 tilapia fish farmers (large 36 farmers and small 34 farmers) were selected from major tilapia producing area at Trishal upazila of Mymensingh district in Bangladesh. To fulfill the objectives of this study, profitability, socioeconomic analysis, Cobb-Douglas production function and Data Envelopment Analysis (DEA) were employed. Study revealed that gross profit margin of the large farmers was 24.42% and small scale farmers was 23.8% indicating that farmers did not enough well in managing their farm and farmers has less capacity to cover for operating, financing and other cost. Break-even price for the large tilapia farmers worked out Tk. 77.33 per kg and small farmers was Tk. 81.56 per kg while break-even production for large farmers was found 1159.64 kg per hectare. Benefit cost ratio, net profit margin were found more than one and positive respectively, indicated that tilapia farming was commercially profitable. Considering all selected farmers, tilapia farming found a profitable business where undiscounted BCR for large farmers was 1.213 and a small farmer was 1.230. The mean technical efficiency level of tilapia fish farmers was 81.8 (where allocative efficiency was 93.1 and scale efficiency was 88.2) percent, implies that by operating at full technical efficiency levels, tilapia yield could be increased and efficient farmers found more productive than inefficient farmers. The results of technical efficiency showed that the farmers were efficient nevertheless, the sample farmers operated well below the production frontier and hence that they still had a chance to achieve targeted yields. Farmer’s financial benefit can be increased by reducing the feed price or increasing the output price. Profitability assessment and efficiency analysis of tilapia farming An application data envelopment


Introduction
The shortage of fish in the country increased day by day due to increase in population density. At the same time, due to land requirement of increased people for housing, marketing extension, road, offices etc. the water resources are declining every year. Fish farmers are now heavily dependent on input oriented aquaculture practices. Many researchers also recommended that tilapia farming is effective in poorer countries and it can give socio-economic development and overall development of Bangladesh. In recent years, tilapia farming is facing some problems. The marginal farmers have been replaced to the other farming instead of tilapia farming. Some farmers have practiced mixed culture with a small scale of tilapia in their pond. Fish farmers are shifting from fish cultivation to other agriculture and nonagriculture activities. This leaves the production sector vulnerable, which requires more attention. Now a day the production cost became high enough compared to the market price of the tilapia and the farmers are being discouraged to tilapia farming. It is being envisaged that if rising demand is not met by equally fast supply growth, shortages of fish will cause lower fish consumption, especially among the poor and threaten food security (World Fish Center, 2007). Therefore, tilapia production needs to be increased which can be achieved by increasing the efficiency of tilapia farmers using existing technology and encouraging them through profiting. New technology and scientific management practices that promise higher returns or lower costs are constantly being introduced. Improvements in these technology and production systems are all interlinked where research can complement traditional knowledge to improve the efficiency and productivity of aquaculture. Moreover, the available evidence suggests that farmers in the developing countries fail to exploit the full potential of a technology and/or make allocative errors (Thomas and Sundaresan, 2000). Thus, the measurement of financial profitability and the technical efficiency of tilapia is an important issue from the standpoint of aquaculture development exercises in developing countries like Bangladesh. It will give pertinent use and useful information for making sound management decisions on resource allocations and for formulating aquaculture policies.
Tilapia can be a promising fish for aquaculture in suitable seasonal water bodies. Tilapia culture has become widespread in Bangladesh in recent years and ranked second in terms of annual fish production of ponds. Only tilapia shares about 16.25% of the annual fish production of ponds while major carps (Rui, Catla and Mrigal) share about 30.06% (DoF, 2020). Recently, the low market price had severely damaged the farming of the exotic riverine catfish in the country. Therefore, a large number of commercial catfish producers have found tilapia as an alternative species to culture in their farms to maximize profit. Tilapia was introduced to Bangladesh by ICLARM (International Center for Living Aquatic Resources Management, now known as the World Fish Center) and BFRI in 1994 (Hussain et al., 2004;Ponzoni et al., 2010). Desiree, 2013 identified that Tilapia has great opportunities in the export market as well as in the domestic market. There were many economic studies on fish farming but a limited number of studied were done on tilapia farming in Bangladesh. The study revealed that the profitability and farmlevel technical efficiency of tilapia farmers of Bangladesh. The study it is was found that the tilapia fish production is profitable business. Studies on profitability of tilapia production at the farm level in Bangladesh are not widely available although results from experimental stations are available. Most importantly, the nature of responsiveness of the tilapia farmers to changes in input and output prices are not known at all. This information is important because Bangladesh farmers not only need to be more efficient in their production activities, but also to be responsive to market indicators, so that the scarce resources are utilized efficiently to increase productivity as well as profitability in order ensure supply to the urban market (Rahman, 2003) and increase farmers' welfare. Given this backdrop, the present study specifically addresses this critical research gap in knowledge on the farm-level profitability and nature of responsiveness of tilapia farmers to input and output price changes by systematically examining profitability and responsiveness of the tilapia producers to market forces. Few studies on profitability and technical efficiency in different aquaculture farms had been conducted but research work related to financial profitability and technical efficiency of tilapia farming in Bangladesh is very few. Therefore, this study is a modest attempt to find out whether the tilapia culture is profitable and the farmers efficiency on production in the selected area through the following objectives: i. To estimate the financial profitability of tilapia farming; ii. To find out the factors of tilapia farming in that selected area; iii. To assess the efficiency of tilapia farming in that selected area.

Data and methodology
Data or Information was collected for fulfillment of the objectives of the study. A total 70 farmers were selected from a field survey, which was conducted at Trishal Upazila in Mymensingh District. Five villages from three unions of the Trishal Upazila were taken under the consideration. Random sampling technique was used to estimate the sample size. This area was selected considering the large number of pond farms in this area. There is an easy communication facility, which raises the possibility of fish production trend in this area. The study area was not far away and thus it was less expensive as well as easier for data collection for the researcher.
The economic profitability analyses involved the use of farm budget to calculate revenues (R), total cost (TC), fixed cost (FC), total variable cost (TVC), average variable cost (AVC), total profit (TP), profit margin (PM), benefit-cost ratio (BCR), break-even price (BEP), and break-even production (BEPr), using the following formulas: Where, Qai is the quantity of the tilapia (kg/hectare), Pai indicates per unit price (Tk/kg) of tilapia, Qbi is quantity of other fish (kg/hectare), and Pbi is per unit price (Tk/kg) of other fish.
Gross margin (GM) is the difference between gross return and total variable cost. The formula was given as: Net return (NR) or profit means the total monetary sales value minus total cost of production. It estimated as: Benefit-cost ratio (BCR) is one of the most common indicators normally used in capital budgeting to determine the financial desirability of an investment. Calculating a BCR helps investors in assessing the certainty of how promising or successful an aquaculture enterprise might be. An investment is therefore profitable if the BCR is greater than one. Other important profitability indices are break-even price and break-even production.
A combination of descriptive statistics and economic analysis will be used to analyze the data.
In the study area, production costs and net return of Tilapia will be estimated as well as Benefit Cost Ratio (BCR).
The following type of Cobb-Douglas production function model was used for estimating the factors of production in tilapia farming.
Ln Yi = β0+ β1lnX1i+ β2lnX2i+……………………+ βnlnXni + Vi Where, Ln represents the natural logarithms, the subscript i represents the ith farmer in the sample, Y represents the yield of tilapia, Xi represents the variable factors of production, βi unknown parameter to be estimated, Vi assumed to be independently and identically distributed random errors, having N (0, σ2) distribution.
The empirical Cobb-Douglas production function with double log forms can be expressed as: β's and ᶯ's are unknown parameters to be estimated, Vi assumed to be independently and identically distributed random errors, having N (0, σ2) distribution.
To estimate the efficiency level of the fish farmers, the mean production function with normal distribution of data envelopment analysis (DEA) was employed which was found suitable for the data set. The DEA model used to assess technical efficiency under the Variable Returns to Scale (VRS) assumption was developed by Banker and Natarajan (2008) and was called the BCC (Banker, Charnes and Cooper) model. The use of the VRS specification permits the calculation of technical efficiency (TE) without the scale efficiency (SE) effects (Coelli and Battese, 1996). As the scale efficiency can be obtained by the ratio TE (CRS)/(TE)VRS thus the values of efficiency under CRS and VRS are required to calculate the scale efficiency.
The aim of this study is to analyses the nonparametric technique used in many studies of the agriculture sector. The econometric frontier approach -DEA (Data Envelopment Analysis)allows the use of multiple inputs/outputs without imposing any functional form on data or making assumptions of inefficiency. Technical Efficiency refers to the ability of a fish farmer to get the maximum output for a given set of inputs, with reference to a production function. Conversely, Allocative Efficiency concerns the ability of a tilapia farmer to use the inputs and produce outputs in optimal proportions given their prices. These two measures are combined to provide the measurement of total Economic Efficiency. The DEA model permits the measurement of both when we have information about prices and we want to consider a behavioral objective, such as minimizing costs and maximizing revenues. In the production-oriented models, DEA proposes the identifying of inefficiency as a proportional increase in production use. An input-oriented model for technical inefficiency with a proportional decrease in the use of the inputs can be used.

Results and Discussion
For making comparison among farmers, large and small farm size categories are identified. Farmers having pond size less than 200 decimals are considered as small and having pond size more than 200 decimals are considered as large farmers. For estimating profitability, cost items were classified into variable cost and fixed cost. Pond preparation, application of lime and salts, fingerlings, feed, carrying, labor, harvesting, electricity cost, marketing cost, medicine and miscellaneous costs were considered as variable cost. Variable cost varies the overall farm income. Lease value of land and construction of water supply and housing of the farm are fall into the category of fixed cost.

Profitability analysis of the large tilapia farmers
Farm profit was increased with the decreasing of variable costs. The cost of pond preparation was varied due to the size of a pond. It is necessary for a farm to prepare the pond for fish culture. The study revealed that the average cost of pond preparation of the large farmer was Tk. 19784.06 per hectare, which was 3.85% of total variable cost. For a better management of a farm, appropriate preparation of a pond must be needed before application of fingerlings to the pond. , which was about 89.9% of the total cost. Therefore, the profit of tilapia production was depended exactly on total variable cost. In this study, total fixed cost was Tk. 28546.58 per hectare for tilapia production, which was 10.1% of total cost for per hectare production of tilapia.
Seventy (70) tilapia farmers were selected in which 36 farmers were lies in large category and data were collected through direct interview method. Financial profitability was analyzed from different point of view. Benefit cost ratio and net profit margin were found more than one and positive respectively, indicated that the tilapia farming was commercially profitable. Study also revealed that the net profit margin was 17.53%. It means, it managed to convert 17.53% of its sale into net income of tilapia farming. Study also found the break-even price was Tk. 77.33 per kg. At this break-even price level, farm can cover the cost of production by selling tilapia. The study revealed that the average weighted price (Tk. 100.21) exceeds the break-even price (Tk. 77.33) per kg of fish. Since per hectare of production, gross return and per kg of price higher than the break-even point. That's why, the tilapia farming was financially profitable venture in the study area. Study also found the breakeven production was 1159.64 kg per hectare. This break-even production was higher and farm was profitable.

Profitability analysis of the small tilapia farmers
The study revealed that the average cost of pond preparation of the small farmer was  1.23 indicates that the tilapia farming was profitable. Study revealed that gross profit margin was 23.80% which indicates that about 23.80% of the revenue was available that earned from total sale in the farm after covering costs. The net profit margin was 18.71%. It means, it managed to convert 18.71% of its sale into net income of tilapia farming. Study also found the break-even price was Tk. 81.56 per kg. At this break-even price level, farm can cover the cost of production by selling tilapia. The study revealed that the average weighted price Tk. 102.44 exceeds the break-even price Tk. 81.56 per kg of fish. Since per hectare of production, gross return and per kg of price higher than the break-even point. That's why, the tilapia farming was financially profitable venture in the study area. Study also found the break-even production was 1584.63 kg per hectare. This break-even production was higher and farm was profitable.

Factors influencing tilapia production
The independent variables have a great influence on the yield of tilapia production. There were selected 8 most important variables in the Cobb-Douglas production function for determining the effects of the input variables. A correlation test was also conducted and multi co-linearity effects of the variables were excluded from the analysis. In table 3, the estimated values of coefficient and related statistics was presented.
The regression coefficient of feeds positively related to the tilapia culture. The result of coefficient found that 0.28 at 1% level of significant. It implied that an increase in feed use by one percent with other factors remaining same would increase by 0.28 percent of tilapia production. The production of tilapia would increase with the increased by feed used. Similarly, the regression coefficient of labor was significant at 1% level. The coefficient was 0.18 (p value 0.02) indicates that an increase in labor employment by one percent, remaining other factors constant, would increase the tilapia production by 0.18 percent. Electricity cost was positively related to the tilapia production. At 1% level of significant, the coefficient of electricity was 0.25 having p value 0.00. These results implied that the one percent increase in irrigation, would occur 0.25 percent positive changed in production of tilapia.
Lime was negatively related to the tilapia production. The regression coefficient of lime was significant at -0.12, indicated that an increase of lime cost, other factors remaining constant, would decrease the tilapia production by 0.12 percent. The cost of pond preparation was positive and insignificant. It implied that the production of tilapia would increase by 0.09 percent, keeping the other factors constant, if farmers increase one percent additional cost for tilapia production. Fingerling cost and training was negatively related to the tilapia production and insignificant. These results implied that the production of tilapia would decrease. The caring cost was positive and significant. It implied that the production of tilapia would increase by 0.09 percent, keeping the other factors constant, if farmers increase one percent additional carrying cost would increase the tilapia production by 0.9 percent. Station conduction and education of the tilapia farmer was positively related and insignificant. So, there was no effect of the conduction of the station for tilapia farming.

Efficiency analysis of tilapia farmer
Economic efficiency gives us this idea whether the farm is operating on optimal condition or not. Technical efficiency differs from 0 to 1. That means if technical efficiency (TE) is 0 then the farm is fully inefficient and if 1 then the farm is fully efficient. When we consider the input quantities with the output, we can take the assumption of constant return to scale for calculating technical efficiency. However, if we take consideration about price too, we use variable returns to scale. The technical efficiency, allocative efficiency and cost efficiency for individual tilapia fish farmer is discussed here.
Many studies show that the TE scores obtained from a CRS DEA into two components. One is scale inefficiency and other is pure technical inefficiency. If there are two different TE scores for a particular DMU, there is scale efficiency. The scale efficiency can be calculated from the difference between the VRS TE score and CRS TE score. In that study area, most of the tilapia farmers were in a state of technologically inefficient in that is stated table 4. Among them, the number of tilapia farmers whose technical efficiency value was less than 0.7 account for 16.67% of the total number of fish farmers, the number of tilapia farmers whose technical efficiency value was greater than or equal to 0.7 and less than 0.8 account for 26.67% of the total number of tilapia farmers; the number of tilapia farmers whose technical efficiency was greater than or equal to 0.8 and less than 0.9 account for 21.67% of the total number of tilapia farmers; the number of tilapia farmers whose technical efficiency value was greater than or equal to 0.9 and less than or equal to 1.0 account for 35% of the total number of tilapia farmers. Allocative efficiency was 1 about 1.67% of the total farmers, efficiency is between 0.7 to 1.0 was about 80% farmers and below or equal to 0.7 is about 18.33% farmers. Among 70 farmers, farmer no 5 was fully costs efficient farmer which was about 1.67% of total farmers, efficiency is between 0.6 to 1.0 was about 53.33% farmers and below or equal to 0.6 is about 45% of total farmers.

Conclusion
Tilapia fish farming among local fish farmers with limited financial resources remains a challenge. Most of the tilapia fish farmers face the challenge of unavailability of start-up capitals, high operating cost and poor management skill. Financial profitability and technical efficiency analysis is an important tool necessary for business planning, seeking financial assistance and successful management of the fish farm.
For getting higher production it is an important criterion, average return to each taka invest on production for measuring profitability of tilapia production. On an average, benefit cost ratio was found for the large-scale tilapia producer to be 1.213 and small-scale tilapia producer was found to be 1.230 based on total fixed cost and variable cost. The small-scale tilapia producers were more profitable along with production than large-scale tilapia producers. It indicates that overall performance of tilapia production in the study areas is encouraging in terms of profitability. This difference has resulted due to the variation in input use and poor management at farm level. To increase tilapia yield, the existing production practices of tilapia at farm level needs to be identified first. Adoption of new technology and production practices may be varied by the farmer's experiences on tilapia production, education, training and proper management skills. Variation in amounts in different factors of production and production pattern are responsible for yield difference among farmers and pond utilization.
Study also revealed that gross profit margin of the large farmers was 24.42% and small scale farmers was 23.80% indicating that farmers did not enough well in managing their farm and farmers has less to cover for operating, financing and other cost. Break-even price for the large tilapia farmers worked out Tk. 77.33 per kg and small farmers was Tk. 81.56 per kg while breakeven production for large farmers was found 1159.64 kg per hectare. Benefit cost ratio and net profit margin were found more than one and positive respectively, indicated that tilapia farming was commercially profitable. Considering all selected farmers, tilapia farming found a profitable business where undiscounted BCR for large farmers was 1.213 and small farmer was 1.230. This study used the data envelopment analysis to estimate the efficiency. The mean technical efficiency level of tilapia fish farmers was 81.8 where allocative efficiency was 93.1 and scale efficiency was 88.2 percent, implies that by operating at full technical efficiency levels, tilapia yield could be increased and efficient farmers found more productive than inefficient farmers did. The results of technical efficiency showed that the farmers were efficient nevertheless the sample farmers operated well below the production frontier and hence that they still had a chance to achieve targeted yields. Farmers financial benefit can be increased by reducing the feed price or increasing the output price. Feed price reduction or enhance the quality of feed could be effective policy options for sustaining the tilapia farming. There is necessary to have a better farm management knowledge to maximize profit. Financial profitability of tilapia farmer was estimated by using their different type of input and output variable. To determine the effect of production inputs, 10 important variables were included in a Cobb Douglas production function.
A highly significant F and R square-value also indicated that the included variables collectively are important for explaining the variation in yield. Lime costs, feed costs, carrying costs, labor costs and electricity cost are significant variable of the study area. In times of operating a farm, to make an optimal use of inputs for getting best possible output is essential. Hence, economic efficiency given us this idea whether the farm is operating on optimal condition or not. Technical efficiency differs from 0 to 1. That means if technical efficiency is 0 then the farm is fully inefficient and if 1 then the farm is fully efficient. When we consider the input quantities with output we can take the assumption of constant returns to scale for calculating technical efficiency. The average technical, allocative and cost efficiency scores for tilapia was 81.8%, 93.1% and 88.2% respectively. Hence, among 70 farmers, 18.33% farmers are fully technical efficient, 18.33% farmers are fully allocative and 53.33% farmers are fully cost efficient.