Profitability of Producing Fish Meal and Fish Oil from Catfish Processing Wastes

Aloyce R. Kaliba and Carole R. Engle

Aquaculture/Fisheries Center
University of Arkansas at Pine Bluff
1200 North University Drive
Mail Slot 4912
Pine Bluff, AR 17601, USA.
Tel: 870 575 8141; Fax: 870 575 4637; E-mail: akaliba@uaex.edu or cengle@uaex.edu
Abstract
This study was conducted to determine economic profitability of adding value to catfish
processing wastes by further processing the waste into fishmeal and fish oil. The major
results indicate that processing the wastes into fishmeal and fish oil was economically
viable. Plants producing fish meals and fish oils from catfish processing waste may gain
by focusing on markets for high protein pet foods, salmon feeds, and the section of the
dairy industry producing omega-3 milk. The stable supply and quality of raw materials
from the catfish industry provides an advantage in manufacturing customer tailored
fishmeal and fish oils.

1.0.

Introduction

The channel catfish (Ictalurus punctatus) industry in the United States has gone through
tremendous growth during its 45-year history. Total water surface acreage for catfish
production has increased from about 56,000 acres in 1980 to more than 156,400 acres in
2005 with a peak of more than 198,200 acres in 2000. The catfish processing industry has
also grown dramatically to keep up with rapid changes in supply and demand. Round
weight (live weight of fish delivered for processing) processed in 1980 in the U.S. was
2

approximately 47 million lb. By 2005, this number had increased to about 600 million lb, a
13-fold increase in 25 years. Producer sales (farm value) for food-size catfish totaled almost
$436 million for 2005, at an average price of $0.73/lb (NASS 1980, 2006).
A traditional product form of catfish processing is the whole-dressed fish. A fish
that has been de-headed, eviscerated, and skinned or headed, gutted and skinned (HGS)
with the tail left intact. The dressed fish is also further processed into a variety of cuts or
forms, including fillets (with belly flap), shank fillets (boneless fillet with the belly flap or
nugget removed), strips/fingers or fillet strips (boneless finger-size pieces cut from shank
fillets), steaks, breaded fillets and nuggets, heat-set, breaded fillets, portions and nuggets,
marinated fillets, smoked (fillets and dressed fish). All these forms are marketed fresh
and/or frozen. Some processors also sell round-eviscerated catfish with the head still
attached.
Processing of channel catfish to produce sellable products yields substantial
quantities of unutilized processing waste. Depending on the product forms dictated by the
marketing strategy of the processor, up to 47% of the fish weight is not usually utilized to
produce sellable products and are discarded as waste. Typical by-products from catfish
processing consist of offal waste (about 38% of the fish weight) and trimmings from steak
and fillets (about 9% of the fish weight). These byproducts can also be grouped into
trimmings, heads and frames, skin, and viscera. These byproducts can further be
processed into fishmeal and fish oil or can be grounded, cooled (or frozen), and then sold
3

to pet food companies as an ingredient for canned pet foods. In addition the wastes can be
processed into hydrolysate that are used to manufacture organic fertilizer and protein
concentrates high in essential amino and fatty acids and trace elements. Protein
concentrates can be used to produce other products with neutraceutical and
pharmacological values. Disposal of catfish processing wastes creates environmental
problems as well a loss of valuable nutrients. Producing value added products from
catfish processing waste is one of the potential solutions to waste management and
sustainable uses of available resources.
Initially, catfish processing was developed to help alleviate problems associated
with overproduction of farm-raised channel catfish. In the 1960s, most of the water
acreage was used to produce catfish for fee fishing and for live hauling to replenish other
fee-fishing ponds. As the live-haul market reached a saturation point in the late 1960s and
early 1970s, established producers moved into processing. In 1998, more than 90% of
production was marketed through commercial processors. Catfish is now the fourth most
popular seafood product in the U.S. More than 363 million lb of U.S. farm-raised
processed catfish were consumed in 2005 through various product markets, for a per
capita consumption of about 1.3 lb. Total revenue to processors was almost $688 million in
2005 (NASS 2005).
Catfish processing wastes commonly known as offal are increasingly becoming an
important segment of the catfish-processing sector. Catfish processing waste can be
4

processed into a wide array of products to increase economic value and allow the catfishprocessing sector to increase profit margins. Further processing means less cost for
discharging sold materials into waste treatment systems, less pollution and additional
income. Due to availability of information concerning the nutritional value and technical
methods of utilizing and processing of the waste there is a need to conduct feasibility
studies to determine financial and economic feasibility of adding value to these wastes.
Adding value generates income and employment in rural areas where most catfish farm
and processing plants are based. Kaliba and Engle (2006) reviewed and listed potential
value added products that can be manufactured using catfish processing waste. In this
study feasibility analysis is conducted in terms of producing fishmeal, fish oils, fish
hydrolysate and organic fertilizer from catfish processing waste. The four products were
selected due to market potential and possibility of adaptation by catfish processing plants.
Fishmeal is a ground solid product that is obtained by removing most of the water
and some or all of the oil from fish or fish waste. This industry was started in the 19th
century, based mainly on surplus catches of herring from seasonal coastal fisheries to
produce oil for industrial uses in leather tanning and in the production of soap, glycerol
and other non-food products. Presently, the industry uses small oily fish and fish
processing waste to produce fishmeal and oil. Enzymatic hydrolysis of fish processing
waste results in a more nutritional product known as fish hydrolysate. The product can be
processed further into organic fertilizer, or into other livestock feed ingredients.
5

A Feasibility Study is a short assessment of an information system to determine

whether the system can meet the specified business requirements of the new investment,
and whether a business case exists for developing such a system. For most agricultural
enterprises, feasibility analysis combines market study, technical assessment, and financial
and economic analyses to provide potential investors with knowledge of both the targeted
market and the expected return from the investment.
Market analysis involves analyzing secondary data with an intention of predicting
the future of the targeted market. The market analysis includes but is not limited to
defining and describing prospective customers, including target markets, size and
structure of the customer base, sales potential, competitors and growth prospects.
Technology assessment generally identifies advances and improvements in existing
practices, and means of incorporating new ideas, materials and procedures, from other
fields. The focus is on pointing out available technologies that can influence marketing
opportunities of the new product. The objective is to determine whether the current
technology is practical for the new enterprise. Economic feasibility is used to measure the
cost effectiveness and benefits of the project using benefit-cost and break-even analyses.
On the other hand financial feasibility is a quantitative approach to evaluate the inancial
position of the project. For new investment, financial feasibility analysis determines how
much money is needed for investment and future project implementation. This is to help
the management team to identify necessary sources of financing.
6

This report is organized as follows. In the following section we discuss the

techniques that are currently used to produce fishmeal, fish oil, and fish hydrolysate from
fish processing waste. Potential markets for these products are discussed in section 3. The
focus is on analyzing customer base and advantages accorded by these products.
Procedures that were used to conduct financial and economics analyses are presented in
section 4. Results and implications arising from this study are presented, respectively, in
sections 5 and 6.
2.0

Technical Feasibility

2.1

Fishmeal and fish oil

Fishmeal and fish oil are produced by a continuous process, which involves cooking,
pressing, drying and milling of fresh raw materials. Yields of fishmeal and fish oil can
vary between sources of raw materials but between 15 - 25% of fishmeal and 5 -18% of fish
oil can be obtained by processing different parts of fish processing waste. Sathivel et al
(2003a, 2003b, 2003c) suggests that about 34% crude oil (wet weight basis) could be
recovered from the whole catfish viscera. The yield of deodorized catfish oil was 65.7%.
Major yield loss (19%) took place during the removal of phosphorus- containing
glycerides or phosphatides (i.e., degumming process).
FAO (1989) provides advice and guidance on the production of fish meal and fish
oil from fish processing waste. The five step major steps of producing fishmeal and oil
from fish processing waste are cooking the raw materials by conveying them through a
7

steam -cooker, where it is heated to 90C-95C. This sterilizes the raw material, coagulates
the proteins and disrupts the cell membranes to facilitate the separation of the solubles
and the oil from the dry matter. The second step is pressing the cooked materials using a
screw press where much of the liquid is squeezed out to yield a presscake containing 6080% of the oil-free dry matter (protein, bones), and a liquid phase (press liquor)
containing water and the rest of the dissolved solids (oil, dissolved and suspended
protein, vitamins and minerals). The third step involves separating the water and most of
the oil from the press liquor, as well as dissolved proteins, salts and fine particles using a
decanter. These particles, sometimes called sludge, are removed in a decanter and
transported to the drier to be mixed in with the presscake. The liquid from the decanter is
fed to separators where the oil is removed and stored in tanks. The remaining sludge
from the separators is fed to the evaporators where it is concentrated and blended with
the presscake during the drying stage. The water in the press cake, sludge and concentrate
is removed by rapid air-drying after which the fishmeal is cooled, milled and stored for
sale.
There are alternatives to this layout and also different types of equipment to choose
from in order to enhance efficiency at each stage. Detailed information can be found in
FAO (1986) or manufacturer of different plants. With the development of centrifuges that
can handle materials with high contents of solids, the common adjustment in the flow
diagram in Figure 1 is to use decanters instead of presses to separate the solids from the
8

liquid in cooked fish processing waste. This adjustment tends to simplify the process,
allows the control of the production process than pressing and filtration. Centrifugation is
a much quicker process than pressing and significantly reduces the heat load on the
material, a factor of importance for the manufacture of special products. The most
important advantages are the ability of the centrifuge to process soft and very fluid
material and simpler procedures for washing operations. On the negative side the
centrifuge will discharge the solids with higher moisture content than the press. This
means increased fuel consumption for the drying operation. Furthermore, the centrifuge
tends to produce more emulsions and fines particles, causing problems in the subsequent
separation of oil. Plants with decanters instead of presses are generally suitable for small
or medium plants that process 12 to 300 ton of raw material per 24 hours (FAO 1986).
Oil polishing is carried out in special separators and purifiers. Polishing includes
degumming, neutralization, bleaching, and deodorization processes to extracts impurities
and fish odor from the oil, which also ensures stability during storage. The efficiency of
separation depends upon both design and mode of operation of the centrifuges and
purifiers. At this stage good temperature control is required; the temperature is commonly
maintained between 90C and 95C. In the U.S., several companies are involved in the
design and manufacturing of fish waste processing plants. Most of the fish waste
processing plants are set-up in Alaska, the Gulf of Mexico, and in major fishing areas
along the Northeastern shores of the Atlantic Ocean. These plants are used to process
9

salmon processing waste and fishery by-catch and wastes from fish filleting. The main
products are fishmeal, fish oil and concentrated fish hydrolysate. Some plants in
Mississippi and Louisiana are processing catfish offal to produce fishmeal and fish oil,
organic fertilizer and crawfish baits. It is therefore obvious that the technology to process
catfish processing waste is commercially available.
2.2

Fish Hydrolysate

A liquefied fish product is one of the most economical methods of preserving value-added
products from fish processing waste, so that it can be further processed or transported to
another location. This can be especially useful when only small amounts of fish processing
waste are produced. There are two kinds of liquefied fish products: fish emulsion and fish
hydrolysate. In the manufacture of fish emulsion, the fish processing wastes are cooked at
temperatures in excess of 82C to kill most of the putrefaction bacteria. The resulting
product is filtered and stabilized using sulfuric or phosphoric acid. However, fish
emulsion is difficult to store and it is lower in nutrients as well. The added stabilizers
make it suitable for use as foliar organic fertilizer as it is easy to inject into a drip irrigation
system (Baker 1996).
The liquid fish hydrolysate is produced through a ow temperature enzyme
hydrolysis process. It is a liquefied organic compound, made by utilizing naturally
occurring enzymes present in fish processing waste. The hydrolysate production process
substantially lowers capital and production costs as comparable to fish emulsion
10

production. A lower temperature used in fish hydrolysate production allows retaining

more of the functional and health properties of fish protein (FAO 1975). The liquid protein
is made by grinding the waste, heating at lower temperature and a self-digestion process
breaks down the waste into water, lipids, protein and ash. Adequate grinding is a basic
operation of the whole process. An approximate chemical composition of fish hydrolysate
is: about 15% protein, 6-14% fat, 2-3% ash, water and other micro elements and vitamins.
The yield is 95% and the whole process from processing wastes to fish hydrolysate can
take 48 hours. To speed up the processes, organic enzymes are added during the mixing
stage, which my lower the processing time to less than 30 hours.
The fish hydrolysate can be stored for up to 6 months if it is stirred periodically and
kept at about 15-20oC. However, this may necessitate adding preservatives during the
production process. Sodium pyrosulphite, 1% for fatty and medium fatty offal, and 1.3%
for lean product or sulphuric or hydrochloric acid, both at 1% are used as preservatives
that maintain the pH of the products between 3.5 and 4.5 (Baker 1996). According to FAO
(1986) the basic requirement to achieve a longer self is to produce a homogeneous product
mix consisting of the fish hydrolysate and preservatives. Homogeneity can be achieved by
using slowly revolving mixers or other methods (turbulent mixing causes aeration of the
mix and consequently oxidation of fatty acids). When mixing is too gentle, pockets of mix
occur which do not contain preservatives, and decomposition of the product by the
bacteria may begin. Storage tanks need to be equipped with mixers or recirculation
11

systems powered by pumps and should be located under a roof to avoid solar radiation.
Fish hydrolysate production is still a new business, more research is still needed to
produce new innovations to speed up the process and increase self-life of the product. A
production of specific organic fertilizer from fish hydrolysate is by adding additional
minerals such as nitrogen, phosphorus, potash etc to the desired levels.
3.0

Market Assessment

3.1

Market potential for fishmeal and fish oils

The fishmeal and oil industry, which started in northern Europe and North America at the
beginning of the 19th century, was based mainly on surplus catches of herring from
seasonal coastal fisheries. This was essentially an oil production activity; which had uses
in leather tanning and in the production of soap and glycerol and other non-food
products. The residue was originally used as fertilizer, but since the turn of this century it
has been dried and ground into fishmeal for animal feeding (Windsor 2001). The main
uses of fishmeal and fish oil is incorporating the products in the diets of most livestock
such as diary cattle, poultry, pigs and fish, which need higher quality protein demand.
In 2002, 24% of the wild fish catch was used for non-food products, primarily for
fishmeal and oil (FAO 2004). About two-thirds of the world's fishmeal is derived from
fishery sector devoted to the production of fishmeal and fish oil. Global supply of fishmeal
and fish oil are widely manufactured from small pelagic, or open sea, fish including
Peruvian anchoveta, Icelandic herring, menhaden from the Gulf of Mexico, Norweigian
12

capelin, and sand eels from the North Sea. Iceland, Peru, Chile, and Denmark lead the
world in production of fishmeal and fish oil (FAO 2006). This geographic concentration of
production makes the supply unreliable, vulnerable to natural changes, and subject to
price instability. In 1998, for example, El Nio caused a significant decrease in production
and a dramatic increase in price.
In the U.S.A., the majority of the fishing industry for fishmeal and fish oil
production is in the Gulf of Mexico. The main industrial fish harvested is menhaden,
which is credited to the production of 98% of the fish oil produced in the U.S. Smaller
quantities of fishmeal produced in the U.S.A. are made from herring, redfish, and white
fish. This kind of fishmeal is low in oil, and comparatively higher in ash than the fishmeal
from menhaden because of the relatively large amount of bone it contains compared to the
amount of muscle.
The global and U.S. demand for fishmeal and fish oil is summarized in Table 1. U.S.
net demands include production and import net export. On average, fishmeal valued at $3
billion a year was traded globally between 1976 and 2004. There is a general positive trend
in terms of value of traded fishmeal with the associated price. The U.S. has been
consuming between 3 and 10% of all globally traded fishmeal. The trend in global
production and U.S. consumption of fish oil is similar to that of fishmeal. The U.S. has
been consuming between 6 and 30% of global production of fish oil. The average is 14%.
With aquaculture production expected to increase substantially over the next decade,
13

demand for fishmeal and fish oil is expected to be strong. According to Tacon (2004)
fishmeal and fish oil production is likely to remain at current levels but that of raw
materials may change as current products such as sardines and anchovies are diverted to
human consumption and other sources, such as by-catch and processing waste.
In the U.S., the potential market bases for fishmeal and oil from catfish processing
wastes are the animals feed and the pet food industry. Within the animal feed industry,
the most interesting are the dairy sector and salmon farming. Globally, the dairy sector is
more concerned with milk quality rather than quantity, and reduction in production cost.
Fishmeal and fish oil based diets have been shown to increase milk production and
improve milk quality in terms of increasing protein content, essential amino and essential
fatty acids. The diets also improve dairy cow fertility, which plays an important role in
reducing the cost of milk production.
Extensive research, which has been done worldwide on fishmeal and fish oil,
provide an insights into its mode of action in the dairy cow's diet and the effect it has on
productivity and milk quality. Carrol, Hossain and Keller (1995) and Spain, Polan and
Watkins (1995) studies indicate that supplemental fishmeal has positive effects on lactation
and reproductive performance of dairy cows. Wright et al (2003) examined the effect of the
combination of fishmeal and feather meal on milk fatty acid content and nitrogen
utilization in dairy cows. A study by Abu-Ghazaleh, Schingoethe and Hippen (2001) and
Abu-Ghazaleh et al (2002) examined the blood amino acids and milk composition from
14

cows fed soybean, fishmeal or both. All these studies suggest that milk quality in terms of
available protein and essential amino acids and fatty acids improves when dairy cows are
fed fishmeal and fish oil based diets. Apart from improving milk quality, fishmeal and fish
oil based diets are currently used by the dairy sector to improve the general health and
welfare of lactating cows.
A rising star in the dairy industry is the production of milk with enhanced
concentration of in Omega-3 and essential amino acids. A Google search on Omega-3 milk
resulted in more than 3.5 million hits. Key Omega-3 fatty acids include eicosapentanoic
acid (EPA) and docosahexanoic acid (DHA), both found primarily in oily cold-water fish.
A third Omega-3, called alpha-linolenic acid (ALA) is found primarily in dark green leafy
vegetables, flaxseed oils, and certain vegetable oils. All three fatty acids are important to
human health and nutrition. In addition, Omega-3 fatty acids constitute about 1/3 of
human brains and nervous systems. Since brain volume doubles in the first year of life;
brains and nervous systems have to keep pace with brain's rapid physical growth; thus,
infants and toddlers need a great deal of the Omega-3 fatty acids. Drinking milk high in
Omega-3 fatty acids as part of a healthy balanced diet gives a useful additional source.
Petit et al (2002) indicate that feeding fish oil to multiparous Holstein cows
decreased milk fat percentages. Abu-Ghazaleh, Schingoethe and Hippen (2001) concluded
that replacing as much as 50 or 100% of dietary soybean meal with fish meal improved the
amino acid balance, increased the protein content in milk and decreased milk fat
15

percentages. In their study, AbuGhazaleh et al (2002) conclude that feeding fish oil to
lactating cow most effectively increased concentrations of conjugated linoleic and
transvaccenic acids in milk. The two acids are important in controlling obesity in humans.
Other studies indicating that feeding fishmeal and fish oil to lactating cows has a positive
influence on increasing omega-3 fatty acids and conjugated linoleic and transvaccenic
acids include that of Donovan et al (2000) and Ellis et al (2006).
An Internet search results indicated that Omega-3 milk is currently marketed as an
organic food. This means that the milk is from dairy cow fed on pastures fertilized with
organic fertilizer, however it will be cheaper and more efficient to directly feed fishmeal
and fish oils to lactating cows in order to increase concentration of Omega-3 fatty acids,
essential amino acids and reduction of fat contents in milk.

Promotion of milk with high

concentrations in both Omega-3 fatty acids and conjugated linoleic acid will increase both
milk consumption and demand for fishmeal and fish oil by the dairy industry.
Another potential market base is the salmon-farming sector. Currently, aquaculture
uses 70% of the world's fish oil and 30% of the world's fishmeal. The International
Fishmeal and Oil Manufacturers Association predicts that by 2010 aquaculture could
consume 90% of the world's fish oil and 55% of the world's fishmeal (Tacon 2004; Tibbetts,
2001). In the U.S. demand for fishmeal and fish oil in the aquaculture industry is likely to
increase from the salmon-farming sector. Unlike herbivorous farmed fish, salmon are
carnivores and require nutrient-dense fishmeal and oil. Fishmeal processed from herring,
16

is the main feed ingredient for farm-raised salmon. Although Alaska has banned salmon
farms, other states, notably Washington and Maine allow salmon farming. U.S. is ranked
seventh in the world in farmed salmon production. This situation may rapidly change due
to a proposal which seeks to increase the U.S. fish farm production levels five-fold by the
year 2025. The proposal is focusing on salmon farming in offshore waters that are beyond
state control. While aquaculture nutritionists are experimenting with salmon feeds made
from vegetable sources, this approach is still in the developmental stage. Demand for
fishmeal and fish oil is likely to increase as salmon farming takes root in the U.S.
A linkage between the pet food industry and the products from fish processing
arise from the need to incorporate Omega-3 fatty acids in pet food. Composition and
bioavailability of Omega-3 fatty acids is fundamental in the production of all kinds of pet
food. Cats are obligate carnivores, meaning they require more protein than other
mammals. In cats, when dietary protein intake is sufficient, the amino acids lost from
skeletal muscle are replaced with dietary amino acids and lean body mass is maintained.
If the levels of dietary protein are inadequate, protein turnover continues but at a slower
rate. Meeting daily protein requirements is essential for cats because it helps maintain lean
muscle mass and promotes a healthy weight. Due to this reason, most lines of cat food
contain protein levels of 40% or higher.
Dogs are considered to be omnivores, animals that eat both animal and plant-based
foods; however, they should be treated primarily as carnivores to better fulfill their specific
17

nutritional requirements. The dog's gastrointestinal tract is simple and does not have the
capacity to digest large amounts of plant products. Animal-based proteins help dogs
achieve optimal health. Accordingly, most dry dog foods are enhanced with vitamin-rich
fish oils to provide essential nutrients to nourish heart, liver, kidneys, and skin. As
indicated before, Omega-3 fatty acids are abundant in fish oil based diets, which are used
preferentially for selected functions, such as proper brain development and reduced
inflammatory response. Moreover, it has been proved that the use of Omega-3 fatty acids
in pet foods and supplements helps to reduce the signs of allergies and other skin
inflammatory dysfunctions such as itching and reddening. Veterinarians often advocate
the use of Omega-3 fatty acids as routine supplements for dogs or cats with non-specific
skin problems.
A major question to ask is why should the discussed three sectors prefer fishmeal
and fish oil from catfish processing waste. Both the dairy and pet food industries demand
feed ingredients that are specific in composition and quality. Compared to the fishery
industry, the catfish industry has a potential advantage of supplying consistent raw
materials or the production of raw materials can be manipulated (through feeding and
processing) to conform to the market demand. Since catfish farming is through a
controlled management system, custom tailoring of specific fishmeals such as starter meal
for salmon farming or protein concentrated for supplemental feeding of lactating dairy
cows can be easily accomplished by the catfish waste-processing sector. The system is able
18

to offer year round availability of a raw material supply, more consistent quality, and
reduced risk of contamination with polychlorinated biphenyls (PCBs) and other dioxinlike contaminants (DLCs).
Specifically, for salmon, a major concern is the PCBs and DLCs that are sometimes
present in fishmeal and fish oil manufactured by the fishery sector. Farmed salmon are
raised in pens, where they may be fed on feeds made from other fish that have lived in
polluted waters. As a result, they tend to accumulate more PCBs and DLCs than wild
salmon. According to NAS (2003) several samples of fishmeal from six countries were
tested and found PCBs contamination in nearly every sample. This study indicated that
levels of PCBs and other DLCs in fishmeal and fish oil manufacture by the fishery sector
are uncontrollable and presently there is no known intervention that can lower the both
PCBs and DLC levels in these products. PCBs build up in salmon up to 30 times the levels
in their feed and surrounding environment. Even low concentrations of PCBs in fishmeal
can become a concern for human health. Even low levels of PCBs in fishmeal can
accumulate in salmon fish tissues. Apart from other factors related to consumer
preferences, the farmed salmon industry stand to gain by using fishmeal and fish oil from
the catfish industry as a clean feed source for their feeds. By assuring consumers that the
feeds used in producing farmed salmon are free from PCBs and DLCs; the salmon
farming sector in the U.S. may be able to catch a premium (about $7/lb) paid by
consumers for wild salmon.
19

3.2

Market for fish hydrolysate

Fish hydrolysates are marketed as viscous liquids which look like a chocolate pudding
with an odor of fresh fish and vinegar. The products constitute about 55% water and 45%
solids. Depending on the type of fish, the solids are comprised of 30-32% protein, 3-7%
lipids and 2-7% ash (Wright 2004). There is no formal and full-scale market for fish
hydrolysate; therefore, it is difficult to determine the size of the market. The potential
market base may involve any application currently using fishmeal and oils; with further
processing into organic fertilizer, protein concentrates, and other products with
nutraceutical and pharmacological use.
For the catfish industry, the most interesting market can be turning the fish
hydrolysate into organic fish fertilizer. Fish hydrolysate produced at low temperatures
maintains the integrity of naturally occurring amino acids, vitamins, hormones and
enzymes. In addition, this kind of fish hydrolysates contain the natural oils and proteins of
fish, which break down slowly becoming available to soil microbes over a longer period of
time than chemical fertilizers. Moreover, hydrolyzed fish fertilizer creates excellent plant
growth. Fish hydrolysates are known to provide adequate macro and micronutrient
required for healthy plant growth (Chitralekha et. al. 2000). In addition fish hydrolysate
can also act as biofertilizer. Biofertilisers are carrier-based microbial inoculants containing
specific micro-organisms that help in enhancing soil fertility, by fixing atmospheric
nitrogen, enhancing solubilisation and mineralisation of phosphorous and potash and
20

decomposing organic wastes. Biofertilisers are a pollution-free low-cost input that can play
a vital role in integrated plant nutrient supply.
On a commercial scale, fish hydrolysate can be used to manufacture organic
phosphate fertilizer. Fish hydrolysate can be mixed with rock phosphate to forms an
organic solid-phosphate fertilizer. Inoculation of organic phosphate fertilizer with bacteria
and fungi will increase the availability of the phosphorus by promoting dissolution
(During 1984). The bacteria and fungi feed on the fish nutrients and produce acids, which
in turn break down the rock phosphate into forms that are available to plants. This process
occurs naturally in the soil but is relatively slow when compared with the use of
inoculated organic phosphate fertilizer (Mckenzie 1995). In this regard, the catfish waste
processing can focus more on producing hydrolysate and then sell the product to other
industries or can further process the product into organic fertilizer.
4.0.

Economic Feasibility Analysis

4.1

Capital Budgeting

Capital budgeting techniques are common tools used in the economic profitability and
financial feasibility analyses of new investment or expanding existing ones. It is a process
of determining the economic worthiness of allocating financial capital among various
investments. Economic profitability of an investment is determined by discounting
expected cash flow from the new investment. Discounting of cash flow results in

21

calculating economic profitability measures that include payback period (PBP), net
present value (NPV) and internal rate of return (IRR).
The PBP determines the length of time required to recover an initial investment by
a cash flow to be generated by the investment. It is equal to the net investment amount
divided by the average annual cash flow from the investment. The Payback tells the level
of economic profitability of an investment in relation to time. Agricultural ventures are
associated with price volatility. The PBP provides some indication of risk by separating
long-term from short-term projects. Shorter PBP (between 2-5 years) are preferred for new
investment opportunities. The PBP is a tool that is easy to use and understand, but it does
not address the time value of money, nor does it go beyond the recovery of the initial
investment as it does not measure total income (ADB 2001).
Estimation of NPV is an approach used in capital budgeting where the present
value of cash inflows is subtracted by the present value of cash outflows. The analysis
allows comparing the value of a dollar today versus the value of that same dollar in the
future, after taking inflation and return to investment into account (Barry et al 1995). If the
NPV of a prospective project is positive, then it should be accepted. However, if it is
negative, then the project probably should be rejected because cash flows are negative (i.e.,
the project or the new venture is not economically profitable). The NPV analysis, however,
is sensitive to the reliability of future cash inflows that an investment or project will yield.
Assumptions attached to the future cash flow largely affect the analysis outcome. Wulff
22

and Helgeson (1987, 1984) used NPV analysis tools to determine economic profitability of
producing high fructose corn and processing pasta in North Dakota. Another study, which
uses the same tools, is that of Chaitanawisuti Kritsanapuntu and Natsukari (2002) who
analyzed the economic profitability of commercial production of spotted babylon of
marketable sizes using a flow-through culture system in Thailand. Outlaw et al (2003)
used the same method to determine economic profitability of producing ethanol from
feedstock in Texas.
In the capital budgeting literature, IRR is defined as any discount rate that results in
a net present value of zero. It is usually interpreted as the expected return to be generated
by the new investment and used by firms to decide whether they should make long-term
investments (Barry et al 1995). In general, if the IRR is greater than the project's cost of
capital, the project will add economic worth to the business. The limitation of the IRR is
that it cannot be used to rate mutually exclusive projects, but only to decide whether a
single project is worth investing in. In cases where one project has a higher initial
investment than a second mutually exclusive project, the first project may have a lower
IRR (expected return), but a higher NPV (increase in economic wealth) and should thus be
accepted over the second project. To compare mutually exclusive projects, the marginal
IRR is used instead. In addition, the IRR cannot be used in the usual manner for projects
that start with an initial positive cash inflow and then followed by a series of negative cash
flows. In this case the usual IRR decision rule needs to be reversed. Also, if there are
23

multiple sign changes in the series of cash flows (e.g., negative to positive), there may be
multiple IRRs for a single project, so that the IRR decision rule may be impossible to
implement (Martin 1997).
Another critical shortcoming of the IRR method is that it is commonly
misunderstood to convey the actual annual profitability of an investment. However, this is
not the case because intermediate cash flows are almost never reinvested at the project's
IRR; and, therefore, the actual rate of return that would have been yielded by stocks or
bank deposits is almost certainly going to be lower (ADB 2001). Accordingly, a measure
called Modified Internal Rate of Return (MIRR) is used, which has an assumed
reinvestment rate, usually equal to the project's cost of capital. Despite a strong academic
preference for NPV, surveys indicate that executives prefer IRR to NPV (Zugarramurdi
and Parin 1995). Apparently, managers find it intuitively more appealing to evaluate
investments in terms of percentage rates of return than dollars of NPV. However, NPV
remains the more accurate reflection of the economic worthiness of the new business.
Since the estimation of the three economic profitability measures involves the same
information, it is common to use all three measures to convey a true picture of the
economic profitability of the new investment.
Capital budgeting not only involves estimation of expected returns but also
evaluation of all variable and fixed costs, which are necessary to predict the profitability of
the proposed venture. This step requires detailed information to accurately and reliably
24

predicts market and production data. Cost estimation is the identification and compilation
of all cost items to be incurred by the new project (Nelson et al. 1991). There are several
ways of obtaining cost estimates of capital projects. Traditionally, cost estimating involves
compilation of historical data for use in correlating and validating existing production
methodologies. Production methodologies and the corresponding cost data are then
used to prepare cost estimates for the new investment. Historical data greatly improves
accuracy of cost estimates. A problem arises when the cost estimate is required for new
projects where historical data are not present. For example, for some new investments,
economic feasibility analysis is of innovations or processes that are yet to be proven or
technical alternatives that are too numerous or complex. Sometimes market price
information may not be readily available. In such cases, technical feasibility is established
first and then depending on the size of the project, a detailed systems design is outlined
and used to estimate set-up cost by valuing individual components of the system.
This is achieved by estimating the cost for a given plant size and then a cost
capacity factor formula as proposed by Williams (1960) is used to estimate plant costs of
different sizes. The cost capacity factor is a scalar used to estimate the costs involved in
building plant prototype of different sizes based on available set-up costs associated with
a particular plant size. For example, set-up costs may be available for a plant capable of
processing 400 tons of fish for 24 hours. The cost information of this plant and the cost
capacity factor for fish processing can then be used to estimate set-up costs for different
25

plant sizes. Zugarramurdi and Parin (1995) and Gunjal et al. (1999) used the cost capacity
factor procedure to estimate set-up costs of fish processing plants of different sizes. Parin
and Zugarramurdi (1994) estimated the cost capacity factor for the fish processing plant to
be 0.846, which implies that there are economies of scale in fish processing.
4.2.

Risk and Uncertainty

The terms risk and uncertainty tend to be applied generically to the analysis of situations
with unknown outcomes. Following Barry et al (1995) risk analysis is an empirical
measurement of the likelihood of a value of variables falling within stated limits described
by the fluctuations around the average of a probability distribution. Uncertainty cannot be
quantified and described by a probability distribution. According to Hardaker, Huirme
and Anderson (1997) the two represent a spectrum of unknown situations ranging from
perfect knowledge of the likelihood of all the possible outcomes at one end (i.e., risk) to no
knowledge of the likelihood of possible outcomes at the other (i.e., uncertainty).
For a new investment, risk analysis is therefore a methodical investigation
undertaken to assess the economic and financial variables that may affect a business
venture. It is used to identify and analyze threats and vulnerabilities in order to ascertain
the exposures, and highlight how the impact can be eliminated or reduced. Risk analysis
therefore involves identifying those factors, which are the key determinants of project
outcomes, determining the likelihood of an individual project's returns being
unacceptable because of the effects of the identified key risk factors, and designing
26

measures within that project context to mitigate the identified risks arising from the
identified key factors (Richardson and Mapp 1976).
There are two types of risk analysis: qualitative and quantitative risk analyses.
Qualitative risk analysis does not involve numerical probabilities or predictions of loss.
Instead, the qualitative method involves defining the various threats, determining the
extent of vulnerabilities and devising countermeasures should an attack occur
(Farnsworth and Moffit 1981). In quantitative risk analysis, an attempt is made to
numerically determine the probabilities of various adverse events and the likely extent of
the losses if a particular event takes place. The purpose of quantitative risk analysis is to
provide a means of estimating the probability that the estimated project's economic and
financial feasibility measures will fall below the desirable levels. For example, a
cumulative distribution probability function can be used to determine the probability of
getting negative NPV arising from variability in costs or benefits (Richardson 2004).
The most widely applied technique for describing uncertainty is sensitivity
analysis, which involves changing the value of one or variables that affect a project's costs
or returns and recalculating the resulting changes in the project's economic and financial
feasibility measures. If well conducted, sensitivity analysis leads to the identification of
those variables to which a particular project design is most sensitive, and mitigating action
can then be taken (if desired) to minimize the consequences of such outcomes. The
fundamental limitations of sensitivity analysis are that the technique does not take into
27

account the probability of the occurrence and distribution of variables that are being
analyzed (Hanson 1981).
5.0.

Data Description

The proposed investment is by extending an existing catfish processing plant to produce

fishmeal and fish oil or fish hydrolysate or organic fertilizer. For existing plants, all
production costs remain unchanged. The plants would obtain catfish processing wastes
from its operation (for extension). For fishmeal and fish oil plant, setup and operational
requirements were determined from secondary sources and by conducting interviews
with experts in the catfish processing business and manufacturers of different components
of these plants. For medium and large plants, setup and operation costs were based on the
study by Pook (2003) for a plant able to process about 400 tons of waste per 24. Based on
that information the concept of cost capacity factor was used to estimate the setup and
operation cost for plants able to process 10 (Small) and 50 (medium) tons in 24 hours. The
relationship between setup costs of two plants with different capacities of production but
producing the same product can be presented as:

CA1
C1 C2

CA2

CCF

(1)

28

Where C1 is the unknown setup cost of plant, C2 is the known cost of similar plant, CA1 is
the production capacity of a plant with unknown setup, CA2 is the capacity of a similar
plant capacity with known setup cost, and CCF is the cost capacity factor.
Table 2 presents standard units that were used to estimate production cost and
yield for a 400 ton-capacity processing plants. Production yield represents the estimated
mount of output that can be produced by processing a unit of raw material (fish waste) as
reported by Pook (2003). On average, 10 tons of waste will produce about 1 ton of
fishmeal and 0.7 ton of fish oil. The other parts are lost as effluent and vapors. The
machine will be operated for 24 hours by about 4 laborers. The other information is related
to fuel, electricity, and water consumption rates. Fuel is for heating; electricity for running
the machines, and water is added to the raw materials. Fishmeal is commonly packed into
large bags (500 kg), or medium and small sized bag, which weigh 50kg and 35 kg,
respectively.
Operating plant criteria and unit price or cost for outputs and inputs are presented
in Table 3. The assumption is that the plant gets the processing material from the existing
catfish plant. There are no additional costs for raw material and disposal of effluents. Price
of fishmeal and fish oil is equivalent to the average of wholesale prices charged by
fishmeal and fish oil processing plants in the Gulf of Mexico. The machine is assumed to
run for three shifts a day and one shift equals 8 days. Most processing plants run from
Monday through Thursday, with about 256 working days in the year. Utility costs include
29

average gas price and electricity for mid August 2005 in Arkansas obtained from the
Department of Energy website at http://www.eia.doe.gov/neic. Information on packaging and
use of anti-oxidants were obtained from the industrys participants.
Cost of producing organic fertilizer from fish hydrolysate is based on the APS
SYSTEM manufactured by the Deutrel Industries. According to Jonathan Rhoten, CEO of
the Deutrel Industries (personal communication) and the industry website, the APS
SYSTEM is able to convert catfish processing waste into a usable and saleable liquid
organic fertilizer. The system utilizes a recently developed biotechnology to biologically
convert waste material into a liquid. The resulting liquid may be formulated with other
specific nutrients to form a balanced or specialized organic fertilizer or reconstituted by
drying. The APS SYSTEM utilizes enzymes produced by the specialized bacterial culture
as well as other biochemical, physical, and thermodynamic fundamental principals to
convert waste (even with bones) into a liquid for use in a liquid organic fertilizer
concentrate or feed protein hydrolysate concentrate. The thermophilic bacteria generate
the heat beyond pasteurization temperatures; therefore, all disease-producing organisms
are destroyed. The heat generating process is cost effective as most of the heat is provided
by the biochemical activity in the reactors. Finally, the hydrolysate is sterilized to provide a
completely stable product.
Basically, the system produces fish hydrolysate and organic or chemical additives
are blended with the hydrolysate to boost the N-P-K or other trace mineral as required by
30

different customers. A small unit is able to process about 3.5 tons a day but can be
upgraded and process to 7 tons a day. The whole process of converting fish processing
waste to organic fertilizer takes about 30 hours. The yield is about 99% percent liquid
fertilizer and 1% waste, which are sometimes sold for ground cover. These waste are high
in calcium. More information about the APS System can be found at
http://www.deutrelindustries.com/prod-aps-sys.html.

The Setup cost was developed for a plant

able to process 3.5 tons a day and the cost capacity factor procedure was used to estimate
the setup and operation costs for plants able to process 10 (small) and 100 (medium) tons
of catfish processing waste for 30 hours.

6.0.

Results and Discussion

For a plant processing catfish wastes the estimated setup costs for processing plants with
capacity ranging from 10 to 400 ton/day are presented in Table 4. The actual estimate was
for 400 ton-capacity plants and other estimates are based on the cost capacity factor of
0.846. Decrease in costs from the largest to the intermediate size was about 44%. This
mean that by doubling plant capacity, the setup cost is increased by about 44%.
Some information contained in Tables 2 and 3 were used to estimate operating costs
as presented in Table 5. A trend in live catfish supply indicates that January and April is a
peak period for live catfish delivery to catfish processing plants. Between May and
August, and September and December, the amount of live catfish supplied is usually less
31

than 25% and 50%, respectively, when compared to the January-April period. It is
assumed that a plant will operate at 100% capacity during January-April period, 75%
capacity in the May-August period and at 50% capacity during the September-December
period. Operating costs ranged from about $2.7 million for the largest plant to about $0.8
million for the smallest plant.
Whereas labor cost remained constant across the three periods, other variables cost
changed, to reflect quantity of wastes processed during that period. Most expenditures
were on labor (28%), fuel for heating and drying (23%), and water use (20%). Other
expenditures were on packing materials for fish oil (10%), packing material for fishmeal
(8%), and electricity (6%). Productivity can be gained by improving labor, fuel and water
use efficiency by all processing plants.
Estimated revenue by using the variables in Tables 2 and 3 are presented in Table 6.
Total annual revenue ranged from $8.8 million for the largest plant to about $0.2 million
for the smallest plant. The amount of revenue also varied depending on the amount of
wastes processed during that period. Combined, results in Tables 4, 5 and 6 were used to
calculate economic profitability measures presented in Table 7. As indicated in Table 7 all
estimated economic profitability measures are positive, indicating that all plant sizes are
worth undertaking. The pay back period ranges from less than a year to about 3 years,
which is within acceptable region especially for a risky investment. Average return as
indicated by the IRR was highest for the large plant and kept falling as the plant capacity
32

decreased. The NPV was still positive even at a cost of capital of 25%. This is important for
new entrepreneurs who wish to use borrowed money to start a business.
Sensitivity analysis was conducted to estimate the impact of a fall in revenue,
which may be associated with falling price of both fishmeal and fish oil by 5% and 10%.
Again all estimated economic profitability measures were still positive indicating price
may fall by about 10% and economic worthiness of new investment in plants processing
catfish waste remains positive. The smallest IRR value after conducting sensitivity analysis
was 32% for the smallest plant and with a 10% reduction in revenues. The associated
MIRR was 14%, which is above the cost of capital. Given these results and information
used in the study, there is economic worthiness in processing catfish waste and borrowed
money is likely to be repaid under stated economic conditions.
Economic analysis on the production of liquid organic fertilizer was based on the
AP SYSTEM that is capable of processing 3,173 lb a day (about 3,500 kg). The setup cost of
this plant was estimated to be $430,000 (Table 9). The setup cost of other systems was
based on the 0.846 cost capacity factor scalar. In Table 9, the yield of organic liquid
fertilizer was estimated to be 95% for each unit of raw material, where 5% was the filtered
material sold to customers as soil cover. The setup cost was provided by the CEO of
Deutrel Industries and included costs of all machinery and equipment, shipment and
installation, with a one-year warranty for parts and labor. The machine and equipment
include two mixing tanks, two accelerators, two finalizing tanks, a filling machine, a
33

grinder, an electrical panel, a fish hopper, a shaker, two 6-hp pump, two 3-hp pumps,
hoses and connection equipment, four scales and other necessary miscellaneous
equipment.
Revenue as reported in Table 9 is based on selling liquid organic fertilizer based on
the N-P-K blend of 2-2-2. The wholesale price was estimated to be $32.5/gallon, which
was also equal to the wholesale price of Alaska liquid organic fertile with N-P-K blend of
2-4-1. The operating cost is based on the recommended formula by the Deutrel Industries
in producing liquid organic fish fertilizer with N-P-K blend of 2-2-2, which is more
expensive in terms of production cost. The price of $2.50/lb for soil cover was based on
the wholesale price of similar products.
The estimated economic profitability measures for the system are also presented in
Table 9. Payback period ranged from 11 to 3 years for small and large plants, respectively.
Plant with capacity to process more than 12,693 lb/day had a payback period within the
acceptable range of 3 to 5 years for risky investment. The estimated IRR and MIRR were
positive for all plant categories. However, for plants with a capacity to process 3,173 and
6,346 lb/day their NPV are negative for a discount rate equal and above 10% and 20%,
respectively. This means that while investment in a small plant may add economic return
for new investment; economic merit was sensitive to cost of capital. Returns will be higher
for higher equity financing that will allow reinvesting some of the revenue into the
business. In addition price of the liquid organic fertilizer has to remain above
34

$32.50/gallon to justify investment in the small processing plants. It is clear that a slight
increase in the setup cost or reduction in output price will seriously affect economic
returns of the two smaller plants. Economic returns increase with plant size, which is
justified by economies of scale. The smaller plants focus should be on increasing the
productivity of labor, efficient use of nitrogen, the AP SYSTEM starter, and package
materials.

7.0.

Summary and Implication for Development Planning

Most promising value added products fail for reasons associated with marketing. The
producer fails to understand the size of the market, the appropriate market segment or
consumer preferences. In this study, the potential market bases for fishmeal, fish oil and
fish hydrolysate are identified. These value added products are produced from catfish
processing wastes, which are either discarded or sold to rendering plants at a give-way
price of $0.03/lb.
Globally, the market for fishmeal and fish oil is bright as more news on the nutritive
value of Omega-3 fatty acids continues to come out. The dairy industry, which is gearing
towards producing more qualitative milk such as omega-3 milk, can be targeted as
potential customers for fishmeal and fish oil from catfish processing waste. The salmonfarming sector is also an important market base for the fishmeal and fish oil. The salmonfarming sector is constantly looking for alternative sources of feed ingredients; free from
35

polychlorinated bihenyls and dioxin-like contaminants, the catfish industry can guarantee
in terms of providing such a feed ingredient. Likewise, the pet food industry is
increasingly adding lines of pet food high in Omega-3. As in the dairy industry, the pet
food industry is sensitive to stability in supply and quality of ingredients supplied. Due to
the current production technology of live catfish can guarantee a stable supply of raw
material and quality through feeding manipulation. Adding value to the processing waste
will the increase profit margin for processor and stabilize demand for live catfish. The
estimated economic profitability measure results for production of fishmeal and fish oil
from the catfish processing sector indicates that the activity was economically viable even
for a small plant.
Apart from being used as feed, fish hydrolysates can be converted into organic
fertilizer by small processing plants. Production of fish hydrolysate is simple and will
minimize the amount of effluent to be disposed of in the environment. However, the
estimated economic profitability measures results indicate that small plants may be
economically unstable. However, production of liquid organic fertilizer involves targeting
a niche market, which cannot be achieved by mass production. Small plants are suited for
producing customer tailored products; importantly these can be managed by family farms
or retirees based in rural areas. Given the existing potential in terms of reducing
environmental pollution and creating jobs, it is in the interest of the public to subsidize the
setup costs in order to attract more investment in the development of new technology and
36

new investment. Nevertheless, production of organic fertilizer from catfish processing may
be a good business for landowners or retiree who are interested working on a part- time
basis. However, long-term loans (more than 11 years) should be considered when
planning to invest in a small plant to produce organic liquid fertilizer.
The limitation of this study is that the data are used are not historical, which reflect
a true picture of the industry. However, care was taken to generate accurate economic
engineering data that mimic the true technology used in the production of fishmeal, fish
oil and fish hydrolysate and liquid organic fish fertilizer.
Acknowledgement
This study was funded by the Arkansas Catfish Promotion Board. The authors appreciate
their continued financial support. However, the views expressed remain to be that of the
authors and not necessarily represent the views of the funding agency.
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