Break-even for a solar-dried Bombay duck unit
A fisherwomen's FPO in Palghar wants to add solar-dried Bombay duck. The quotation for a solar tunnel dryer with a small cutting and packing shed is ₹6.5 lakh installed, with a capacity of 200 kg of fresh fish per day. The fresh-to-dried ratio for Bombay duck is about 4:1. Fresh fish sells at ₹40/kg at the landing centre in season; dried Bombay duck sells to wholesalers at ₹320/kg. Variable costs are labour ₹1,200/day, fan and lighting ₹250/day, and packaging ₹18/kg of dried product. Trimming and spoilage losses are about 6 % of the dried output. The shed can run 25 days a month for 7 months of the season. A bank will fund 60 % of the capital at 9 % per year for five years, with the FPO contributing the rest. The local trader has offered members ₹46/kg next season if they commit their whole catch to him, which would leave no fish for the dryer; alternatively the FPO can buy from a neighbouring landing centre at ₹52/kg plus ₹3/kg transport.
1. Calculate the daily contribution, the monthly fixed cost and the break-even number of operating days. State whether the unit is viable.
Read the worked answer
Output: 200 kg fresh ÷ 4 = 50 kg dried; after 6 % loss = 47 kg saleable dried.
Daily figures
| Item | ₹ |
|---|---|
| Revenue: 47 kg × ₹320 | 15,040 |
| Fresh fish: 200 kg × ₹40 | 8,000 |
| Packaging: 47 kg × ₹18 | 846 |
| Labour | 1,200 |
| Power | 250 |
| Total variable cost | 10,296 |
| Contribution per day | 4,744 |
Monthly fixed cost
- Loan: ₹6.5 lakh × 60 % = ₹3.9 lakh at 9 % over 5 years → EMI ≈ ₹8,096/month.
- Depreciation: ₹6.5 lakh over 10 years = ₹65,000/year ≈ ₹5,417/month.
- Total fixed ≈ ₹13,513/month.
Break-even: 13,513 ÷ 4,744 ≈ 2.9 operating days per month, against 25 available days.
Verdict: viable on these numbers, with a large margin of safety - monthly contribution at full running is about ₹1.19 lakh against ₹13,500 of fixed cost. But the calculation assumes fish at ₹40/kg and dried product at ₹320/kg, and both are the weak points. Viability depends on supply and price, not on the drying technology.
2. Test the plan against the trader's offer. If the FPO buys fresh fish at ₹52/kg plus ₹3/kg transport, does the unit still work? What dried price is needed at that cost?
Read the worked answer
At ₹55/kg landed cost:
- Fresh fish: 200 × ₹55 = ₹11,000
- Packaging ₹846 + labour ₹1,200 + power ₹250 = ₹2,296
- Total variable cost = ₹13,296
- Contribution = ₹15,040 − ₹13,296 = ₹1,744/day
- Monthly contribution over 25 days = ₹43,600, against fixed cost ₹13,513 → still positive.
But the cushion is thin. A 10 % fall in the dried price to ₹288/kg gives revenue of 47 × 288 = ₹13,536, which is only ₹240 above variable cost - below fixed cost, so the month makes a loss.
Break-even dried price at ₹55/kg fresh: 13,296 ÷ 47 = ₹283/kg. Anything below about ₹283/kg on a full-cost basis destroys value.
Judgement: the FPO should not pay ₹55/kg without a confirmed dried-price contract. The better negotiating position is the trader's ₹46/kg offer - it is below the ₹55/kg alternative and keeps members' catch local. Alternatively, secure a written dried-product price with the wholesaler before committing to the higher raw-material cost, and lock in at least part of the season's volume. Buying at ₹55/kg on a spot dried price of ₹320/kg is speculation, not planning.
3. Beyond the arithmetic, what supply, quality and marketing conditions must be met before the FPO takes the loan?
Read the worked answer
Supply conditions
- A written commitment of at least 200 kg/day for 25 days a month, from members or the neighbouring landing centre. A dryer that runs 12 days a month cannot service the EMI from operating cash.
- A wet-season plan: 7 months of season means 5 months with no output, so either a second product, contract drying, or a cash reserve covering five EMIs (about ₹40,000) must be in place.
Quality conditions
- Drying to a stable moisture (about 10–12 % for dried fish) and packing in food-grade, moisture-barrier material; FSSAI registration and the correct label - product name, net weight, lot, date, FSSAI licence number, nutritional and storage instructions.
- Insect and dust control in the drying yard, covered drying, and a salting or blanching step as per the product style, since solar drying is slower than mechanical drying and spoilage risk is real.
- A batch record linking fresh-fish intake to dried output, so the 4:1 ratio and the yield can be verified and losses controlled.
Marketing conditions
- At least one buyer contract or a wholesale understanding before production, not after.
- A price band written into the plan with a trigger: below ₹283/kg dried, the unit stops buying outside fish and runs only on member catch.
- A differentiated position - clean, graded, labelled, consistent-moisture product - otherwise the FPO competes with open-yard drying on price alone and the margin disappears.
Governance: the FPO should approve the loan only with a written supply agreement, a buyer commitment, and a reserve for the off-season. The numbers work; the risk is in assumptions that have not yet been contracted.