crab farming

A Business Plan: Crab Farming

INTRODUCTION

1.1 Origin

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This report has been prepared as a requirement of the course “Entrepreneurship”. The report is on “A Business Plan: Crab Farming” which was assigned by A.K.M. Saiful Majid, Course-Instructor of Entrepreneurship, Institute of Business Administration, University of Dhaka.

1.2 Objectives

The purpose of this report is to get an exposure to the real world situation of entrepreneurship and businesses in Bangladesh. This study will give me the opportunity to experience businesses are done in Bangladesh and how innovative ideas for business plan can be implemented in the real life scenario.

1.3 Scope

The scope of the report is limited to the opportunities associated to the business, “Crab Farming” in Bangladesh. Thus the concentration has been given to those parts only.The report covers the whole plan including financial plan, marketing plan, management and projected profit of the business plan.

1.4Methodology

The entire study took place in the following stages: Going through the secondary materials to devolop a better understanding business

ventures in Bangladesh, and the secondary sources include: Business related websites, magazines, national and international newspapers, journals.

The study requires a systematic procedure from selection of business plan topic to final report preparation. To perform the study information sources are to be identified and collected, they are to be classified, analyzed, interpreted, and presented in a systematic manner and key points are to be found out. This overall process of methodology is given below in the form of flow chart we have followed in the study.

Flow chart of methodology:

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Selection of business plan

Identifying information sources

Collection of information

Classification, analysis, interpretation, and presentation of information

Findings of the study

Final report preparation

1.5 Limitations

I faced some limitations while preparing this report, among which is making textbook knowledge compatible with real life scenario while talking to the organization, which was sometimes disappointing. Again, this report is the first of its kind prepared by me. This also proved to be a limitation. The main limitation of this report would be the lack of organized data. Data that were collected from various sources took a lot of time that restricted collection of any further information. This might have restricted the chance of gathering important primary data that could be collected through interviews.

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COMPANY OVERVIEW

Name Scylla Serrata

Mission Serving best quality crab and encouraging others by setting

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standards.

Location Paikgacha, Khulna.

Products Live mud crabs

Frozen mud crabs

Crablings

Scylla Serrata (SS) is the leading crab firm in Khulna district. I have chosen Khulna for some reasons: A color composite Land set TM image from 1996 covering the southwestern part of Bangladesh was used to identify the extent of brackish water and to classify land use. The remotely sensed data were complemented by secondary data digitized from a range of sources, including hard copy maps, to create a spatial database that included environmental and infrastructural data. A series of GIS models were developed in order to identify and prioritize the most suitable areas for brackish water shrimp and crab farming. Using qualitative and quantitative output from the models, the benefits of shrimp and crab farming and alternative land uses in the Khulna region were compared, based on gross production, economic output and employment potential. Comparisons were made of brackish water shrimp and crab culture with moderately saline-tolerant tilapia and prawn culture, freshwater carp culture and traditional rice production systems.

Figure: Southern Part of Bangladesh

SS will produce crabs in a controlled process to ensure quality, both in size and health and supply them to the Global market. This business falls under the seafood industry. The company will be utilizing aquaculture technology to farm crabs. Full control over the process will allow production of quality crabs and supply at a competitive price. This will make The company unique in producing disease free crabs in a standard size, which is the main

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requirement of the importers. HG is mainly targeting the Asian market comprising of Malaysia, Singapore, Taiwan, Hong Kong etc.

It is expected that SS will produce 9,000 kg crabs per months and will capture more than 18% of the market within the first 6 years.

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PRODUCTS

Products offered

Scylla Serrata will offer crablets of mud crab (Scylla Serrata) and culture them. Primary focus will be placed on the breeding and rearing processes to ensure the highest quality using the most efficient system possible.

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SS will also offer live and frozen mud crabs of high quality. Live mud crabs will be offered in batches of 100kgs in both 400 and 500 grams per piece categories.

Frozen mud crabs will be offered both in plate freezing in numbers and IQF(Individual Quick Freezing) formats. The company plans to start production of frozen crabs from the third year of the initial venture.

All the products will be healthy and free from diseases.

The company will provide the local crab farmers with crablets.

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MARKET ANALYSIS

4.1 A comparison of development opportunities for crab and shrimp aquaculture in southwestern Bangladesh

The study area lies 300 km southwest of Dhaka, Bangladesh on the coastal plain at the apex of the Bay of Bengal and covers approximately 14,000 km. The area lies between 21j30V and 23j15V North and 89j00V and 90j00V East and includes the world’s largest continuous mangrove forest, the Sundarbans, estuarine marshlands and numerous rivers, canals and

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their tributaries. The terrain is relatively flat; the elevation ranges from sea level to 5 m above mean sea level.

Fisheries play an important role in the regional and national economy and the area is one of the most promising for aquaculture. The fresh and coastal water resources are the most abundant in the country. The presence of the world’s largest continuous mangrove forest provides food source and nursery for the offshore fishery, protection of the coasts from storm surges and cyclones, domestic and commercial products, recreation and tourist services, and habitat for shrimp and other cultivable species. Culture of freshwater and marine fish, shrimp and other crustacean species are highly important as they can be easily integrated with other activities such as agriculture and livestock rearing.

Bangladesh has extremely favorable conditions for crab farming and shrimp culture, not least because of the low production costs. In 1982–1983, there were only 5200 ha of land under shrimp culture; by 1996, 110,000 ha had been brought under shrimp cultivation, 70% being located in the Khulna region. By contrast, mud crab (S. serrata) has been an incidental product arising from the culture of shrimp, prawn, and milkfish in Southeast Asia.

4.2 Market Demand and Segmentation

For the last five years, aquaculture contributed more than 30% of the world’s total production of fisheries product. The growth rate of worldwide aquaculture is very rapid (> 10% per year for most species) while the contribution to the total from wild fisheries has been essentially flat for the last decade. The rapid increase in the demand for seafood has created a new market for seafood products like shrimp, lobster, crab etc. Statistics say that Malaysia alone imports 2 tons of crab every day. This indicates a growing market for the company. In fact, the demand of Crabs in the international market is so high that Bangladeshi exporters can hardly meet it.

SS targeted the market into different segments. As a result it will offer three different products. They are targeted towards different geographical locations. The product with the most demand is live crab, but The Company is only targeting the Asian crab market with this though the US and EU is a huge market as well. However, due to problems such as Flight schedules and time involved, the product cannot reach the market.

4.3 Competition

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SS will face strong international competition but almost no competition in the country though both are discussed below:

Competitors in Bangladesh: In Bangladesh there is no crab farm. So, there is a practice going on like collecting crabs by fishermen and some other people unofficially and if those crabs meet the quality in weight then those are sold or exported. But there is no scientific method for breeding crabs or collecting. So, SS will face almost no domestic competition.

Competitors Abroad: As the company is targeting the world crab market, the competition will also be global. The major competition would be from countries like China, Indonesia, Philippines and India. These countries have a set distribution chain and are exporting at a much larger scale. Even after using scientific methods to fatten crabs, they too are dependent on nature for their crablets, making it the major bottleneck in producing crabs.

Figure: Suitable land for crab farming

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MARKETING PLAN

5.1 SWOT Analysis

Strengths

Practice of Scientific method; Existence of dedicated breeding farm; Strict quality control; Strong preventive measures against diseases.

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Weaknesses

Limited production capability; Transport delays may result in loss of shipment.

Opportunities

Nonexistence of bred crablets in Bangladesh; Better size and quality of products; Incorporating newer and better technologies in our processes.

Threats

Lack of flights available to destination countries; Natural disasters; Outbreak of diseases.

5.2 Marketing Strategy

5.2.1 Target Market

Scylla Serrata’s target market is East Asia. The countries of this region like China, Japan, Taiwan, Korea, Hong Kong, and Malaysia are the main target. This targeting has been done following geographic segmentation.

5.2.2 Pricing

The main strategy of the pricing of the firm is to provide high quality with medium price thus maximizing sales. The pricing strategy will vary according to various regions and according to competitive advantages.

5.2.3 Promotion

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The Board of Directors has detected promotion as the main competitive tool and wants to emphasize on it a lot. For that reason there will be a huge budget allocated in this sector and this investment is very much justified. In promotion of a service industry, the main effective tool will be percentage-of-sales.

As our sales increases, SS will attract new clients and capture new markets. Consequently, additional promotional activities will be carried out which would increase the promotional budget. Since the customers of SS consist of buyers, the business will adopt integrated direct marketing in order to promote its crabs. The business will send brochures through fax and e-mails, have its own website where orders can be taken online, and contact its clients through telephone or e-mails to maintain a profitable client-producer relationship

The firm will also rely on ads in newspaper and magazines, billboards in selected areas. The other facilities, specially the grooming facility will be advertized heavily in the newspaper. Television ads will be very nominal as it has been found that there is little impact of television ads for this industry. But the firm will look for publicity for the various promotional plans.

5.3 Distribution Channel

The distribution channel of Scylla Serrata consists of fisherman, arotder (wholesaler), bapari (intermediary), and finally exporter. The company will also follow direct marketing in some cases, so that it can cut costs by eliminating the intermediaries.

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ORGANIZATIONAL PLAN

6.1 Ownership

Scylla Serrata is going to start up with the partnership of Mr. Khaleque and Mr. Shahed. Both of them contributed BDT. 2,700,000.00 and additional loan has been taken from the bank with an interest tate of 15.5%. So, the ownership is of the business will remain in the hands of these two partners. The main clauses of the contract include:

The owners will provide capital equally.

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Profit will be shared in the ratio of the capital invested by each owner.

In case of any partner’s inability to participate, his successor may take control of his shares and the partnership will continue with the previous deed.

All decisions will be taken democratically.

The CEO will be elected in a democratic order from the owners.

The CEO will receive a pre-determined salary for his service to the business along with profit.

6.2 Organization

Scylla Serrata will be a partnership. Investors will be treated as shareholders and therefore will not be liable for more than their individual personal investment.

An organization structure is effective if it facilitates the contribution of individuals in the attainment of enterprise objective. The application of the principle of unity implies of course the existence of formulated and understood enterprise objective. As the company’s objective is to make profit over a period of time, the organization pattern that will help to accomplish this conforms to the principle of unity of objective.

In looking at organizing as a process several fundamental inputs must be considered. In the first place the structure must reflect objectives and plans because enterprise objectives derive from these. In the second place the structure must reflect the authority available to enterprise managers. In the third place organization structure like any plan must reflects its environment. Fourthly the organization must be staffed with people. Obviously the activity groupings and authority provisions of an organization structure must take into account people’s limitations and customs. The internal management of this company is developed keeping in the above-mentioned matters into consideration.

6.3 Personnel Plan

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Scylla Serrata consists of production department and sales and promotional department. The personnel plan is given below:

Production No. Sales and Promotion No.

Manager 1 Manager 1

Labor(full time) 18 Accountant 1

Mechanic(part time) 2 Assistant 1

Security 4 Staff 10

Security 4

Sub Total 25 Sub Total 17

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PRODUCTION PLAN

7 Production

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Figure: Production Process

7.1 The production process

7.1.1 Food production

Mud crabs feed on phytoplankton and zooplankton. The first step to phytoplankton culture is obtaining an algal starter from laboratories or institutions that are selling them.

Chlorella, Nannochloropsis, and Tetraselmis are the common algae. We start culturing them in one-liter capacity bottles. When the phytoplankton has bloomed and the density is 3 to 5 x 105 cells/ml, we transfer them to ten-liter carboys. Upon reaching the same density, they are transferred to a 0.5 to 1 ton- tank where they are allowed to bloom more.

In culturing phytoplankton, the water temperature is maintained from 20-25 °C for indoor culture and good aeration is provided to give enough supply of carbon needed for plant growth. And filtered seawater with a salinity of 25-30 ppt is used for the culture and sterilize all the containers before use. Also, for bigger culture, urea (21-0-0) and ammonium phosphate (16-20-0) is used to supply the essential nutrients needed by the algae.

7.1.2 Rearing of larvae in nursery

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Mother Crab/ Brood stock

incubation (7-8days)

Larvae

7-8days

Crabs >500gms

Export


The nursery tanks are lined with soil (10 cm thick) inoculated with lab-lab. For large tanks, they are lined with mud substrate that has been seeded with lab-lab. Lime and chicken manure at 2 kg/ 10-ton tank and ammonium phosphate at 500 grams per tank is applied. After fertilization, the megalopae is transferred at a density of 20,000 to 30,000 per cubic meter. Organic fertilizer is applied to encourage the lab-lab to bloom.

Source: “A guide to hatchery and nursery production of mud crab (Scylla serrata) juveniles” by Romeo Fortes, Juliana Baylon, Evelyn Marasigan, Allan Failaman,

7.1.3 Crab fattening

Unused fishery products such as Shrimp heads, trash fish, wheat are used as feed for crab fattening. The fish are cut into small pieces and given to the crabs once a day every evening. The amount of feed given is 10% of body mass.

7.1.4 Broodstock management and spawning

The major source of broodstock is the wild-caught post juveniles or half-grown crabs while adult or berried female crabs are used as spawners. A minimum weight of 200 to 300 grams for broodstock and 450 grams for spawners are desired.

The king crab is sexually matured when the width of its carapace reaches 14 cm and it weighs 450 grams while the other mud crabs can spawn even if its carapace is still below 10 cm and weigh 300 grams.

As soon as the broodstocks and spawners of the king crab arrive at the hatchery- they are placed in the tanks at 300 spawners per tank and 1000 broodstocks per tank with a 10 cm sand substrate at the bottom. They are fed daily with shrimp head and trash fish at 10% of their biomass. The water is changed (at least 30%), the sides scrubbed of the tank and excess feed removed daily.

Mud crabs become mature and mate when they are 4 months old. In ponds or tanks, male and female crabs clasp for 5 to 7 days to fertilize the eggs.

There are two methods of spawning: the natural and the induced. In the natural method, the mud crab is left in the tanks until they become sexually mature and spawn.

Since ablation increases the appetite of the mud crabs, they are fed more until the eggs are hatched. Incubation ranges from 7 to 13 days. At this time, the berried (pregnant) crabs are

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transferred to another tank without the substrate. The eggs are expected to hatch when the eggs turn from light orange to dark grey

After the eggs are hatched, the larvae are transferred into the large tanks filled with 5-10 tons of filtered seawater with 34 ppt salinity. Algae and rotifer is added at a rate of 5 x 10 (3) cells per cubic meter and 25 ind/ml, respectively. They are kept here for another 7-8 days

7.1.5 Fattening pond readying

Ponds specific for fattening have to be at least 1 meters deep. 1 Bigha or 40 square meters of land is used for a single pond. HG is using 20 ponds round the year in different time periods to keep production steady. These ponds are readied before every harvest. The sides are partitioned with bamboo with up to 20 centimeters underground. Lime is applied to control the alkalinity of the water. PH level is kept between 7 and 8. Manure is used on the ponds on the basis of 500 Kilograms of cow dung, 20 Kilograms of Urea and 10 Kilograms per Hector. Salinity level is maintained between 10-12 PPT.

Element Level

Salinity 10-22 PPT

Temperature 22-28 Degrees

Oxygen >4-8mg/liter

CO2 0.04-10 mg/liter

PH 6.5-8

Ammonia <0.02 mg/liter

Nitrate 0.1 mg/liter

7.1.6 Crab fattening

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The crablets weighing 180-200 grams are stored in the fattening ponds of 40 squire meters at a density of 2 per square meter. Though denser fattening is possible, this provides better growth. Using a smaller density will result in a wastage of space. Proper feeding with 10% of body weight takes about 20-25 days for the crabs to reach full size. Using different ponds for male and female and proper feeding eliminates cannibalism among the crabs. Measures are taken to prevent viruses and other diseases. Chlorinated water is used in the ponds.

7.2 Capturing and Transport

When the crabs are full grown, they are captured. Whole ponds are captured at once. Their claws are tied on the spot and they are brought to the work area for cleaning and packaging. They are carefully packaged into plastic baskets so that too much pressure is not put on them. 25 Kilograms of crabs are packed into each baskets. These baskets are transported to the sales and promotion office in Dhaka. Transportation is usually done during night. The temperature at that time is better suited for crabs and mortality rates for transportation is drastically reduced.

7.3 Export

After sending the consignment from the farm, it is received in Dhaka office in next day morning. Then the goods are sorted as per order of the buyer. Certain grading systems are followed to sort the crabs. Then they are packed using the preferred packaging instructed by the buyer. For packaging option plastic box, foam box and bamboo boxes are used.

After finalizing the packing, the consignment is sent to the airport using pick-ups. It is received the product there necessary actions taken for the shipment procedure including duty, loading etc.

After receiving the shipment, the client will inform HG about the mortality rate and then the sales figures are adjusted.

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FINANCIAL PLAN

For the financial plan for Scylla Serrata, I have made some key assumptions:

Tax rate: For 80%-100% export oriented businesses govt. issues a 5 year tax holiday;

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Salary growth rate: 10%;Mortality rate: 32%;Inflation: 10%;Interest rate: 15.5%;Almost all the costs are adjusted to the inflation rate;As most of the insurance companies are not willing to insure against natural disasters in fisheries sector, a provision has been kept to adjust any loss incurred due to disasters;Discount rate: WACC 17.86%.

Cost of goods manufactured and balance sheet for four years are given in the appendiz.

WACC is calculated below:

Particular Cost of Particular AmountEquity 20% 5,400,000.00Debt 15.5% 4,900,000.00Value 10,300,000.00WACC 17.86%

8.1 Startup Costs

Start up costs account for a total value of BDT 10,300,000.00.

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Initial Investment

Initial Costs

Start Up Tools BDT 20,000.00Utility Setup Electricity, Internet, Water BDT 35,000.00Legal Charges BDT 50,000.00Decoration Lights, Glass Partitions, etc. BDT 125,000.00Web Development BDT 10,000.00Weight Machine 5 pc, 1,000.00 per piece BDT 5,000.00License Fee BDT 3,200.00Total Initial Costs BDT 248,200.00

Assets Needed

Current Assets

Cash BDT 300,000.00Rent BDT 100,000.00Total BDT 400,000.00

Long-term Assets

LandAcquisition 36 Bigha, 250,000.00 per Bigha BDT 8,750,000.00Development BDT 100,000.00Fencing BDT 50,400.00Total BDT 8,900,400.00

BuildingBuilding 3 rooms, 1 toilet, hatchery BDT 292,000.00Decoration BDT 50,000.00Tanks BDT 60,000.00Total BDT 402,000.00

MachineryOxygen Pump BDT 40,000.00Ultra Violet Ray Machine BDT 60,000.00Pump Machine BDT 25,000.00Generator BDT 120,000.00Total BDT 245,000.00

Furniture including office-furnitureChair 6 pc, 2,000.00 per piece BDT 12,000.00Table 3 pc, 5,000.00 per piece BDT 15,000.00Fan 3 pc, 2,000.00 per piece BDT 6,000.00

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Furniture-officeChair-executive BDT 7,000.00Sofa Double seated BDT 18,000.00Table 2 pc, 6,000.00 per piece BDT 12,000.00Fans 2 pc, 2,000.00 per piece BDT 4,000.00Air Conditioner BDT 25,000.00Cabinet 3 pc, 1,800.00 per piece BDT 5,400.00Total BDT 104,400.00

Total Assets Needed BDT 10,051,800.00

Total Required BDT 10,300,000.00

8.2 Startup Funds

The startup funds are collected from the investment of the two partners and borrowing from the bank. Below is shown the startup funds:

SourcesLoans BDT 4,900,000.00CapitalMr. Khaleque BDT 2,700,000.00Mr. Shahed BDT 2,700,000.00Total BDT 10,300,000.00

8.3 Break-even Analysis

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The following chart and table summarize our break-even analysis. We expect to reach break-even a few months into the second year of business operation. In the 21st month we open, we may achieve goal and break even

Sales 4,158,000.00 100%Variable Expense (2,877,781.25) 69.21%CM 1,280,218.75 30.79%Fixed Expense -758,561.67Net Income 521,657.08

CM Ratio 31%Break Even TK. 2,463,719.00

Although the net income may rise at a slow pace with an increase of sales due to low CM Ratio of 30.79%, it shows that SS is a very stable business and it is less vulnerable to downturns during any unfavorable circumstances.The break-even assumes variable costs of 79% percent of sales. This assumption is probably too high, and therefore conservative. Since the With initial monthly expenses of over tk. 758,561.67 we will need averaged monthly revenues of about tk.117,319.95 to break-even.

NPV Tk. 6,298,143.50

IRR 47%

Payback 1.73 years

Discounted Payback 2.2 years

8.4 Ratios

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Main Ratios Year 1 Year 2 Year 3Current Ratio 4.86 5.86 3.37Quick Ratio 4.64 5.66 3.15Profit Margin on Sales 16% 15% 15%Equity Ratio 2.31 3.95 7.54Accounts Receivable turnover 11.90 12.70 13.00Total Asset Turnover 1.49 1.35 1.69Interest Burden 13% 10% 5%ROA 28% 25% 23%

8.5 Loan Amortization Schedule

Total Loan4900000.0

0Interest Rate 15.50%No. of year 8

Year Interest Principle paid Balance remaining1 759500.00 350475.33 4549524.672 705176.32 404799.01 4144725.663 642432.48 467542.85 3677182.814 569963.34 540011.99 3137170.825 486261.48 623713.85 2513456.966 389585.83 720389.50 1793067.467 277925.46 832049.87 961017.598 148957.73 961017.59 0.00

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CONCLUSION

Conclusion

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The present status of suitable environment for crab farming in Bangladesh indicates that if proper steps at proper time can be taken crab farming business should boom within the five years of the startup. The soil, water and geographical location of Khulna district can be a huge potential for crab farming. So, crab farming in this region can change the luck of the mass population of this particular area.

Scylla Serrata has the great possibility to earn a huge profit because this crab farming business in Bangladesh is like a blue ocean. By delivering quality products, live and frozen crabs with less costs can be the attracting features of SS. The scientific method, proper nurturing in the production process will ensure best quality. The product will be healthy and disease free by looking after for diseases in regular interval. This venture will create a new trend in the market generating high profit while utilizing the unutilized resources that are remaining idle.

Scylla Serrata will break even in the 21st month and thus it will fulfill the requirements of the investors. So, it is more likely to achieve its expected market share within the first five years.

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crab farming

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