ECON2101 Cost Benefit Analysis Final Case Study –

Oyster Farming Investment

ALL SECTIONS DUE, 3pm 10th November. Submitted online.

Instructions:

This assignment will consist of a group task worth 30% and an individual reflection worth 10%, for a

total of 40% of your final grade. The case study can be done individually or as a group of TWO students.

Please note that this task is a significant amount of work for an individual, so groups are encouraged.

The assignment must be submitted electronically through the Online Submission links in the

Assessment section of the Course Blackboard site.

• Part 1 MUST be submitted as an Excel file (.xls or .xlsx) – only one submission per group is

required.

• Part 2 MUST be submitted as a Word file (.doc or docx) – only one submission per group is

required.

• Part 3 MUST be submitted as a Word file (.doc or .docx) – each student must submit their own

reflective task for marking.

Further details to be announced on Blackboard.

Groups must be finalised by 5pm, 5th November. No changes are allowed after this date.

Remember that each value should be entered into the spreadsheet only once.

Marked out of 80 points (weighted to 40% of your final grade).

Background

Queensland’s oyster industry has declined due to environmental pressures and QX disease affecting

the Sydney Rock Oyster (Saccostrea glomerata), particularly in Moreton Bay where climate variability

intensifies vulnerability. Recent research by the Fisheries Research and Development Corporation

(FRDC) indicates new potential through the Blacklip Rock Oyster (Saccostrea echinata) and the

Queensland Sunshine Oyster, which show greater resilience, faster growth, and suitability for local

conditions. Advances in hatchery and nursery techniques have further improved survival and

productivity, offering a pathway to revitalise the industry. The Queensland Government seeks a Cost– Benefit Analysis (CBA) to assess the viability of investing in oyster farm development, weighing

financial performance against social and environmental benefits such as water filtration, biodiversity

enhancement, coastal protection, and community development, to inform future aquaculture

strategies aimed at restoring a sustainable and economically valuable oyster sector.

The farm is expected to be operational by the start of 2026 and will operate for 20 years. The initial

capital investment is scheduled for 2025, with additional purchases required in 2026. In your report to

the Department of Primary Industries in Fisheries stakeholder, you will need to discuss the results from

the Investor, Social, and Disaggregated analyses. You will also need to consider any relevant literature

or reports on the assessment of biodiversity enhancement benefits within programs that aim to

support local government initiatives and community wellbeing.

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Part 1- Spreadsheet Group Task – 30 marks (15%)

[Use the template Excel File on the BB website]

a) Market and Investor Analysis

Establishing a new oyster farm in Queensland requires a detailed investment in aquaculture

infrastructure, biological inputs, and operational equipment. The proposed farm will operate on a 10- hectare estuarine lease located in a region with calm tidal waters and good nutrient flow to support

oyster growth. Prior to commencing operations, the site must undergo environmental impact and

water quality assessments, along with regulatory approvals required under Queensland aquaculture

licensing. The environmental assessment and approval process is expected to cost $15,000, covering

site surveys, sediment testing, ecological studies, and permit application fees.

The oyster production site will operate on a 10-hectare aquaculture lease, with a lease cost estimated

at $1,000 per hectare per year. This investment scale reflects a medium-sized commercial operation

suitable for sustainable oyster production in Queensland’s coastal waters. The investment requires 40

oyster racks at a cost of $2,000 each, 200 oyster baskets at $80 each, 10 longlines priced at $1,500

each, and 20 floating pontoons costing $2,800 each. To support these structures, the farm will install

100 metres of rope per floating pontoon at $3 per metre, 100 floats at $25 each, 300 grow-out cages

priced at $100 each, and 20 anchoring systems costing $600 each. These inputs form the core physical

framework for cultivating oysters through to harvest, ensuring stability against currents and storms

while maintaining water flow and food availability.

This level of infrastructure investment represents a moderate-scale commercial development capable

of producing around 300,000 to 400,000 market-size oysters per year, depending on survival and

environmental conditions. The farm will also require investment in biological stock and onshore

facilities to enable the first production cycle. Each year, 500,000 oysters spat will be purchased from

hatcheries producing disease-resistant species such as the Blacklip Rock Oyster. Each spat costs $0.08,

representing the initial biological input for the grow-out phase.

An onshore support facility will be constructed to accommodate cleaning, grading, and temporary

storage of harvested oysters before distribution. This facility will include a refrigeration unit costing

$12,000, cleaning and grading machinery costing $7,500, and essential tools and safety equipment

valued at $2,500. Two small aluminium workboats will be purchased at $27,000 each to manage farm

maintenance, oyster deployment, and harvesting, along with one boat trailer costing $4,500 and safety

and navigation equipment valued at $2,350. Fuel storage facilities, maintenance tools, and spare parts

will also be required to ensure smooth operations and compliance with maritime safety standards.

Fuel storage facilities, maintenance tools, and spare parts will also be required to ensure smooth

operations and compliance with maritime safety standards. The farm will require a bunded 2,000-litre

diesel storage tank at a cost of $6,400, along with pumps, hoses, and spill safety equipment costing

$1,200. An initial fill of 500 litres of diesel will be purchased at a price of $1.90 per litre to support the

establishment phase, including installation work, equipment testing, and initial transport runs.

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For a 10-hectare oyster farm, the expected annual fuel consumption during normal operations is

approximately 2,500 litres per year, reflecting daily boat trips for farm inspection, maintenance, oyster

deployment, and harvest activities. This consumption estimate assumes moderate travel distances to

the onshore facility and local market distribution.

In 2026, additional investment will be required to complete setup and commence the first full

production cycle. The additional purchases in 2026 include:

i. Refrigeration unit for onshore facility: $12,000.

ii. Cleaning and grading machinery: $7,500.

iii. Safety and navigation equipment for workboats: $2,350.

iv. Boat trailer: $4,500.

As part of the project, the farm will need to invest in working capital in 2026 to assist in maintenance

of the facilities. The working capital items have been provided in Table 1.

Item Units Price Per Unit

Diesel (per Litre) 500 $1.90

Maintenance supplies 1 $5,000

Table 1: Working Capital

In addition to the working capital, the farm expects the following operating costs including annual

replacement of some initial inputs:

Item Units Price Per Unit

Oyster spat (juvenile stock/ per spat) 500,000 $0.08

Administration

1 $1,800

Compliance and monitoring 1 $1,000

Utilities and Maintenance (/month) 12 $2,100

Miscellaneous (/month) 12 $1,200

Oyster racks 4 $2,000

Oyster baskets 10 $80

Floating pontoons 1 $2,800

Rope (metres) 200 $3.00

Grow-out cages 10 $100

Longlines 1 $1,500

Table 2: Operating Costs

Labour and regulatory costs represent another major component of the initial investment. The farm

will employ two full-time farmhands, each earning $80,000 per year, and a part-time supervisor

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earning $45,000 per year, to oversee daily operations and ensure compliance with aquaculture

protocols. Additional labour will be required for installation and seeding activities, equivalent to 400

hours of casual work at $35 per hour. Licensing and environmental compliance will cost approximately

$10,000, covering aquaculture permits, water quality monitoring, and occupational safety certification

per year.

To safeguard the business against operational risks, insurance covering infrastructure, vessels, and

environmental liability will be required at 4 percent of the total initial investment. This comprehensive

set of capital and operational inputs provides the foundation for assessing the project’s economic

feasibility and calculating the expected financial and social returns of oyster farming in Queensland.

To calculate revenue, each production cycle spans approximately two years, during which oysters are

grown from juvenile spat to market size under estuarine conditions. It is expected that around 70

percent of the 500,000 oysters stocked each cycle will survive to harvest, reaching saleable size and

quality. The market price for harvested oysters is estimated at $0.80 per oyster, representing the

average farm-gate price for premium tropical oysters in Queensland.

To finance the initial investment costs, the farm requires a loan of $200,000 at an interest rate of 4.5%

per annum. The loan will have a 12-year term with repayments starting from 2026. Additionally, in

2028 the farm will take out a balloon loan of $80,000 as a contingency for any unexpected costs. This

loan will have a term of 4 years with repayments starting in 2029 and an interest rate of 9% per annum.

The balloon payment is 25% of the initial loan paid in the final year. Both loans are from foreign banks.

Depreciation Life

Refrigeration 8

Cleaning and grading machinery 7

Aluminium workboats 6

Boat trailer 5

Diesel storage tank 20

Table 3: Depreciation

*Note that all additional purchases in 2026 can be depreciated in the same year of purchase.

The tax rate on profits is 25%. Assume the salvage value for all investment costs is 5% of the initial

fixed investment cost plus 5% of the additional investment cost (for capital purchased in year 2026).

Assume the farm operates at two different capacity levels:

- Operating capacity starts at 50% in Year 1 and reaches 100% in Year 2.

- Revenue capacity is expected to be 0% in Year 1, 50% in Year 2, and 100% in Year 3.

Using a conversion factor of 1,000 and the information above, you have been asked to calculate the

following:

i) The IRR and NPV for the Market Analysis at a 5%, 7% and 10% real discount rate.

ii) The IRR on equity and NPV for the business at a 5%, 7% and 10% real discount rate for the

Investor Analysis.

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b) Social Analysis

You now need to consider the social CBA. Due to taxes, duties, and subsidies we are required to

calculate the relevant shadow prices for the following:

Input Item Percentage

Duties*

- Aluminium workboats 20%

- Pumps, hoses and spill safety equipment 20%

Indirect Taxes

- Diesel (per Litre) 20%

- Cleaning and grading machinery 10%

Subsidies

- Oyster baskets 50%

- Safety and navigation equipment 10%

- Boat trailer 15%

- Oyster spat 25%

Table 4: Taxes and Subsidies *remember that duties are only paid once.

As we observe taxes and subsidies only on inputs in this project, we assume that inputs represent

additional quantities supplied (not diverted from other uses). It is also noted that coastal site has an

opportunity cost of $0 and the opportunity cost of casual labour is 60% of the market wage for casual

workers. All other workers are employed from elsewhere and should be costed at the market wage.

To estimate the external benefits and costs of the proposed oyster farm development, several key

environmental and social factors have been considered to reflect improvements in ecosystem services,

coastal protection, and community wellbeing, as well as the potential negative externalities associated

with aquaculture operations.

(1) Biodiversity and Fish Habitat Enhancement

The oyster farm structures provide important habitat for fish, crabs, and invertebrates, enhancing

biodiversity and local ecosystem productivity. The ecological value of this habitat improvement is

estimated at $1,500 per hectare per year, and it is assumed that 80 percent of the total 10-hectare site

is allocated to offshore production areas.

(2) Coastal Protection and Erosion Control

Oyster reefs and farm structures play a vital role in reducing wave energy, stabilising sediments, and

protecting coastal areas from erosion. This natural service prevents damage that would otherwise

require costly artificial protection or maintenance works. The value of this benefit can be estimated by

assuming that 200 metres of shoreline are protected by the oyster farm, with an avoided maintenance

cost of $120 per metre per year.

(3) Carbon Storage and Climate Regulation

Oysters sequester carbon naturally through the process of shell formation. Each harvested oyster

contains approximately 20 grams of calcium carbonate (CaCO₃), of which 12 percent is carbon. This

amount of carbon is converted to its carbon dioxide equivalent using a conversion factor of 3.67, giving

an estimated 8.8 grams of CO₂e per oyster. The total annual carbon captured can be calculated by

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multiplying 8.8 grams by the number of oysters harvested per production cycle and then converting

the result from grams to tonnes. This figure represents the total amount of carbon dioxide equivalent

sequestered by the oyster farm each year through shell formation.

(4) Amenity Loss

The visibility of oyster farming structures and restricted waterway access may reduce visual amenity

and recreational use in nearby areas. Assume that 300 local households experience a small reduction

in amenity, valued at $30 per household per year. The annual social cost of amenity loss can be

estimated by multiplying the number of affected households by the per-household value.

These costs and benefits highlight the broader social value of the oyster farm beyond private

profitability, particularly in supporting ecosystem health, climate mitigation, and regional coastal

resilience, while also recognising potential environmental and social trade-offs.

i) Building on the spreadsheet completed in a), calculate the NPV and IRR of the Social Cost

Benefit Analysis using a 5%, 7% and 10% real discount rate.

c) Disaggregated Social Analysis

Now you want to disaggregate the results of the analysis. In this case you would like to evaluate who

gains and who loses from the project. As part of the approach to disaggregation you are asked to

exclude the private investor and the foreign bank from the Total Disaggregated CBA and then identify

the remaining stakeholders with standing. The remaining stakeholders include landowners, local

labour, the community, and the government. Using the template identify:

i) The NPV for the total disaggregated group of interest (without the investor and foreign

bank) using a 5%, 7% and 10% real discount rate.

ii) The NPV for each remaining stakeholder group using a 5%, 7% and 10% real discount rate.

d) Sensitivity Analysis

Now as part of the cost-benefit analysis, the Fisheries Department is interested in evaluating the

assumptions and how sensitive or insensitive the results are to the best guess inputs. Specifically, the

Fisheries Department would like to answer the following questions:

i) There are two key inputs that are uncertain in estimating the revenue of the oyster farm

– the survival rate and the price per oyster. As these are two factors that the farm has

some control over, the analysis will assess how the NPV changes for the investor at a 5%

discount rate. The price per oyster should vary by 30 cents from the best estimate, and

the survival rate should vary by 15% from the best estimate. Comment on the results.

ii) The Fisheries Department would like to identify the full market price per oyster required

for the project to achieve a breakeven NPV at a 7% discount rate. Use the “Goal Seek”

function to determine the minimum price per oyster that would allow the investment to

just break even. Then, assess how this breakeven price would change if the survival rate

of oysters decreased to 60%.

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Part 2 – Written Report Group Task – 30 marks (15%)

Using your results from Part 1 of the case study, write a comprehensive report analysing the results of

your CBA. In your report ensure you:

1) Provide professional recommendations to the Fisheries Department on whether the proposed

oyster farm investment should proceed. Your recommendations should be supported by clear

evidence drawn from your analysis, including both financial and social perspectives. You are

also expected to review relevant literature on sustainable aquaculture and ecosystem service

valuation to justify your recommendations.

2) Outline the approach and results of sections a) to d) in Part 1. In your response you should

investigate which variables should be subject to a partial sensitivity analysis in addition to the

results of d).

3) Identify considerations for your analysis or any alternative approaches that would improve on

the current format of the CBA.

Word limit 1,500 words (+/- 10 %).

The rubric for this component of the case study can be found on the course website.

Part 3 – Reflective Assessment Individual Task – 20 marks (10%)

Critically reflect on the CBA task from the Case Study. In your answer,

1) determine and establish the relevance and authenticity of the case study task as part of your

development in a professional context.

2) reflect on your individual challenges or challenges faced as part of a group.

Word limit 750 words.

The rubric for this component of the case study can be found on the course website.

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