Economics of Aquaculture

Transcription

1 Economics of Aquaculture Iowa Aquaculture Conference 2017 November 14, 2017 Ames, Iowa Carole R. Engle, Ph.D. Engle-Stone Aquatic$ LLC

2 To make a living from it requires attention to economics.

3 Reality 1:Most aquaculture requires lots of capital. Buildings Land Equipment Levees

4 Indoor hatcheries/ systems

5 Sheds for size grading

6 Shipping facilities

7 Fish Processing

8 Successful businesses are complex & require many good. Market Production Scope & scale Profitable Business Personnel Financial Management

9 Requires PLANNING, MONITORING, & ADJUSTING FREE!!!

10 Reality 2: High capital costs mean high annual fixed costs. If facility costs $25,000 to build & lasts 10 years, annual fixed cost = $2,500. If production = 5,000 lb, annual fixed cost = $0.50/lb. If production = 10,000 lb, annual fixed cost = $0.25/lb.

11 But, here s the rest of the story.. To get higher yields, more feed & aeration are required. Feed & aeration are VARIABLE, not fixed, costs.

12 Reality 3: Aquaculture is not new any more. Aquaculture has been successful. Success attracts competition.

13

14 Business Model 1: Compete on price: be the biggest & lowest cost supplier. Can you compete with price of wild-caught & imported shrimp? But, you have to receive a price that covers your costs..

15 Business Model 2: Solve your customer s needs better than anyone else. If not, who will pay higher prices? For how long & what volume will they buy at those prices? Market Production Scope & scale Profitable Business Personnel Financial Mgnt.

16 How do you differentiate your product, services, name? What size? When do they want to buy it? Weekends? July 4? Do they want it live? Filleted? Can you provide better service than anyone else?

17 Use Marketing Plan to Inform Overall Business Plan Revise annually & keep business fresh! Facilities, location Production system Permits, licenses Customer service Risk management Financial plan Production Scope & scale Market Profitable Business Personnel Financial Mgnt.

18 Monitoring Financial Performance

19 Monitoring Financial Performance $ Successful Aquaculture Businesses Cash Flow Financial Position Profitability

20 $ Successful Aquaculture Businesses Cash Flow Financial Position Profitability

21 Cash Flow Problems Most Common Cause of Failure $80,000 $60,000 $40,000 $20,000 $0 -$20,000 -$40,000 -$60,000 -$80,000 -$100,000

22 Common mistakes Overly optimistic yields Overly optimistic sales Under-estimating expenses Omitting capital replacement items Omitting loan interest & principal payments

23 Cash Flow: Checklist Southern Regional Aquaculture Center Fact Sheets Indicator Interpretation Good Marginal Problem Ending cash balance Outstanding oper. loan Higher or lower than beginning balance? Higher or lower than beginning of year?

24 Cash Flow: Checklist (Cont.) Indicator Interpretation Good Marginal Problem Cash flow risk % revenue can decline & meet cash flow % op. expenses can increase & cash flow Higher or lower than 10-25% Higher or lower than 10-25%

25 Southern Regional Aquaculture Center Fact Sheets Indicator Interpretation Good Marginal Problem Current ratio Debt-toasset ratio Net worth Greater than 1.5; lower than 1? < 40%; > 65%? Positive? Increasing?

26 Debt-to-Asset Ratio & Financial Risk Debt-to-asset ratio 1000% 900% 800% 700% 600% 500% 400% 300% 200% 100% 0% Debt-to-Asset Ratios as Early Warning <50%, Low Risk >50%, Moderate Risk >100%, High Risk Foreclosure Year 1 Year 2 Year 3 Year 4

27 Southern Regional Aquaculture Center Fact Sheets Indicator Interpretation Good Marginal Problem Net farm income Positive or negative?

28 Keys to economic success: Make sure you have adequate capital. Debt payment New equipment Business Unexpected expenses Well pump goes out Vehicle repair Renovations to meet codes Receivables Inventory

29 Keys to economic success Be honest about how much money Farmer must earn enough you want to get out of your to compensate for his/her aquaculture or aquaponics efforts. time. You will want to retire one day, or Or, pay will for children s quit farming college. fish to do something else. Can t do it for minimum wage or less.

30 Nathan Stone s Wal-Mart Test We should be asking people if they can make as much money from small-scale aquaculture as they can as a greeter at Wal-Mart. Otherwise, they are better off working at Wal-Mart, where they can stay warm. Even hobby farmers need to make money.

31 Keys to economic success Monitor cash flow monthly! Do a Financial Checkup at the end of every year. Identify & prioritize weaknesses Set goals & plans to improve weaknesses. Make adjustments every year. Southern Regional Aquaculture Center Fact Sheets

32 Questions? Carole R. Engle