WILL YOUR NEW
AQUACULTURE BUSINESS
BE PROFITABLE?
Putting together a business plan
Steeve Pomerleau
Research Associate
Objectives
• Help potential producers by:
– Outlining critical questions
– Describing components of a business plan
– Estimating the level of capital investment
Critical Questions
• Which species to produce?
– Do you have a clear understanding of the
species constraints and benefits
(biological and economic)?
Tilapia
Biological and Economical Constraints
• Tropical fish that dies in the winter in most
parts of the U.S.
• Must be overwintered indoors, raising costs.
• Good market in U.S. for fillets, but imported
fillets from tropics have lower costs.
• Live fish sales difficult, but possible.
• Limited market for live fish sales.
Baitfish
Biological and Economical Constraints
• Low production costs
• Low yields
• Live product that requires extensive
distribution system
• Sales tied to fishing conditions nationwide
on holidays = market risk
• Market flat
Baitfish
Biological and Economical Constraints
• Difficult to break into market.
• Wholesaling difficult.
• Could sell baitfish on retail basis, but sales
volumes will be very low.
• Even in prime fishing areas, profits from bait
sales are low.
• Potential would exist in selling to larger
baitfish wholesaler who has established
distribution network.
Freshwater Prawns
Biological and Economical Constraints
• Tropical animals.
• All production will need to be marketed at the
same time in the fall before prawns die as
temperatures go down.
• Thus, the market will be highly seasonal and
prawns will be sold when their price is
lowest.
• Insecticide will kill prawns!
Freshwater Prawns
Biological and Economical Constraints
• Market not developed. Individual grower will
need to develop the market.
• Production risks high. Severe losses
possible.
• Seed supply unreliable and scarce.
• Production costs not well known.
• Harvesting requires draining.
What about…
• Eels?
• Turtles?
• Bullfrogs?
• Alligators?
What about…
• Eels?
• Turtles?
• Bullfrogs?
• Alligators?
Biologically possible but often questionable
economically
Highly specialized industries that may be
profitable regionally
If something is not being raised, there is likely
to be a reason.
Critical Questions
• Are you aware of the risks involved?
– low dissolved oxygen
– diseases
– bird depredation
– Off flavor
– Market fluctuations
FISH FARMERS BEAR ALL THE RISK
NO GOVERNMENT PROGRAMS TO HELP!!
Critical Questions
• What will it cost you to produce this
species in the production system
selected?
• Can this species be raised and sold for
a profit?
Tilapia Production Costs
Production costs
Tropical ponds
Tropical raceways
Subtropical greenhouse
Ponds, south. U.S.
Temperate indoor tanks
$/lb
0.74
0.75
1.12
1.03
1.62
Catfish Production Costs
• Assume feed costs @ $275/ton, and an
average yield of 5,000 lb/acre. For top
10-15% of farms. Average yield is less.
• Budgets $0.63 - $0.69/lb
Critical Questions
• Aquaculture is management intensive.
• You must ask yourself if you have the
skills, management ability, and time to
run a fish farm. If not, you will have to
hire a manager.
• Do you like to get a full night’s sleep
most nights?
Critical Questions
• It is critical to spend as much time
studying markets
– Are markets accessible?
– What have market prices been over the
last 5 years?
– Are they higher during certain months
than others?
– Is the most common market price high
enough to cover all your production
costs?
Business Plan
• Organized and structured document that…
– analyzes the market potential
– Explain the production technologies
– Estimate the financial performance of the
business
• Necessary to…
– Evaluate feasibility
– Estimate capital investments & operating capital
– Secure adequate financing
Business Plan
• It is the future of the business
on paper.
• A way to test dreams against
expected challenges and
opportunities.
Why is a Business Plan
Important?
• Many prospective and existing fish farmers
have difficulty obtaining financing.
• Lenders may not be familiar with aquaculture
• Adequate planning for the business may help
avoid mistakes.
• Proper planning for the business can also
minimize risks associated with the market,
production and financing.
How long does it take to develop
a complete business plan?
• A good business plan take months to
develop.
• A thorough plan cannot be developed
in an hour, a day, or even a week.
• The plan is only as good as the effort
and thought that goes into it.
Fundamental questions
addressed with a business plan
• How will you produce the product?
Production System
• Who will buy the product?
Marketing Plan
• Is the proposed business economically
and financially feasible?
Economic and Financial Analysis
Components of a Business Plan
1. Description of the proposed site and
production system
2. Marketing plan
3. Financial analysis
4. Brief resume of borrower
Description of the site
• Suitability of the site in terms of soil characteristics,
environmental conditions, and water supply.
• The proximity to processing facilities, feed mills,
aquaculture supply firms, equipment repair services,
disease and diagnostics laboratories, and the
Extension office.
• This demonstrates to the lender both the distance
the farm will be from these services and that the
individual knows where to find these services.
• Information on specific permits that will be required.
Description of Production System
• Thorough discussion of the proposed
production system
• Possible production problems (off flavor, etc)
• This demonstrates to the lender
awareness of the problem and warns the
lender of potential cash flow or debt
repayment problems.
Marketing Plan
• The most successful aquaculture business:
– are market-oriented
– have diverse markets
– are committed to their customers
• Decisions on species, harvest size, and
volume should be based on a market
analysis.
• Profits are made by selling fish, not
producing them.
Marketing Plan
• If you’re in an area without a history of
aquaculture, it is useful to present
information on:
– the size of the industry
– current trends
– overall growth potential
How to begin to Analyze the Market
• Talk to local retail operations that sell fish.
• Even if you intend to sell strictly to a
processing plant.
• It is important to understand the product
qualities and characteristics expected by the
retail operators and end consumers.
How to begin to Analyze the Market
Talk to as many different potential buyers as
possible to determine their needs.
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Retail markets
Processors
wholesalers
Distributors, brokers
Restaurants
Seafood stores
Supermarkets
Consumers buying directly
How to begin to Analyze the Market
Each buyer has its own buying patterns.
– Historical prices paid
– Product form
– Delivery volume
requirements
– Dockage rates
– Quality standards
– Transportation charges – Procedures
– Payment frequency
– Contracts
– Seasonality issues
– Other buyers preferences
Enough potential buyers to support your business?
Marketing Plan
• Any documentation from the plants or a
letter stating that they will purchase
fish from you will strengthen the
business loan proposal
Financial Analysis
1. Estimated Annual Costs & Returns
2. Estimate of Required Financing
3. Farm Appraisal
4. Balance Sheet
5. Income Statement
6. Cash Flow Budget
7. Personal Financial Statement
Enterprise Budget
• Estimate of average costs and revenues in a
typical year after the business is established.
• Indicates generally whether the proposed
production system is profitable.
• Indicates general level of expected profit.
• Indicates breakeven costs.
• Indicates breakeven yields
Estimate of required financing
• Aquaculture is capital intensive.
• Some lenders still require as much as
50-65% owner equity.
Investment Cost
Catfish farm: $4,900 - $5,500/acre
• Land -- 23 - 26%
• Pond construction -- 33 - 35%
• Water supply -- 11 - 14%
• Equipment, feed bins -- 28 - 30%
• If you already own the land:
investment is $3,600 - $4,200/acre
Balance Sheet
• Lists what assets and liabilities would be for
the new aquaculture business.
• Used to calculate net worth (owner equity)
• Used to determine solvency and liquidity
(financial strength & position of the
business)
• Lenders prefer owner equity of 60-65% for
aquaculture loans.
Income Statement
• Itemizes farm income and expenses
• Called profit and loss statement
• Calculates
– net farm income
– return to capital
– Return to labor & management
– return to equity
Cash Flow Budget
• What is it?
– It is a summary of the cash inflows and
outflows over a given period of time.
– It is an important forward planning tool.
• Purpose :
– Estimate future borrowing needs
– Estimates the loan repayment capacity
– Schedule payments and harvests
Cash Flow Budget
• Shows cash receipts and cash expenses by
month, quarter, or year
• Includes only cash expenses
• Indicates when cash is available for loan
repayment
• Indicates when cash is needed to keep
business going
• Should include family living expenses
Cash Flow Budget
• Indicates when additional cash is needed in
the business.
• Can be used to plan operating lines of credit.
• Can be used to schedule purchases of new
equipment or major repairs.
• Can be used to plan stocking and harvesting
schedules to meet financial obligations.
Conclusion
• Fish farming is a
great way of life but
requires a great deal
of preparation and
planning
Components of a Business Plan
1.
Description of the proposed site and production system
2.
Marketing plan
3.
Financial analysis
4.
•
Annual Costs & Returns
•
Income Statement
•
Required Financing
•
Cash Flow Budget
•
Farm Appraisal
•
Personal Financial Statement
•
Balance Sheet
Brief resume of borrower
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