WILL YOUR NEW AQUACULTURE BUSINESS BE PROFITABLE Putting together a business plan

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WILL YOUR NEW AQUACULTURE BUSINESSBE
PROFITABLE?Putting together a business plan

• Steeve Pomerleau
• Research Associate

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Objectives

• Help potential producers by
• Outlining critical questions
• Describing components of a business plan
• Estimating the level of capital investment

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Critical Questions

• Which species to produce?
• Do you have a clear understanding of the species
  constraints and benefits (biological and
  economic)?

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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.

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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

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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.

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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!

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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.

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What about

• Eels?
• Bullfrogs?

• Turtles?
• Alligators?

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What about

• Eels?
• Bullfrogs?

• Turtles?
• Alligators?

Biologically possible but often questionable
economicallyHighly specialized industries that
may be profitable regionallyIf something is not
being raised, there is likely to be a reason.
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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!!

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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?
  

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Tilapia Production Costs
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Catfish Production Costs

• Assume feed costs _at_ 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

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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 nights sleep most
  nights?

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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?

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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

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Business Plan

• It is the future of the business on paper.
• A way to test dreams against expected challenges
  and opportunities.

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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.

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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.

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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

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Components of a Business Plan

• Description of the proposed site and production
  system
• Marketing plan
• Financial analysis
• Brief resume of borrower

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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.

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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.

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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.

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Marketing Plan

• If youre 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

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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.

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How to begin to Analyze the Market

• Talk to as many different potential buyers as
  possible to determine their needs.
• Retail markets
• Processors
• wholesalers
• Distributors, brokers
• Restaurants
• Seafood stores
• Supermarkets
• Consumers buying directly

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How to begin to Analyze the Market

• Each buyer has its own buying patterns.
• Historical prices paid
• Product form
• Dockage rates
• Transportation charges
• Payment frequency
• Seasonality issues

• Delivery volume requirements
• Quality standards
• Procedures
• Contracts
• Other buyers preferences

Enough potential buyers to support your business?
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Marketing Plan

• Any documentation from the plants or a letter
  stating that they will purchase fish from you
  will strengthen the business loan proposal

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Financial Analysis

• Estimated Annual Costs Returns
• Estimate of Required Financing
• Farm Appraisal
• Balance Sheet
• Income Statement
• Cash Flow Budget
• Personal Financial Statement

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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

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Estimate of required financing

• Aquaculture is capital intensive.
• Some lenders still require as much as 50-65
  owner equity.

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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

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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.

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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

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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

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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

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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.

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Conclusion

• Fish farming is a great way of life but requires
  a great deal of preparation and planning

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Components of a Business Plan

• Description of the proposed site and production
  system
• Marketing plan
• Financial analysis
• Annual Costs Returns
• Required Financing
• Farm Appraisal
• Balance Sheet
• Brief resume of borrower

• Income Statement
• Cash Flow Budget
• Personal Financial Statement

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