By Tyler Sclodnick
Aquaculture economics is a broad, complex topic that has been the subject of entire textbooks and journals – not to mention our own recent webinar with IntraFish that I was a part of – but exploring smaller aspects of it can be an interesting exercise for a blog post. One topic that always comes up when we talk to prospective clients is the capital investment required.
The first thing that many new investors in the aquaculture space ask – whether they’re planning a project for net pens in the ocean, recirculating aquaculture systems (RAS) or even ponds – is how much will it cost to get started. And rightly so! Modern aquaculture is a capital-intensive endeavor and investors need to understand how to leverage their investment most effectively.
Return on capital is a ratio of profit to capital investment – and something of keen interest in the world of aquaculture economics and management. It can be applied company wide or to specific projects or investments. It’s similar to the more common return on investment (ROI) but allows for a more specific look at certain elements of a business.
So how does a new aquaculture venture maximize its financial returns on the money it invests in aquaculture equipment?
The answer, of course, is to keep the equipment running optimally. But that can mean different things depending on the operation. So, we’re going to look at two examples of large capital line items that can see a high variance in the returns generated. The first is a recirculating aquaculture system (RAS) and the second is a series of net pens and grids. In both cases, the goal is to produce the most fish as possible from the system while managing any factors that could limit production.
Maximizing Returns with a RAS
The key to maximizing the returns on a RAS facility is to have the systems designed such that the carrying capacity of each individual component is similar. Common limiting factors in RAS systems include:
- Tank space (volume or surface area depending on the species)
- Oxygen and other gases
- Total ammonia nitrogen
- Suspended solids
Each of these factors can be influenced by design decisions, including water turnover rate, aeration or oxygenation, system size and method of filtration. But here’s the key: when one factor limits capacity significantly more than the others, the excess capacity in the other components is wasted.
Anyone familiar with lean manufacturing or Toyota’s famous production system understands the importance of removing waste from a system to maximize efficiency. This is no different. An oversized biofilter or degassing tower is like having an unused car lift at an auto repair shop. The lift cost money to buy and install, but now it’s unused capacity that is not earning revenue. So, building a huge filter system that handle tons of fish waste is great, but if oxygen is your limiting factor, all that filtration capacity will go unused.
To get the most bang for your buck, or the highest return on capital, it is more important to design your system carefully and ensure all the systems work together to get the maximum carrying capacity without any over-designed components.
Maximizing Returns in the Open Ocean
Net pens and grids follow similar rules except ocean currents provide oxygen and waste dispersion. During the farm planning stage, this is something that can be accounted for to some degree.
How? By siting a farm in an environment with stronger currents, it will have a higher capacity to disperse effluents, reduce parasite transmission rates and replenish oxygen faster – all of which can allow for much higher stocking densities.
Our customer, Blue Ocean Mariculture, is capitalizing on this effect. Its submersible SeaStations are located just 600 meters off the coast of Hawaii but are exposed to strong currents. This high energy environment combined with high quality feeds and good feeding practices has allowed Blue Ocean to stock its Seriola rivoliana to densities as high as 35 kilograms per cubic meter. That’s up to 200 percent higher than what farms are doing in protected bays and fjords – and it translates directly to higher revenue.
Feed costs are proportional to biomass in the pen, but most other operating expenses are determined by the number of pens, not the number of fish. So Blue Ocean is earning a much higher return on capital than farms in protected waters because the environment where it has sited its farm can support a much higher bioload without creating long-term negative environmental impacts or compromising the health and welfare of the fish. (Blue Ocean has regular environmental monitoring surveys conducted by the University of Hawaii that show virtually no change to the water or sediment chemistry.)
Getting the most bang for your Capex bucks is critical for capital intensive projects but these two examples illustrate how projects in the planning stage set themselves up for success. Research done early on will make a farm more efficient and the benefits of that will be reflected in every fish sold by that company.
Interested in fish farming? Innovasea’s experts can help you get started. Contact us today to find out more.
About the Author
Tyler Sclodnick is a senior scientist at Innovasea and leads the geographic information systems program. He also spearheads the company’s research program, which aims to improve the efficiency and sustainability of open ocean aquaculture systems. Prior to working in aquaculture, Tyler worked in ecology and conservation. He believes that aquaculture development can be compatible with environmental sustainability and conservation goals while also providing healthy protein and serving as an economic engine in coastal communities.
Tyler holds a Bachelor of Science degree in Biology from Queens University and a Master of Science degree in Marine Affairs and Policy from the University of Miami. He currently studying for an MBA at the University of Massachusetts.