Shellfish Corner - Archives Jan/Feb 2000

Quality + Quantity = Profitability (Q+Q=P) is a farm management approach that I have discussed in several recent columns in Fish Farming News. The point of the equation is that to earn a profit in today's competition marketplace, growers not only have to produce a top quality product but also in a great volume. The mussel operation GRT Aqua-Technologies Ltd. described in my last column (see FFN Bonus Issue 1999-2000) demonstrates a successful application of that management approach, despite the environmental conditions that cause operational or biological challenges.

However, a question has been raised, "How can a smaller grower who doesn't have ready access to capital and wants to grow his farm slowly, do it?"

This is a good point. The GRT farms are large and well-financed and can be intimidating to some growers just starting out. There are a number of answers to this question and they all work together to provide the result.

1. Identify who the buyers of your product will be and what price they are currently paying for their product. Will it be a processor, a broker, local restaurant, or food stores? Find out how much they are currently selling per week or month and, if you helped them with marketing through packaging, branding, and information transfer (see FFN March/April 1998), could they increase their sales and by how much?

I have found that the few growers that have done this have gotten quite a bit more than the current market commodity price, which had been set by the wild harvest. By the way don't let possible rejection stop you at the first four or five people you talk to. Keep focused on the value of what you are doing.

2. Once you have potential sales numbers and price figures, build in a safety margin of at least 20% less in case of unforeseen trouble such as market pricing and harvest fluctuations.

When you manage in this way, profitability is greatly improved if the production or price stays the same or goes up.

3. Analyze your site/lease for production to see if you can produce more in the same area (see FFN Nov/Dec 1999). If you are doing oyster's intertidally check to see if you can expand your lease to include both subtidal and deep water applications, for example. If you are a mussel farmer, can you increase the length of your socks or make them semicontinuous or even deploy more?

Look at the different husbandry methods and equipment available. At this point, think only of production outputs to meet the sales numbers that you have set as a production target.

4. Next, look at capital equipment costs. Those goods include both accessible equipment such as boats, graders, trays, rafts, etc., as well as deployed equipment such as anchors, buoys, longlines, etc. Knowing how to cost out the price you pay for equipment over its useful life is essential in order to determine if your operation is making a profit.

The rule of thumb when looking at equipment is that you first ask what will it produce over the harvest cycle, and how long will it last so you can establish how many harvest cycles you can amortize it over.

Armed with this information you can figure out the return on equipment capital investment. In typical business applications capital equipment is normally depreciated over three to five years. However, items such as buildings or boats will be amortized over a longer period.

To increase the quantity of product you produce may not require as great an increase in capital expenditure as you might think, since some of the equipment is needed whether you maintain your current status or expand by a certain percentage. For example, a boat is depreciated over 10 years no matter how many days of the year it is being used to tend a mussel lease.

What you are looking to do here is come up with the equipment cost per harvest cycle. For example if an oyster tray sells for $12 and has a 10-year life expectancy the yearly cost would be $1.20 or 10 cents per month. If the basket/tray will hold 10 dozen oysters worth $48 that need 14 months to grow, then the tray cost per growout cycle will be $1.40.

It always is interesting to hear people comment to me at trade shows on product costing. I know as consumers we are trained to go after the best price. However, the old adage "you get what you pay for" certainly holds true with aquaculture equipment. Look at how much money you can expect to make before you spend your money. A few dollars extra spent now is well worth it in the long run.

5. Finally, look at your labor cost. Increasing production will generally increase the cost of labor. The questions to ask include how much labor will it take for each harvest cycle and can it add to the output of the lease?

It still amazes me how so few individuals pay attention to this detail and how, if you look at their year-end business statements, it is one of the largest costs. Don't be fooled into thinking that your labor cost is low if you are not paying yourself a salary, even if it is part-time work. Your time is the most valuable commodity you have!

Remember to look at your production in terms of quality + quantity with the lowest labor cost to maximize profitability.

So far with all this we haven't spent any money. We have just laid out the basics of how any size grower can move forward. The next step is for you to define how much income you want to make either part- or full-time as the grower/owner, and over what period of time you want to do it.

At this point you can decide to increase slowly and reinvest profits into equipment. Or you can take the information to your banker or lender, factor in the interest cost, and make a calculated decision on how soon you can supply your expanded market potential.

Feel cautious but act aggressive. The market is there, and if you don't fill it no matter what size your operation is somebody else will.

Don Bishop, vice president of operations for Fukui North America, a division of Fukui Fishing Net Co. Ltd., has 20 years of technical and distribution experience. His primary responsibility is in the development and enhancement of aquaculture growout gear and systems for finfish and shellfish in both salt and fresh water applications. Comments may be addressed to Fukui North America, PO Box 119, Island View Dr., Golden Lake, Ontario, Canada K0J 1X0; call (613) 625-2544; fax (613) 625-2688; or e-mail [email protected]..