Aquaculture: An Investment for the Future
Benner, Kami L.
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Business Ob1ective: The main objective of the proposed aquaculture business is to raise 100, 000 pounds of rainbow trout annually, which will achieve a total of $216,000 in annual gross sales. Product Description: Rainbow trout is Michigan's leading aquacultural product. This light flavored fish is extremely popular among Great Lakes consumers. However, the demand for rainbow trout continues to exceed supply. The proposed business is being created to meet this demand. Also the growing concern for a healthier diet will be met through the sale of trout that has been raised in a controlled environment where careful consideration has been taken to ensure the fish's nutritional content. Market Potential and Competition: Every existing aquaculture business has a piece of the market, with the largest share going to the rainbow trout farms in Idaho and the catfish farms in Mississippi. Competition from the western states is strong due to nearly-perfect farming conditions. Idaho, for example, is able to charge a lower price than Michigan growers because they have a much larger water supply. The more water a fishery has to work with, the more fish it is able to grow. Since Michigan has a sporadic water table (the water supply varies within the state) and not a consistent water source like the Snake River in Idaho, it is harder for Michigan growers to raise large numbers of fish, as compared to Idaho fisheries. However, Michigan fish farms have found ways to raise fish competitively in the aquaculture market. The food fish market in Michigan is small and can be easily entered. Due to the small number of Michigan fish farms selling food fish as opposed to game fish, a new aquaculture business would be welcomed into the food fish market. Wholesalers and retailers are looking for the chance to buy from local fish growers. Therefore, once a buying contract is reached, the new business will be able to compete within the market. Production operations: The proposed aquaculture business will be using an indoor raceway system for production. Four raceways will be built side by side in series of three. The raceway system will be enclosed in a large pole-frame structure that will also include an office area. An aquaculturist should be hired so the business can be run as efficiently and effectively as possible. The actual production process will begin with the purchase of 27,000 fingerlings, 9,000 in each of three size categories equaling 3-4" , 4-5" , and 5-6". At the end of each month, the fish will have grown approximately one inch and will enter the next size bracket. For example, the 3-4" fish will become 4-5" , the 4-5" fish will become 5-6" and so on. Therefore at the end of each month, 9,000 3-4" fingerlings should be purchased to fill the gap in size difference. At the end of the seventh month, the first 9,000 fish will be 12-13", weighing one pound a piece. These fish will be sold at $2.00/lb, resulting in $18,000 gross sales. Consequently, every month, after the seventh month, will produce 9,000 pounds of fish for market. Note that since losses in an enclosed system will only be due to disease, the mortality rate is so minimal that it is not figured into the production schedule. Projected Financial Results: The financial results compiled in the financial analysis section are promising after the first year. The capital budget shows $244,755.50 will be needed to start this business. The income statement for the first year indicates $108,000 in sales and a net profit of $28,335.89. Using the first year's net profit, the return on investment was calculated to be· twelve percent. A twelve percent return on investment for the first year is good considering that the majority of new businesses hope to achieve ten to fifteen percent. However, the second year of operation shows a considerable increase in profit due to sales. The second year's sales are $216,000 and net profit is $106,922.06. Return on investment for the second year is thirty nine percent. An alternative method for financing this business was also looked into. Obtaining a loan for $150,000 (the cost of the major fixed assets) at nine percent interest decreases the amount of total investment and increases the return on equity. Return On Equity for the first year is sixteen percent, as opposed to a twelve percent return without financing. Recommendations: The proposed aquaculture business is feasible. I recommend this business as a good investment based on the returns of twelve percent and thirty nine percent in the first and second years respectively.