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Economy of Scale

BY Leslie Ter Morshuizen

When asked for a definition of aquaculture we typically say something along the lines of `the farming of aquatic organisms’. Whilst this is true it is only a part of the story. In reality aquaculture is a BUSINESS, if we forget this part of the definition we are doomed to failure.

 

The bi-annual Symposium of the Aquaculture Association of South Africa was held in Stellenbosch last week and attended by delegates from a large number of countries. Several of the speakers made points that paralleled each other, and production scale was one such topic. These presenters stressed the importance of being large enough to be profitable despite the high cost of fish feed, distances over which produce needs to be delivered, staff & wage issues, disasters and other routine or unexpected events that drain money off the bottom line. Furthermore, large scale producers are able to gear the economy of scale to increase their profit line, make use of technical services, can increase efficiencies and are able to negotiate better marketing terms than small producers.

 

Where then is the place for the smaller producer? I believe that there are two possible routes one can follow when starting an aquaculture venture: either, start small, learn from your mistakes and then build on your successes to grow, or alternatively start large enough to bring in qualified, experienced managers. If the 1st instance, you are on a small scale and will tend to have to dance to the tune of the suppliers and marketers, but once you increase your production to a large scale you will be better positioned to negotiate, both with suppliers as well as markets. However, there are instances where unique advantages enable the small operator to profitably supply local niche markets where the larger producers cannot compete in as cost effectively. Typically service would be a differentiating factor in the favour of the small producer.

 

There is also characteristically an economic black hole between small and large scale production levels and profit is very difficult to achieve in this void. Consequently, to move from being a small scale to a large scale producer usually requires a substantial injection of faith and cash. Make sure you have done your homework so that the balance between optimism and realism is correct, and remember that whilst aquaculture involves farming aquatic animals it must first and foremost remain a commercial undertaking.

 

 December 02, 2013
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