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Please start with a due diligence.

BY Leslie Ter Morshuizen

There is an adage: `failing to plan is planning to fail’. I am astounded at how often I am approached by people wishing to start an aquaculture venture but who have given little or no thought to the species they will produce, the tonnage they will target, what infrastructure type they will use, or unbelievably, where they will sell the fish! Many of these people have read articles in magazines or on the internet, and believe that there is an insatiable demand for fish out there; simply start producing and the people will flock to buy them from you. I wish to state categorically that this is not the case. Yes there is a strong demand for fish products but you need to understand the market in order to be able to asses whether or not it is even worth producing the fish to supply that market, with those requirements and at the given price. There will usually be multiple marketing options available to you and you need to compare these carefully to know which will be the best combination of the most profitable, reliable and simplest to supply.

 

The starting point for any aquaculture business has to be the market. Who will purchase the fish you produce, what tonnages do they require, is there seasonality to orders, what form do they require the product in, is traceability / organic / certification important, where is the product to be delivered, which other companies are competing for the market and what other products are a direct or close competitor? In addition to these points you also need to know what price you will be paid relative to the considerations above in order to determine whether or not the market appears worthy of further attention.

 

Knowing where the delivery point is and the species you are to farm, the next step is to decide on the best area to produce the product. This will affect the choice of infrastructure you require according to the climate and water availability, and consequently your selection criteria when looking for a suitable production site. Often the investor is a land owner who wishes to diversify operations into aquaculture based on an existing site. This may not be the perfect starting point but can usually word, given the proviso that the production or cost of sales may be higher than for the ideal site.

 

Next we need to design the infrastructure to produce the required quantity and quality of fish, reliably. Technology is fantastic, but be sure that the level of technology you use is appropriate for the species you are farming. Over-elaboration on probes, solenoids and the like looks fancy, but is seldom appropriate in Africa. (With the rapid increase in labour costs in SA however I have noted a recent increase in enquires relating to automation.)

 

Once you have the design and costing you will be able to predict what your production cost will be, to assess whether or not it is even worth investing to produce the fish for the chosen market. A monthly Cash Flow projection will highlight your need for capital, both during the construction phase and whilst you are rearing the fish to market size. Furthermore, you will also be able to run a Sensitivity Analysis to see which of your OPEX and related factors the cash flow and profitability of the business will be most vulnerable to.

 

Be very sure that you do your appropriate due diligence in advance of investing in infrastructure. Design each component of your business carefully, starting with the market. Plan for success.

 May 06, 2013
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