WB7717 Economics of Environmental Technologies for Open Cage Aquaculture - Final Report

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An economic assessment of environmental technologies for open cage aquaculture in Ontario

Text of WB7717 Economics of Environmental Technologies for Open Cage Aquaculture - Final Report

  • WE

    SA

    ADVANCING ENVIRONMENTAL SUSTAINABILITY OF CAGE AQUACULTURE IN ONTARIO:

    AN ECONOMIC AND FEASABILITY ANALYSIS

    PREPARED FOR:

    MINISTRY OF THE ENVIRONMENT

    Land and Water Policy Branch

    135 St. Clair Avenue West, 6th Floor

    Toronto, Ontario M4V 1P5

  • ADVANCING ENVIRONMENTAL SUSTAINABILITY OF CAGE AQUACULTURE IN ONTARIO: AN ECONOMIC

    AND FEASIBILITY ANALYSIS

    Prepared for:

    MINISTRY OF THE ENVIRONMENT

    Land and Water Policy Branch, 6th Floor 135. St. Clair Ave West Toronto, ON M4V 1P5

    Prepared by:

    WESA Inc.

    171 Victoria Street North Kitchener, ON N2H 5C5

    WESA Project Number W-B7717-00

    October 2009

    Ref: WB7717 Advancing Environmental Sustainability of Aquaculture.doc

  • Ministry of the Environment Advancing Environmental Sustainability of Cage Aquaculture in Ontario: An Economic and Feasibility Analysis

    Page i

    Disclaimer

    The information gathered in this report is a compilation of research, publicly available resources and personal communication with various industry experts. Specific financial information from individual cage aquaculture operations was not made available for consideration in this report.

  • Ministry of the Environment Advancing Environmental Sustainability of Cage Aquaculture in Ontario: An Economic and Feasibility Analysis

    Page ii

    EXECUTIVE SUMMARY In January 2009, WESA Inc. (WESA) was retained by the Ontario Ministry of the Environment (MOE) to investigate the following broad objectives:

    1. To assess the financial feasibility of existing cage aquaculture operations 2. To assess the costs of implementing MOEs cage aquaculture monitoring program 3. To prepare an economic evaluation of implementing technologies and/or operational

    strategies to enhance/improve environmental performance 4. An economic evaluation of market outlook 5. A sensitivity analysis of aquaculture operations.

    An economic evaluation of three scales of cage production operations was conducted to determine the economic feasibility of cage culture operations. The analysis indicated that profitability is highly dependent on the scale of the operation with larger operations being more profitable than smaller operations, as shown in the table below. 260 tonne 460 tonne 1260 tonne Profitability 10 Yr Avg. 10 Yr Avg. 10 Yr Avg.

    Gross Margin 24.9% 28.5% 28.9% Return on Sales 6.7% 19.3% 24.9% Cash Earnings on Sales 5.5% 13.2% 12.9% ROI (cash-in - cash out) 1.3% 26.9% 51.6%

    Other Ratios to Consider

    NPV (@ 7%) -$394,692 $736,374 $2,806,185 FIRR -11.3% 22.4% 33.9% NPV / Investment -0.66 0.92 2.16

    Large operations are most profitable and can generate a net present value (NPV) that is more than double the initial investment and provides a financial internal rate of return (FIRR) of 33.9%. Conversely for small scale operations, the NPV is negative with a negative 11.3% rate of return. Existing operations of this size that are fully capitalized and with little debt may in fact be currently profitable.

  • Ministry of the Environment Advancing Environmental Sustainability of Cage Aquaculture in Ontario: An Economic and Feasibility Analysis

    Page iii

    An assessment of the cost to implement the MOEs aquaculture monitoring program indicates that the cost of monitoring on a unit basis depends on the scale of the operation and whether sample collection is done in house or contracted out. The cost of the monitoring program has a relatively low sensitivity relative to the total cost of production. Current operations should be able to absorb the additional cost without substantial hardships.

    Scenario 260 tonnes 460 tonnes 1260 tonnes

    Cost per kg of Production

    In House $0.06 $0.03 $0.02

    Contracted $0.14 $0.07 $0.03

    When these monitoring costs were compared to the monitoring costs of a land-based operation regulated under a Certificate of Approval the unit cost basis were comparable between cage culture operations and land based farms. The economic feasibility of a number of environmental strategies were evaluated at three scales of production. The technologies evaluated include the RH waste recovery system; feed monitoring, fallowing, closed containment, land-based pump ashore production facilities and recirculating aquaculture systems. Improved feed monitoring, which minimized feed waste, resulted in a net economic benefit to the operation. Fallowing was of no economic benefit, but was quite feasible for large scale production. Conversely, RH waste recovery systems resulted in a negative financial performance, and did not provide any economic benefit to the fish culture operation. Both closed containment and land-based pump ashore aquaculture operations are economically feasible at an appropriate scale of operation and are comparable in economic performance to large scale cage production. They both provide good waste recovery and as well as providing significant operational advantages. Both closed containment and pump ashore operations also enable a high degree of management control. For example, operators can use oxygen supplementation to boost performance thereby reducing capital requirements and operating costs. An evaluation of the current and projected market demand indicates that unsatisfied domestic and export market demand could support an industry growth rate of up to 20% per year. The Ontario trout industry currently accounts for 70% of domestic trout production and is very well positioned to supply U.S. markets, where the unsatisfied demand for trout is expect to a grow to live weight equivalent of 6,000 tonnes per year by 2020.

  • Ministry of the Environment Advancing Environmental Sustainability of Cage Aquaculture in Ontario: An Economic and Feasibility Analysis

    Page iv

    A sensitivity analysis was conducted on the economics of aquaculture for all operational scales and technologies; however the results did not vary substantially. The single most sensitive variable affecting economic performance is farmgate selling price with a 10% variation price resulting in a 46% variation in profit margins. The analysis indicated that after farmgate price and feed costs, growth is the third most significant factor affecting profitability, and as a result environmental conditions at the site (e.g., temperature, oxygen concentration) can have a large impact on the profitability of a cage production operation. Aquaculture operations are moderately sensitive to labour and fingerling costs. A 10% change in these costs results in corresponding change in profitability of 2.7% and 4.2%, respectively and a change in production costs of 0.78% and 1.2%, respectively. All other variables are fairly minor in comparison. Due to the relatively low power consumption of pump ashore operations that are designed for energy efficiency, pump ashore and closed containment operations are fairly insensitive to variations in power costs. For example, a 10% variation in power costs only changes production costs by 0.5% and profits by 1.4% for a pump ashore facility. Based on an evaluation of the economics of cage production and environmental strategies, it is evident that economical feasible opportunities to make significant improvements in the environmental performance of cage production facilities are limited. Through careful feed management, fallowing and ongoing site monitoring there will likely be further incremental improvements reducing the impact of cage operations on the local environment and ensuring there is no lasting impact from fish culture operations. The current focus of environmental management for cage operations essentially becomes an exercise of finding the best way to disperse wastes so that their impact on the local environment is minimized, however very little can be done to further reduce loading into the receiving water. The study recommends the development of a research facility and a test site where new approaches to fish production can be tested and monitored; with the long term objective of facilitating the adoption of emerging sustainable technologies as they mature. The development of such a facility could include contributions and collaborations with industry, non-industry stakeholder groups, government and/or aboriginal communities.

  • Ministry of the Environment Advancing Environmental Sustainability of Cage Aquaculture in Ontario: An Economic and Feasibility Analysis

    Page i

    TABLE OF CONTENTS

    EXECUTIVE SUMMARY

    1. INTRODUCTION .............................................................................................................. 1

    1.1 BACKGROUND ................................................................................................................... 1

    2. CURRENT STATUS OF KNOWLEDGE ............................................................................... 4

    3. STUDY RESULTS ............................................................................................................... 8

    3.1 FINANCIAL FEASIBILITY OF EXISTING CAGE AQUACULTURE OPERATIONS ................................... 8 3.2 ASSESSMENT OF THE COSTS OF IMPLEMENTING MOES CAGE AQUACULTURE MONITORING

    PROGRAM ....................................................................................................................... 17 3.3 ECONOMIC EVALUATION OF IMPLEMENTING TECHNOLOGIES AND/OR OPERATIONAL STRATEGIES

    TO ENHANCE/IMPROVE ENVIRONMENTAL PERFORMANCE .................................................... 26 3.3.1 RH Waste Retrieval System .................................................................................... 27 3.3.2 Improved Feed Delivery and Monitoring ..