Economic Feasibility of Utilizing West Alabama Saline Groundwater to Produce Florida Pompano and Hybrid Striped Bass in a Recirculating Aquaculture System

< Florida Pompano Hybrid Striped Bass >

Special Report No. 8 December 2009 Alabama Agricultural Experiment Station Auburn University

TABLE OF CONTENTS
page Introduction ......................................................................................................................................................... 3 Background ......................................................................................................................................................... 3 Choice of Fish Specie ................................................................................................................................. 3 Evaluating Proﬁtability ............................................................................................................................... 5 Technical System ................................................................................................................................................ 6 Economic Analysis.............................................................................................................................................. 7 Florida Pompano......................................................................................................................................... 7 Hybrid Striped Bass .................................................................................................................................. 13 Discussion ......................................................................................................................................................... 13 References ......................................................................................................................................................... 17 LIST OF FIGURES AND TABLES
Figure 1. NCST Fishbarn Diagram: Recirculating System Used as Example for West Alabama High Saline Groundwater to Produce Pompano and Hybrid Striped Bass ............................................................................7 Table 1. Parameters, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 ...............................................................................................................................................................7 Table 2. Capital Outlay and Depreciation, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 ......................................................................................................................9 Table 3. Operating Expenses, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 ....................................................................................................................10 Table 4. Year One Income Statement, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 ....................................................................................................................10 Table 5. Year Two and Following Income Statement, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 ....................................................................................................................10 Table 6. Net Income Sensitivity Analysis for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 ............................................... 11 Table 7. Cash Flow Budget for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 .................................................................................................................... 11 Table 8. Analysis of Net Present Value at 6 ppt Salinity Groundwater with Varying Feed Conversion Ratio, Survival, Yield, and Price, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 .............................................................................................................................................................12 Table 9. Parameters, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008 .............................................................................................................................................................13 Table 10. Capital Outlay and Depreciation, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production,West Alabama, 2008 ..................................................................................................14 Table 11. Year One Income Statement, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008 ..................................................................................................15 Table 12. Year Two and Following Income Statement, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008 ..................................................................................................15 Table 13. Cash Flow Budget for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008 ..................................................................................................15 Table 14. Net Income Sensitivity Analysis for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008 .................................................................15 Table 15. Analysis of Net Present Value at 6 ppt Salinity Groundwater with Varying Feed Conversion Ratio, Survival, Yield, and Price, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008 .............................................................................................................................................................16
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Economic Feasibility of Utilizing West Alabama Saline Groundwater to Produce Florida Pompano and Hybrid Striped Bass in Recirculating Aquaculture System

J. K Gorman, J. Adrian, and J. A. Chappell

INTRODUCTION
quaculture has an important impact on the economy of Alabama. In 2005 it generated total revenues of more than $120 million (USDA 2006), growing substantially from $59.6 million in 1998. When processing is included, the economic value increased to an estimated $498 million (Stevens et al. 2007). Catﬁsh production was the major contributor to aquaculture revenues, producing $98.4 million in 2005. Almost 95 percent of this revenue was generated from catﬁsh sales outside Alabama, meaning that $143.1 million was new money entering the State’s economy. In addition to the impact that aquacultural production has on the State’s economy, other businesses rely on the ﬁsh and related aquatic products these farms produce. Despite the growth of the aquaculture industry, Alabama’s aquaculture sector has been under stress for several years. Producers and intermediary ﬁrms in the system face competition from others in the ﬁsh and seafood industry, both domestically and internationally, as well as from producers and marketers of other protein sources. Prices for aquaculture products have generally been depressed and input costs have been on the rise. Thus, proﬁt margins have been thin to nonexistent. Consequently, producers are interested in identifying and evaluating viable alternative uses for their resources, including atypical ﬁsh species and production systems. Catﬁsh producers in West Alabama have been interested in utilizing the area’s abundant high salinity artesian groundwater resources, and in 1999 catﬁsh producers in Green County grew paciﬁc white shrimp in ponds that ranged between 5 and 6 ppt salinity. The potential for culturing Florida pompano, hybrid striped bass, and southern ﬂounder in high salinity pond water in West Alabama has also been explored (Brown 2007). This study aims to identify and evaluate the technical and economic feasibility of an alternative production system that uses inland high-salinity groundwater to produce high-value marine ﬁsh for consumption.

A

BACKGROUND
Choice of Fish Specie Florida pompano and hybrid striped bass were chosen as the primary species for the present study. Previous research by Brown (2007) evaluated the potential for culturing marine ﬁnﬁsh using high salinity pond water in West Alabama. Florida pompano, hybrid striped bass, and southern ﬂounder were placed in tanks at two locations. Water quality at both sites was similar with the exception of differing ion concentrations. Survival rates were 93.8 percent and 97.5 percent for hybrid striped bass, 0 percent and 80 percent for pompano, and 82.5 percent and 91.3 percent for ﬂounder, respectively, at the two locations. Differing ion concentrations are thought to have caused total mortality of pompano at the ﬁrst site.
Gorman is a former Graduate Research Assistant and Adrian is a Professor in the Department of Agricultural Economics and Rural Sociology, Auburn University. Chappell is a Professor in the Department of Fisheries and Allied Aquacultures, Auburn University.

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USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

Florida Pompano. The Southern Regional Aquaculture Center reports that pompano are commonly found in warm, shallow waters between Massachusetts and Brazil (Main et al. 2007). They can grow to 10 inches in length and weigh up to 8 pounds. They are a hardy ﬁsh that can withstand varying environmental conditions such as low levels of dissolved oxygen (4 mg/L) and salinities between 0 and 50 ppt. While being very tolerant of ﬂuctuating oxygen levels and water salinities, they are a warm water specie that stresses easily when water temperatures fall. Death loss occurs when water temperatures reach between 50 and 53 degrees Fahrenheit or when rapid water temperature changes occur. Optimal growing temperatures range between 77 and 86 degrees Fahrenheit. Pompano are one of the most valuable ﬁsh caught in the Gulf of Mexico. Charles Weirich (2006) reported that the average wholesale price of pompano was $7.42 per kilogram ($3.09 per pound) in 2003. McMaster noted a higher price in 2003, with “fair market values to the producer (ﬁshermen) being between $3.50 and $5.50 per pound in the round” (McMaster 2003:3). He also reported that live markets presented more lucrative opportunities with prices of $10 per pound. As of May 2008, Pompano Farms, LLC, was currently selling fresh, farmed pompano on ice at $8 per pound. Alternatively, prices paid to ﬁshermen from 2000 to 2005, as reported by the National Marine Fisheries Service and adjusted for inﬂation, averaged $3.75 with $3.25 being the lowest average annual price and $3.98 being the highest average annual price (NOAA). This average price of $3.75 was the base price used in this study, but price per yield sensitivity analyses were conducted to capture the possible range of prices in other markets. Pompano were selected for culture in this study because they tolerate low salinity waters. McMaster (2005) reported that Mariculture Technologies International (MTI) in Oak Hill, Florida, has successfully grown pompano in ponds fed by 19 ppt saline groundwater, measured at 15 ppt after heavy rain, with seemingly no adverse effects attributed to lower salinity. A slower growth rate was observed but it was attributed to the lack of climate control, because the water temperature plunged to as low as 56 degrees Fareinheight. In a subsequent publication, McMaster (2006) reported having measured pond salinities as low as 2 ppt with no recorded pompano mortality. Nystrom (2005) conducted a study in which pompano juveniles were cultured in both low salinity (5 ppt) and high salinity (30 ppt) conditions. He found no statistical difference in growth between the two groups of ﬁsh, although the group of ﬁsh reared in very low salinity waters (5 ppt) had to be treated twice for infections, routinely had higher nitrite readings, and involved more water exchange. Another reason pompano were selected for culture evaluation was that they can be grown at high densities. McMaster reported that pompano have been produced at densities of 1 pound of ﬁsh per gallon of water. However, it is important to note that he does not recommend culturing ﬁsh at this density due to “mechanical limitations for maintaining proper water quality and feed delivery” (2003:10). Recirculating systems are designed to produce ﬁsh at very high densities, and it is only at these densities that these systems can be proﬁtable. Tilapia produced at the North Carolina State Fish Barn have been raised at densities of 0.66 pounds per gallon (NCDOA 2002) in a freshwater system while Zohar (2005) reported culturing Mediterranean gilthead seabream at 44 to 47 kg/cubic meter (almost 0.5 pound per gallon) in a saltwater recirculating system. For the current study, pompano were raised at a density of 0.5 pound per gallon, a density that many successful aquacultural producers meet or exceed (Timmons et al. 2001). Finally, Florida pompano were chosen for this study because they are a fast growing specie of ﬁsh. Weirich (2006) reported that they reached a market size of 450 grams (1 pound) in as little as four to ﬁve months. McMaster (2008) reported that the total growth time from 1-gram hatchery fry to market size was seven months. However, by purchasing 10-gram ﬁngerlings to stock and grow out to a market size of 453 grams (1 pound), the time was reduced to around ﬁve months or approximately 140 days. Ten-gram ﬁngerlings are available from MTI at a price of $1.50 per ﬁsh. One-gram pompano ﬁngerlings can be purchased from overseas at a price of $0.30 each (Chappell 2008). An additional eight weeks is required for these smaller ﬁngerlings to reach market size, which means that fewer cohorts may be stocked and harvested in a year (6.5 rather than 8.6). Even so, the savings realized by purchasing the smaller pompano to stock may outweigh the increases in revenue that are realized by purchasing 10-gram ﬁngerlings. A criticism of pompano culture is that while pompano grow rapidly as juveniles, their growth rate slows and feed efﬁciency becomes very poor at around 250 g. McMaster (2003:11) reported that while feed conversion ratios (FCR) are historically around 3.1:1, recently developed diets and culture methods have “sig-

ALABAMA AGRICULTURAL EXPERIMENT STATION

5

niﬁcantly outperformed the standard diet.” On the other hand, Coburn et al. (2007) used a FCR of 2.2:1 for pond culture. While a favorable FCR is vital to the ultimate feasibility and proﬁtability of an aquacultural operation, an FCR of 2.2:1 is drastically different from those used in previously published studies (McMaster 2008, Weirich 2006). Therefore, the base FCR used in this study was 3.1:1 though sensitivity analyses were conducted to evaluate the effect of alternative FCRs. Hybrid striped bass were also evaluated as a potential specie for culture. Brown (2007) reported survival rates of 93.8 percent and 97.5 percent while culturing hybrid striped bass (palmetto bass) in tanks using saline groundwater in West Alabama. Hybrid striped bass were ﬁrst successfully cultured in 1986. By 2005, hybrid striped bass food ﬁsh production was roughly 11 million pounds (USDA 2006). Farms in the Southeast produced almost 32 percent of this amount. Hybrid striped bass can tolerate a wide range of water temperatures, generally from 4 to 33 degrees Celsius but optimal growth occurs between 25 and 27 degrees Celsius. They are also capable of surviving with low oxygen levels and can grow well in water salinities ranging from 0 to 25 ppt (Hodson 2008). Hybrid striped bass generally take two years to reach market size when cultured in ponds but may reach market weights in 12 months when cultured in optimal conditions provided by a recirculating tank system (Ohs et al. 2008). Evaluating Proﬁtability As in the study by De Ionno et al., this study used a conservative approach to evaluate the proﬁtability of producing pompano in a recirculating system, as there are few standards for feed conversion ratios, production cycles, or market prices. However, research and practices for hybrid striped bass are more established and this base of information was used in this study. Feasibility analyses for the production facility were conducted using a 10-year planning horizon, “since it is unlikely that an aquaculture enterprise would be an attractive investment opportunity if it were not proﬁtable after ten years” (De Ionno et al. 2006: 318). All operating costs and biological parameters were held constant over the period of analysis. This approach assumes no ﬂuctuation, positive or negative, in the prices of inputs such as feed, energy, or juvenile ﬁsh or in markets and/or efﬁciency. Operating costs such as electricity and liquid oxygen were calculated by comparing usage per hour per pound of ﬁsh produced at other recirculating aquaculture system facilities, assuming a steady state of production over 24 hours per day, seven days per week and applying prices provided by local suppliers. Costs for natural gas were calculated by consulting equipment suppliers on power usage and consulting local suppliers for prices. Straight-line depreciation was used with the salvage value of assets assumed to be $0. De Ionno et al. state that, “it could be expected that [a large facility] would obtain some salvage value at the expiry of the project” (De Ionno et al. 2006:319). However, Timmons et al. suggested that any amount received for used equipment is likely to be minimal, possibly less than ten cents on the dollar, due to the specialized nature of such equipment. As with many analyses of aquaculture ventures, land was presumed to be owned (Jeffs and Hooker 2006). This approach excludes the land value from the analysis so that the focus of the study will be only on the proﬁtability of the recirculating aquaculture system facility. It was assumed that 20 percent of the capital cost was ﬁnanced by the ﬁsh farm owner/operator, while 80 percent of the investment was ﬁnanced using a loan accruing interest at 8.5 percent over ﬁve years. An additional loan accruing interest of 8 percent was assumed to be used to cover 50 percent of operating costs, with the remainder covered by the investor. Cash ﬂow budgets were created to analyze the liquidity of the facility using the base FCR of 3.1:1. These statements depict the cash available to continue operation through time. Interest and principal payments were included, though depreciation was not, in order to strictly analyze the operation’s cash position at any given year. A minimum $1,000 cash balance was maintained at all times. When calculating net present value (NPV), net cash revenues were calculated by netting cash expenses from cash receipts, ignoring depreciation, interest, and principal payments. Depreciation is assumed to be a noncash expense and “already accounted for by the difference between the initial cost and terminal value of an investment,” while interest and principal payments are not included because “investment analysis methods are used to

6

USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

determine the proﬁtability of an investment without considering the method or amount of ﬁnancing needed to purchase it” (Kay et al. 2004:283). A discount rate of 15 percent was used with NPV analysis, which incorporates a 5 percent return on capital as the minimum alternative investment and a risk premium of 10 percent (De Ionno et al 2006: 318). This approach closely parallels the risk-free rate and risk premium of other investments as well as the 15 percent standard used “as a criterion for high risk investments of this type.” Net present value was only calculated for scenarios that, through sensitivity analysis, showed the potential to provide positive cash ﬂows, and hence, a positive NPV. That is, any scenarios that do not generate a positive NPV would not be considered an economic success at deﬁned criteria (Thacker and Grifﬁn 1994).

TECHNICAL SYSTEM
Research indicates that pompano show potential to be successfully cultured in salinities of 6 ppt as is found in West Alabama (Nystrom 2005). This saline level signiﬁcantly decreases the costs associated with supplementing salt into the system in order to increase the water salinity. Currently, pompano are not cultured at salinities below 15 ppt. This study evaluated water at both 6 ppt and 15 ppt salinity. The recirculating system used in this study is designed to operate at varying salinities and allows for culture of any specie that can be cultured in low salinity water up to seawater (35 ppt) (Zolnar 2005). The technical aspects of the system used in this analysis are based on an example system located at North Carolina State University that is used to produce tilapia (Losordo et al. 2000). The design of a system based on the North Carolina State system is described by Losordo while the economics of tilapia production in this system are evaluated by the North Carolina Department of Agriculture and Consumer Services. The system used in this study resides in a 30- by 112-foot greenhouse and was designed to produce 1 pound of pompano from 1-gram fry. The greenhouse includes both a ventilation system with air ﬂow fans, exhaust fans and shutters; a gas heating system; and a thermostat for temperature controls between 30 and 110 degrees Fahrenheit. The system consists of two quarantine tanks and four grow-out tanks, each made of ﬁberglass, Figure 1. The tanks are round with sloping bottoms in order to facilitate easy cleaning and also to generate a natural current ﬂow that is desirable when producing marine ﬁnﬁsh (Zohar 2005). The ﬁrst quarantine tank (Q1) is 750 gallons, the second (N1) is 4,200 gallons, and the four grow-out tanks each hold 15,538 gallons, bringing the total volume of the system to 67,052 gallons, Table 1. This system is assumed to exchange 10 percent of its water volume each day. Water is supplied to the system by a well approximately 1,300 feet deep that delivers saline water of 6 ppt to four, above-ground, polyurethane tanks that each hold 6,300 gallons of water. These tanks may be used to store four tanks’ supply of 6 ppt salinity water. This approach provides 25,200 gallons of water readily available to replace the 6,803 gallons that is lost each day during operations, and also to provide excess water in any emergency that might require additional water. If culturing occurs at 6 ppt, this method provides three and a half days of water supply in reserve. The ﬂow rate for this system is 250 gallons per minute, or one tank exchange per hour, as described by Zohar, and replaces 6,803 gallons of water from the system per day. Water is drained from growth tanks through a center drain that runs through a particle trap to remove solids from the water, Figure 1. The water then travels through a drum screen ﬁlter and to the biosump. After leaving the biosump, water runs through an oxygen saturator, through the water heater, and then returns to the ﬁberglass tank from which it originated. A monitoring system, composed of sensors wired to a computer, constantly evaluates and controls temperature, salinity, and dissolved oxygen, and is connected to a modem that will send an alert for any abnormalities detected. Any sludge and wastewater that are not treated and returned to the tank are removed from the system to a 1-acre efﬂuent pond. To evaluate the feasibility of producing hybrid striped bass, the system described above was adapted. Due to the amount of time required for growout, four additional growout tanks were added; these were enclosed in an additional greenhouse along with extra water storage capacity and the associated equipment for each tank such as oxygen monitors, water heaters, and ﬁltration mechanisms. The sizes of the ﬁrst and second quaran-

ALABAMA AGRICULTURAL EXPERIMENT STATION

7

tine tanks were also increased to 2,350 and 6,790 gallons, respectively. Total water volume was increased to 133,444 gallons.

ECONOMIC ANALYSIS
Florida Pompano The economic feasibility of producing Florida pompano in both 6 ppt salinity (as currently available in Alabama) and also supplementing salt to produce pompano in salinity of 15 ppt was evaluated. Due to the high cost of purchasing supplemental salt (roughly $227.000), it was determined that supplementing to 15 ppt was Table 1. Parameters, Marine Recirculating not economically feasible without access to lucrative Aquaculture System for Pompano Production, West Alabama, 2008 niche markets for the ﬁsh. However, if pompano can Amount Parameter and unit be cultured at 6 ppt, as research by Brown, McMaster, 4 Number of growout tanks and Nystrom has shown to be possible, there is an op2 Number of quarantine tanks portunity for producers to take advantage of lucrative 67,052 Total water volume (gallons) 3,360 Building size (sq ft) markets. The economic analysis of producing pompa15,000 Fish stocked per cohort no in 6 ppt salinity is described below. 6.5 Cohorts stocked/harvested per year One-gram Florida pompano are assumed to be pur95% Survival rate 14,250 Fish harvested per cohort chased at a price of $0.30 each in lots of 15,000 every 1 Average size at harvest (pounds) ﬁfty-six days and stocked at an initial density of 0.045 3.1 Feed conversion ratio pound per gallon, which after eight weeks of growth to 252 Avg. length of production cycle in days 10-gram ﬁngerlings, becomes 0.44 pound per gallon, 7,125 Pounds harvested per tank 28,500 Pounds harvested, year 1 (6.5 tanks) Table 1. A 95 percent survival rate is assumed. Fish 92,625 Pounds harvested, year 2 and following (13 tanks) are fed a diet of commercially available carnivorous 0.30 Cost of one gram pompano (each) ﬁsh feed available from Burris Mills/Cargill that is 46 2.54 Electricity (kwh per pound of production) 8% Bank credit line int. rate for annual operating expenses percent protein. The feed is assumed to be delivered 20% Percent of capital ﬁnanced by owner at a price of $0.45 per pound ($900 per ton) every six 8.5% Bank interest rate for construction (5 year) weeks to a 24-ton feed bin. Fingerlings are maintained 3.75 Sale price ($/pound) for eight weeks in the ﬁrst quarantine tank (Q1) and
Figure 1. NCST Fishbarn Diagram: Recirculating system used as example for West Alabama saline groundwater to produce
pompano and hybrid striped bass.

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USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

then moved into the second quarantine tank (N1) where they are held for an additional eight weeks, Figure 1. They are then moved into one of the 15,000 gallon grow-out tanks (Growout 1 – Growout 4) for another eightweek period until the group is split into two separate batches in 15,000 gallon tanks, where they will remain for approximately four to ﬁve more weeks, or until they reach a harvest weight of approximately 1 pound. One tank is harvested every four weeks in weekly intervals with 1,781 pounds harvested each week. The total investment associated with a system capable of producing 92,625 pounds of pompano annually is $298,206 with annual depreciation of $40,462, using straight line depreciation and assuming a zero salvage value on all equipment, Table 2. Assets were assumed to be secured with 20 percent owner equity and the remaining 80 percent ﬁnanced over ﬁve years at 8.5 percent, reﬂecting current credit markets. A loan to cover 80 percent of the initial investment is $238,565 and with an interest rate of 8 percent generates an annual interest payment of $11,021 for the facility, Table 3. Land (5 acres) was assumed to be previously owned. Alternative recirculating systems are available for commercial aquaculture production at a substantially lower cost to the producer than that used in this analysis (Chappell 2008). However, no available literature discusses their ability to produce marine ﬁnﬁsh. If the cost of the recirculating system could be decreased by $200,000 to $98,206, annual depreciation would decrease by $27,135 to $13,327 per year. Interest expense would also decrease by $15,129. This level represents a total savings of $0.31 per pound, assuming 95 percent survival and no loss of efﬁciency of the system. Operating costs total $209,567 for year one while the system is building to full capacity (Table 4) and increase to $291,455 annually for year two and thereafter (Table 5). Fifty percent of the operating costs are ﬁnanced through a short-term (one-year) loan at an interest rate of 8 percent, Table 3. This item adds an additional $9,973 in interest expense each year. Management was provided by a full-time owner/operator. Labor was provided by one full-time employee who was paid $10 per hour for eight hours each day. Employment taxes were evaluated at 1.45 percent for Medicare and 6.2 percent for Social Security as speciﬁed by the Internal Revenue Service. Property taxes were evaluated as Class III property at the State average of 43 mills. Total operating expenses for the production of pompano are $291,455 per year, Table 5. At this cost, and while receiving the stated price of $3.75 per pound, the operation generates total revenue of $347,344 and a return to land and management of $34,894, Table 4. The breakeven price of pompano raised under the stated conditions is $3.37 per pound. Net income sensitivity analysis was conducted to evaluate the proﬁtability of pompano production at different prices, yields, and feed conversion ratios, similar to the analysis presented on an Australian aquaculture facility, Table 6 (De Ionno et al. 2006). Prices ﬂuctuate widely due to the lack of an established market for pompano, but reﬂect different prices received for live pompano and pompano on ice. All prices below $8 per pound are assumed to be paid for fresh pompano on ice, and are the most likely prices a producer would expect to receive, based on evidence presented in this study. Prices of $8 per pound or higher were evaluated to show the potential proﬁtability of marketing live ﬁsh. While live ﬁsh markets present a great opportunity for a lucrative outlet, it is doubtful that a producer could sell 92,000 pounds of pompano by only relying on live markets, due to the information that is available on the volume of live seafood sold in major markets (Myers 2003). It is assumed that live markets exist and may be used as evidence presented suggests, but due to a lack of deﬁnitive information on details such as the volume of live pompano demanded, and information such as where and how to market large quantities of pompano, it is not reasonable to expect such returns without further information and analysis. Sensitivity analyses show that with a feed conversion ratio of 3.1, pompano production has positive net returns to land and management of $7,253 when survival is 75 percent and market prices are $4 per pound, Table 6. If the FCR is enhanced to 2.75, pompano production has positive returns of $18,770 at 75 percent survival when the market price is $4 per pound. At 95 percent survival, net returns increase to $72,639 annually at a price of $4 per pound. Further enhancing the FCR to 2.2, pompano production ﬁrst has positive net returns of $2,939 at 95 percent survival and a market price of only $3 per pound, Table 6. If the market price increases to $4 per pound, the operation has positive net returns of $95,564 at 95 percent survival. While dockside prices paid to ﬁsherman were used as the base price paid to producers in this study, other marketing avenues present an opportunity for much higher prices and revenues. According to their website,

ALABAMA AGRICULTURAL EXPERIMENT STATION

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Table 2. Capital Outlay and Depreciation, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
Price Item Quarantine 1 930 Q1 Tank (750 gallons) 565 pumps (1hp) 1,942 particle trap (Ecotrap) 723 titanium heat exchanger 688 oxygen saturator (35-65 gpm) 1,417 foam fractitionator 584 biosump 235 bio sump media 208 media blower 912 regenerative blower 8,825 drum screen ﬁlter subtotal Quarantine 2 2,710 Q2 Tank (4200 gallons) 565 pumps (1hp) 3,258 particle trap (Ecotrap) 832 titanium heat exchanger 1,323 oxygen saturator (65-90 gpm) 1,417 foam fractitionator 812 bio sump 235 bio sump media 208 media blower 912 regenerative blower 8,825 drum screen ﬁlter subtotal Growout System 6,920 Tanks (15538 gallons) 1,808 pumps (2hp) 4,387 particle trap (Ecotrap) 1,255 oxygen saturator (150-260 gpm) 8,895 foam fractitionator 1,460 bio sump 235 bio sump media 309 media blower 912 regenerative blower 12,600 drum screen ﬁlter subtotal System-wide equipment 14,358 building (30’ x 112’ greenhouse) 6,800 water heating units 4,285 feed bins 385 feeders 8,289 gas generators 2,046 oxygen monitor 8,000 airlift pumps (for harvest) misc. harvest equipment (nets, etc.) 1,000 1,000 misc. equipment 17,500 well 2,885 water tanks 10,000 1 acre efﬂuent pond subtotal System Total 10,000 Truck TOTAL Units 1 1 1 1 1 1 1 1.92 1 1 1 Total 930 565 1,942 723 688 1,417 584 451 208 912 8,825 17,246 2,710 1,130 3,258 832 2,646 1,417 812 1,020 208 912 8,825 23,770 27,680 14,464 17,548 10,040 35,580 5,841 3,619 1,236 1,824 25,200 143,032 14,358 13,600 4,285 2,310 8,289 12,276 8,000 1,000 1,000 17,500 11,540 10,000 104,159 288,206 10,000 298,206 Years 7 7 7 7 7 7 7 7 7 7 7 Depreciation 133 81 277 103 98 202 83 64 30 130 1,261 2,464 387 161 465 119 378 202 116 146 30 130 1,261 3,396 3,954 2,066 2,507 1,434 5,083 834 517 177 261 3,600 20,433 1,436 1,943 612 330 1,184 1,754 1,143 143 143 1,167 1,649 667 12,169 38,462 2,000 40,462

1 2 1 1 2 1 1 4.34 1 1 1

7 7 7 7 7 7 7 7 7 7 7

4 8 4 8 4 4 15.4 4 2 2

7 7 7 7 7 7 7 7 7 7

1 2 1 6 1 6 1 1 1 1 4 1

10 7 7 7 7 7 7 7 7 15 7 15

1

5

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USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

Pompano Farms of Oak Hill, Florida, sells whole, fresh pompano on ice at a price of $8 per pound, excluding shipping. At this market price, using the FCR of 3.1, returns to land and management are $428,551 annually at 95 percent survival, Table 6. While income statements and associated sensitivity analysis show the operation’s proﬁtability potential, cash ﬂow analysis is a more accepted tool of investment analysis when dealing with high-risk investments such as pompano production in a recirculating system (De Ionno et al. 2006). A cash ﬂow budget was created to portray the operation’s liquidity over a 10-year planning period using the speciﬁed FCR of 3.1 and the base market price of $3.75, when pompano are cultured in water of 6 ppt salinity. Starting with a beginning cash balance of $570,194 at the start of Year 1, the operation reaches a cumulative cash balance at Year 10 of $497,120, Table 7. In order to evaluate the point at which the operation becomes an attractive investment, net cash revenues were calculated at each speciﬁed price and feed conversion ratio used in the proﬁtability analysis that showed a positive return to land and management, from which the net present value (NPV) of the pompano farm could be calculated in each scenario. Each point at which NPV becomes positive is reported, as that is the combination of

Table 3. Operating Expenses, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
Item Feed One gram pompano Electricity Liquid oxygen Natural gas Hired labor Other (repairs, alarm, phone) Marketing, promotion/travel Insurance Property tax Employment taxes Interest: annual operating capital ﬁxed capital Subtotal: Unit lb ﬁsh kwh 100 cubic ft ccf hrs Cost 0.45 0.30 0.10 4.91 2 10 Units 287,138 97,500 235,268 703,950 1,518 2,080 Total 129,212 29,250 24,592 34,564 2,417 20,800 2,000 4,000 2,500 67 1,591 9,973 11,021 271,988

43 mills

43

Table 4. Year One Income Statement, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
Revenue 28,500 1 lb pompano @ $3.75/lb Total revenue Expenses Purchased feed Purchased ﬁngerlings Other cash operating expenses Electricity Oxygen Natural gas Labor Sea salt Other (repairs, phone) Marketing, travel Insurance Property taxes Employment taxes Depreciation Total operating expenses EBIT Interest Expense Net Income ————Amount———— $106,875 $106,875 $64,606 $29,250 $24,592 $17,282 $2,417 $20,800 $0 $2,000 $4,000 $2,500 $67 $1,591 $40,462 $209,567 ($102,692) $20,995 ($123,687)

Table 5. Year Two and Following Income Statement, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
Revenue 92,625 1 lb pompano @ $3.75/lb Total revenue Expenses Purchased feed Purchased ﬁngerlings Other cash operating expenses Electricity Oxygen Natural gas Labor Sea salt Other (repairs, phone) Marketing, travel Insurance Property taxes Employment taxes Depreciation Total operating expenses EBIT Interest Expense Net Income ————Amount———— $347,344 $347,344 $129,212 $29,250 $24,592 $34,564 $2,417 $20,800 $0 $2,000 $4,000 $2,500 $67 $1,591 $40,462 $291,455 $55,889 $20,995 $34,894

ALABAMA AGRICULTURAL EXPERIMENT STATION

11

price, feed conversion ratio, and survival rate at which the investment covers costs and meets the risk factor of at least 15 percent, and the point at which the operation would be considered an economic success using the deﬁned criteria (Thacker and Grifﬁn1994).
Table 6. Net Income Sensitivity Analysis for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
Yield (lbs) Food Conversion Ratio 3.10 73,125 75% 78,000 80% 82,875 85% 87,750 90% 92,625 95% Food Conversion Ratio 2.75 73,125 75% 78,000 80% 82,875 85% 87,750 90% 92,625 95% Food Conversion Ratio 2.20 73,125 75% 78,000 80% 82,875 85% 87,750 90% 92,625 95% Survival ———————————————Price per pound——————————————— $10.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 (65,872) (58,048) (50,223) (42,399) (34,574) (54,355) (45,763) (37,170) (28,578) (19,986) (36,256) (26,458) (16,659) (6,860) 2,939 7,253 19,952 32,652 45,351 58,051 18,770 32,237 45,705 59,172 72,639 36,869 51,542 66,216 80,890 95,564 80,378 97,952 115,527 133,101 150,676 91,895 110,237 128,580 146,922 165,264 109,994 129,542 149,091 168,640 188,189 153,503 175,952 198,402 220,851 243,301 165,020 188,237 211,455 234,672 257,889 183,119 207,542 231,966 256,390 280,814 226,628 253,952 281,277 308,601 335,926 238,145 266,237 294,330 322,422 350,514 256,244 285,542 314,841 344,140 373,439 299,753 331,952 364,152 396,351 428,551 311,270 344,237 377,205 410,172 443,139 329,369 363,542 397,716 431,890 466,064 446,003 487,952 529,902 571,851 613,801 457,520 500,237 542,955 585,672 628,389 475,619 519,542 563,466 607,390 651,314

Table 7. Cash Flow Budget for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
Year 1 Item 570,194 Beginning cash balance Operating receipts 106,875 Pompano sales 677,069 Total cash inﬂow Operating expenses 129,212 Feed expense 29,250 1 gram pompano 0 Instant ocean sea salt 24,592 Electricity 34,564 Liquid oxygen 2,417 Natural gas 20,800 Labor 4,000 Marketing, promotion/travel 2,500 Insurance 67 Property tax 1,591 Employment taxes 2,000 Other (repairs, alarm, phone) 250,993 Total cash operating expenses Capital expenditures 14,358 Building 246,348 Recirculating system 10,000 Truck 27,500 Well and pond Scheduled debt payments 124,668 Current debt-principal 9,973 Current debt-interest 58,734 Noncurrent debt-principal 11,021 Noncurrent debt-interest 753,596 Total cash outﬂow (76,527) Cash available New borrowing 77,527 Current 1,000 Ending cash balance: Year 2 1,000 Year 3 1,000 Year 4 1,000 Year 5 1,000 Year 6 Year 7 Year 8 Year 9 Year 10 15,366 111,717 208,068 304,419 400,769

347,344 347,344 347,344 347,344 347,344 347,344 347,344 347,344 347,344 348,344 348,344 348,344 348,344 362,710 459,061 555,412 651,762 748,113 129,212 129,212 129,212 129,212 129,212 129,212 129,212 129,212 129,212 29,250 29,250 29,250 29,250 29,250 29,250 29,250 29,250 29,250 0 0 0 0 0 0 0 0 0 24,592 24,592 24,592 24,592 24,592 24,592 24,592 24,592 24,592 34,564 34,564 34,564 34,564 34,564 34,564 34,564 34,564 34,564 2,417 2,417 2,417 2,417 2,417 2,417 2,417 2,417 2,417 20,800 20,800 20,800 20,800 20,800 20,800 20,800 20,800 20,800 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 67 67 67 67 67 67 67 67 67 1,591 1,591 1,591 1,591 1,591 1,591 1,591 1,591 1,591 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 250,993 250,993 250,993 250,993 250,993 250,993 250,993 250,993 250,993

0 0 0 0 0 77,527 57,134 35,109 11,323 0 0 0 0 0 906 2,809 4,571 6,202 58,734 58,734 58,734 58,734 11,021 11,021 11,021 11,021 404,478 382,453 358,667 332,978 250,993 250,993 250,993 250,993 250,993 (56,134) (34,109) (10,323) 15,366 111,717 208,068 304,419 400,769 497,120 57,134 1,000 35,109 1,000 11,323 1,000 0 0 0 0 0 15,366 111,717 208,068 304,419 400,769 497,120

12

USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

In the case where production is in water of 6 ppt salinity and using an FCR of 3.1, NPV becomes positive at a market price of $4 per pound with 95 percent survival—$78,528, Table 8. That is, at the deﬁned parameters, pompano production covers the identiﬁed costs, covers the 15 percent risk factor, and provides an additional $78,528. If the feed conversion ratio is improved to 2.75, NPV becomes positive at a price of $4 per pound with 85 percent survival—$40,045. Using the minimum expected FCR of 2.2, NPV is positive at a price of $4 per pound and 75 percent survival—$19,178. Value-added. In order to add value to their product, some farms decide to process their own ﬁsh and market ﬁllets. The Southern Regional Aquaculture Center reported in 1997, that small scale, on-farm processing adds a cost of $ 0.44 per pound to the producer (Lazur 1997). Adjusted for inﬂation, this translates to $ 0.60 per pound in 2008. Websites such as CharlestonSeafood.com offer ﬁllets of wild-caught marine ﬁsh at prices ranging between $11.83 per pound for amberjack to $34.21 per pound for Chilean Seabass, with shipping costs added after the sale. Information on pompano ﬁllet yields was not available, but catﬁsh ﬁllet yields are approximately 36 percent (Li 2001). At such a yield, 2.7 pounds of live pompano would provide 1 pound of processed ﬁllets. At a breakeven price of $3.37 per pound of live ﬁsh, and adding the $0.60 per pound for processed ﬁllets, this would equate to a break-even price of $9.70 per pound of ﬁllets. Live ﬁsh markets are another alternative to traditional marketing of ﬁsh to wholesalers. As stated earlier, Yonathan Zohar sold live guilthead seabream in the city of Baltimore at prices ranging between $12 per kilogram, or $5 per pound. Zohar’s market research also shows that other high value species of marine ﬁsh—grouper, snapper, and ﬂounder—bring prices ranging between $4.50 and $5.40 per pound. Currently, there are two commercial producers of pompano on the market. One is the Pompano Farms, LLC, spawned from Mariculture Technologies International. They produce pond-raised pompano available for purchase in the months of November, December, and January, “or until supplies are gone.” Prices are $8 per pound, whole on ice, which may be shipped, or $10 per pound live and may be picked up at the farm, as reported by their website. The other company in production of pompano is Dyer Aqua. They provide fresh pompano year round, in the form of whole ﬁsh or ﬁllets. The company’s website states that they have hatchery facilities located in Florida, but they ship ﬁngerlings to their ocean pen grow-out facilities in the Bahamas, Panama, and soon, Belize. Hybrid Striped Bass Production of hybrid striped bass was also evaluated using 6 ppt salinity inland groundwater. Calculations were based on ﬁngerlings being purchased in lots of 12,000 at a price of $0.25 per ﬁngerling and stocked every
Table 8. Analysis of Net Present Value at 6 ppt Salinity Groundwater with Varying Feed Conversion Ratio, Survival, Yield, and Price, Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008
NPV Net cash Years 6-10 Years 2-5 Year 1 Yield —————Price per pound ($4.00)————— (lbs) Food Conversion Ratio 3.10 212,571 (265,979) 41,507 41,507 (160,993) 73,125 75% 394,071 (179,852) 61,007 61,007 (154,993) 78,000 80% (93,725) 575,571 80,507 80,507 (148,993) 82,875 85% (7,598) 757,071 100,007 100,007 (142,993) 87,750 90% 78,528 938,571 119,507 119,507 (136,993) 92,625 95% Food Conversion Ratio 2.75 (71,654) 599,767 80,227 80,227 (122,273) 73,125 75% (15,804) 720,939 93,694 93,694 (122,306) 78,000 80% 40,045 842,111 107,161 107,161 (122,339) 82,875 85% 95,895 963,283 120,628 120,628 (122,372) 87,750 90% 151,744 1,084,455 134,095 134,095 (122,405) 92,625 95% Food Conversion Ratio 2.20 19,178 780,752 98,325 98,325 (104,175) 73,125 75% 81,083 913,989 112,999 112,999 (103,001) 78,000 80% 142,988 1,047,227 127,673 127,673 (101,827) 82,875 85% 204,893 1,180,464 142,346 142,346 (100,654) 87,750 90% 266,798 1,313,702 157,020 157,020 (99,480) 92,625 95% Survival

ALABAMA AGRICULTURAL EXPERIMENT STATION

13

eight weeks, Table 9. After the initial eight weeks, the bass will be moved to the second quarantine tank. Eight weeks later, they will be moved to one of the growout tanks where they will stay for 16 weeks until they are split into two batches. These will be cultured for an additional 16 weeks, when they will be harvested at a density of 0.45 pounds per gallon. The system evaluated in this study can produce 87,750 pounds of ﬁsh per year, Table 9. The initial investment associated with production of hybrid striped bass in a recirculating system is higher than that of pompano at $531,846, Table 10. The larger outlay for bass relative to pompano is due to the four extra tanks; related equipment such as bioﬁlters, feeders, and oxygen monitors; and a larger greenhouse. However, due to lower operating expenses, the breakeven price for hybrid striped bass is $2.93 per pound. Annual depreciation is $50,576. Since no hybrid striped bass are marketed in the ﬁrst year, net income is a negative $216,885, Table 11. Subsequent years show a loss of $11,250 annually at a price of $2.80 per pound, Table 12. Depreciation (22 percent), feed (21 percent), and electricity (20 percent) are major cost items, comprising almost two-thirds of the total. With the speciﬁed parameters and a market price of $2.80 per pound, the hybrid striped bass operation has a negative cash balance of $108,460 after 10 years, and a negative NPV of $1,213,851, Table 13. As with pompano, net income sensitivity analysis was conducted for hybrid striped bass. With pompano, different feed conversion ratios have been reported by different researchers and there is no industry standard since a minimal amount of commercial pompano production has occurred. However, hybrid striped bass have been in production for 20 years with a reported FCR of 1.8 (Brown 2007). Net income sensitivity analysis for hybrid striped bass can project the returns to land and management under varying survival rates as well as prices. At 90 percent survival and a price of $3 per pound, returns to land and management are $6,300, Table14. If prices reach $4 and $5 per pound (perhaps from a niche market), annual returns are $94,050 and $181,800, respectively, at 90 percent survival. Analyses of net present values show that they ﬁrst become positive at a market price of $3.50 when survival is 85 percent, $41,834, Table 15. That is, at a price of $3.50 with the FCR at 1.8 and the survival rate at 85 percent, hybrid striped bass production covers the deﬁned costs and a 15 percent risk factor plus generates an additional $41,834. At 90 percent survival, NPV is $103,983 when the market price is $3.50 per pound. While these numbers may seem proﬁtable, it is important to note that market prices for hybrid striped bass in recent years have been below $3.00 per pound. Market prices in 2001 were reported between $2.50 and $2.75 per pound in the Southeastern United States. Also, the breakeven point in 2001 for pond-raised hybrid striped bass was $1.90 per pound (Lougheed and Nelson 2001). Another key consideration from the budget analysis Table 9. Parameters, Marine Recirculating Aquais that the owner/operator has not yet been compensated culture System for Hybrid Striped Bass Producfor his/her risks and capital. Thus, if the owner operator tion, West Alabama, 2008 Amount Parameter and unit desires, for example $50,000, the bottom line for the 8 Number of growout tanks net income statements for both species can effectively 2 Number of quarantine tanks be further reduced by that amount. However, the NPV 133,444 Total water volume (gallons) 6,720 Total square footage (2 buildings @ 3,360) analyses do include a 15 percent risk premium.
Fish stocked per cohort Cohorts stocked/harvested per yr Survival rate Fish harvested per cohort Average size at harvest (pounds) Feed conversion ratio Avg. length of production cycle in days Pounds harvested per tank Pounds harvested, year 1(6.5 tanks) Pounds harvested, year 2 and on (13 tanks) Cost of two gram hybrid striped bass (each) Electricity (kwh per pound of production) Bank credit line int. rate for annual op exp Percent of capital ﬁnanced by owner Bank interest rate for construction (5 yr) Sale price ($/pound) 12,000 6.5 90% 10,800 1.25 1.8 365 6,750 0 87,750 0.25 5.08 8% 20% 8.5% 2.80

DISCUSSION
Recirculating aquaculture systems provide a method to partially control all the factors of aquacultural production as well as meet increasing demand for ﬁsh in an environmentally sustainable and efﬁcient way. Analyses show that pompano and hybrid striped bass lack feasibility or are marginally feasible at speciﬁed base efﬁciency and price levels. Thus, successful use of Alabama’s available high salinity inland groundwater to produce marine ﬁsh species depends on improved efﬁciency of operations to lower production costs and more effective marketing to improve price.

14

USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

Table 10. Capital Outlay and Depreciation, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008
Item Quarantine 1 Q1 Tank ( 2350 gallons) pumps (1hp) particle trap (Ecotrap) titanium heat exchanger oxygen saturator (65-90 gpm) foam fractionator biosump bio sump media media blower regenerative blower drum screen ﬁlter subtotal Quarantine 2 Q2 Tank (6790 gallons) pumps (1hp) particle trap (Ecotrap) titanium heat exchanger oxygen saturator (65-90 gpm) foam fractionator bio sump bio sump media media blower regenerative blower drum screen ﬁlter subtotal Growout System Tanks (15538 gallons) pumps (2hp) particle trap (Ecotrap) oxygen saturator (150-260 gpm) foam fractionator bio sump bio sump media media blower regenerative blower drum screen ﬁlter subtotal System-wide equipment building (30’ x 112’ greenhouse) heating units feed bins feeders gas generators oxygen monitor airlift pumps (for harvest) misc. harvest equipment (nets, etc.) misc. equipment well water tanks 1 acre efﬂuent pond land (5 acres) subtotal System Total Truck TOTAL Price 1,870 565 1,942 723 1,323 1,417 584 235 208 912 8,825 Units 1 1 1 1 1 1 1 2.43 1 1 1 Total 1,870 565 1,942 723 1,323 1,417 584 571 208 912 8,825 18,940 3,820 1,130 3,258 832 2,646 1,417 812 1,020 208 912 8,825 2,4880 27,680 14,464 17,548 10,040 35,580 5,841 3,619 1,236 1,824 25,200 286,064 28,717 27,200 4,285 3,850 8,289 20,460 8,000 1,000 1,000 17,500 46,160 10,000 15,500 191,961 521,846 10,000 531,846 Years 7 7 7 7 7 7 7 7 7 7 7 Depreciation 267 81 277 103 189 202 83 82 30 130 1,261 2,706 546 161 465 119 378 202 116 146 30 130 1,261 3,554 3,954 2,066 2,507 1,434 5,083 834 517 177 261 3,600 20,433 2,872 3,886 612 550 1,184 2,923 1,143 143 143 1,167 6,594 667 21,883 48,576 2,000 50,576

3,820 565 3,258 832 1,323 1,417 812 235 208 912 8,825

1 2 1 1 2 1 1 4.34 1 1 1

7 7 7 7 7 7 7 7 7 7 7

6,920 1,808 4,387 1,255 8,895 1,460 235 309 912 12,600

4 8 4 8 4 4 15.4 4 2 2

7 7 7 7 7 7 7 7 7 7

14,358 6,800 4,285 385 8,289 2,046 8,000 1,000 1,000 17,500 2,885 10,000 3,100

2 4 1 10 1 10 1 1 1 1 16 1 5

10 7 7 7 7 7 7 7 7 15 7 15

10,000

1

5

ALABAMA AGRICULTURAL EXPERIMENT STATION

15

Table 11. Year One Income Statement, Marine Recirculating System for Hybrid Striped Bass Production, West Alabama, 2008
Revenue 1.25 lb Bass @ $2.80/lb Total revenue Expenses Purchased feed Purchased ﬁngerlings Other cash operating expenses Electricity Oxygen Natural gas Labor Other (repairs, phone) Marketing, travel Insurance Property taxes Employment taxes Depreciation Total operating expenses EBIT Interest Expense Net Income ————Amount———— $0 $0 $23,693 $19,500 $46,595 $16,372 $2,417 $20,800 $2,000 $4,000 $2,500 $67 $1,591 $50,576 $190,111 ($190,111 ) $26,774 ($216,885)

Table 12. Year Two and Following Income Statement, Marine Recirculating System for Hybrid Striped Bass Production, West Alabama, 2008
————Amount———— Revenue 87,750 lbs, 1.25 lb bass @ $2.80/lb $245,700 $245,700 Total revenue Expenses $47,385 Purchased feed $19,500 Purchased ﬁngerlings Other cash operating expenses $46,595 Electricity $32,745 Oxygen $2,417 Natural gas $20,800 Labor $2,000 Other (repairs, phone) $4,000 Marketing, travel $2,500 Insurance $67 Property taxes $1,591 Employment taxes $50,576 Depreciation $230,176 Total operating expenses ($15,524 ) EBIT $26,774 Interest Expense ($11,250) Net Income

Table 13. Cash Flow Budget for 6 ppt Salinity Groundwater, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 3 Year 4 Year 2 Year 1 Item Operating expenses 47,385 47,385 47,385 47,385 47,385 47,385 47,385 47,385 47,385 47,385 Feed expense 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 19,500 1 gram hybrid striped bass 46,595 46,595 46,595 46,595 46,595 46,595 46,595 46,595 46,595 46,595 Electricity 32,745 32,745 32,745 32,745 32,745 32,745 32,745 32,745 32,745 32,745 Liquid oxygen 2,417 2,417 2,417 2,417 2,417 2,417 2,417 2,417 2,417 2,417 Natural gas 20,800 20,800 20,800 20,800 20,800 20,800 20,800 20,800 20,800 20,800 Labor 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 Marketing, promotion/travel 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 Insurance 67 67 67 67 67 67 67 67 67 67 Property tax 1,591 1,591 1,591 1,591 1,591 1,591 1,591 1,591 1,591 1,591 Employment taxes 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Other (repairs, alarm, phone) 84,488 91,956 100,084 77,627 71,322 Principal payments 4,668 20,264 12,796 27,125 33,429 Interest payments 284,352 284,352 284,352 284,352 284,352 179,600 179,600 179,600 179,600 179,600 Total cash outﬂow 0 245,700 245,700 245,700 245,700 245,700 245,700 245,700 245,700 245,700 Cash inﬂow (284,352) (38,652) (38,652) (38,652) (38,652) 66,100 66,100 66,100 66,100 66,100 Annual cash position Cumulative cash position (284,352) (323,004) (361,655)(400,307) (438,959)(372,859)(306,759)(240,659)(174,559) (108,460) (1,213,851) Net present value

Table 14. Net Income Sensitivity Analysis for 6 ppt Salinity Groundwater, Marine Recirculating System for Hybrid Striped Bass Production, West Alabama, 2008
Survival FCR 1.8 75% 80% 85% 90% 95% Yield (lbs) 73,125 78,000 82,875 87,750 92,625 ———————————————Price per pound——————————————— $10.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 (29,678) (17,685) (5,693) 6,300 18,292 43,447 60,315 77,182 94,050 110,917 116,572 138,315 160,057 181,800 203,542 189,697 216,315 242,932 269,550 296,167 262,822 294,315 325,807 357,300 388,792 335,947 372,315 408,682 445,050 481,417 482,197 528,315 574,432 620,550 666,667

16

USING SALINE GROUNDWATER TO PRODUCE FLORIDA POMPANO AND HYBRID STRIPED BASS

Table 15. Analysis of Net Present Value at 6 ppt Salinity Groundwater with Varying Feed Conversion Ratio, Survival, Yield, and Price, Marine Recirculating Aquaculture System for Hybrid Striped Bass Production, West Alabama, 2008
Survival FCR 1.8 75% 80% 85% 90% 95% Yield (lbs) 73,125 78,000 82,875 87,750 92,625 Year 1 Net cash Years 6-10 Years 2-5 —————Price per pound ($3.50) ————— (20,517) (6,087) 8,343 22,773 37,203 84,235 98,665 113,095 127,525 141,955 141,403 273,890 406,378 538,865 671,353 NPV

(197,704) (195,087) (192,469) (189,852) (187,234)

(82,465) (20,315) 41,834 103,983 166,132

Total investment costs for facilities capable of producing pompano and hybrid striped bass are $298,206 and $531,846, respectively, with annual depreciation of $40,462 and $50,576. Operating costs for pompano and hybrid striped bass are, respectively, $291,455 and $230,176 annually; feed is the largest component. At base levels, net income sensitivity analyses show that pompano production becomes proﬁtable at $4 per pound while hybrid striped bass production shows positive returns at $3.00 per pound. However, at these levels, the owner/operator has not been compensated for his/her efforts and risks. Analyses of market prices show that pompano often sells for between $7 and $10 per pound for live ﬁsh and fresh ﬁllets and the hybrid striped bass price has declined to the vicinity of $2.00 per pound within the past ten years. Thus, pompano production could be an attractive investment if, as previous research indicates, pompano may be raised successfully in salinities of 6 ppt. NPV becomes positive at a market price of only $4 per pound, indicating the facility to be a proﬁtable investment using the 15 percent risk criterion. However, the owner/operator has yet to be compensated. It is recommended that additional study be conducted on exactly what water quality parameters are necessary in order to achieve favorable survival rates and growth efﬁciency. Brown (2007) reports survival rates of 80 percent for pompano at one site. With additional research, survival rates of 90 percent or greater should be achieved. Historically, only a minimal supply of pompano has been available to consumers. At the beginning of this study, there was no company commercially producing Florida pompano. However, in recent months, both Pompano Farms as well as DyerAqua have started to culture and sell pompano commercially. Until recently, pompano were only available when caught from the ocean in limited amounts (less than 500,000 pounds per year) and at certain times of the year. While Pompano Farms has pompano available for only three months of the year, DyerAqua produces pompano year-round and is anticipating expanding production to two additional sites. With a larger amount of pompano available on a year-round basis, investment in an enterprise to produce pompano should be considered cautiously. An individual’s success may depend largely on his/her experience in aquacultural production as well as his/her business management skills, especially in the areas of production efﬁciency and marketing. Hybrid striped bass have been shown to thrive in the saline waters of West Alabama. Their tolerance of varying temperatures and salinities as well as their proven ability to be produced at high densities make them an interesting ﬁsh for production. This system requires an investment of $531,846 to produce 87,750 pounds of ﬁsh per year at 90 percent survival. The breakeven price is $2.93 per pound. While the break even price is lower than that for pompano, the ﬁsh generally commands a relatively low market price. It isn’t until the price reaches $4.00 per pound that hybrid striped bass production becomes a somewhat attractive investment. The ﬁsh grows well in the saline waters of West Alabama, but low market prices raise questions relative to economic feasibility of production using a recirculating system.

ALABAMA AGRICULTURAL EXPERIMENT STATION

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REFERENCES
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