The Business of Aquaponics

[GaryD]

Hi,

Making aquaponics work as a business is a subject that has been canvassed at length on this (and other) forums.

Notwithstanding that, the various forums evidence a steady stream of queries from newcomers about how to do commercial aquaponics.....and I get several emails each week asking similar questions.

I've written about these things on a number of occasions, but given the level of interest, some of the more important considerations bear repeating.


In considering an aquaponics business, the key questions include:

• Do you have the knowledge and skills to construct an aquaponics system?
• Do you have the technical skills to operate a commercial aquaponics system?
• Do you have the knowledge and skills to run a food production business

Knowing how to build and operate a commercial aquaponics system is not the key issue. There are successful models already in operation......and there is a growing number of people who can help you to produce fish and vegetables.

The issue is not whether it can be done......but rather whether it is financially viable.

Business exists to make a profit. Making a profit comes from knowing about business.....not knowing about aquaponics.

You can be the most proficient vegetable grower on the planet but, if you cannot sell what you produce for sufficient money to cover your costs and provide a profit, you are going to be just as bankrupt as the worst vegetable grower on the planet.

Each business comprises three core functions.......marketing, operations and finance. Of these, marketing is the most important (and the least understood) because, in business, nothing happens until someone sells something.

I get a little concerned when I hear people talking about how aquaponics produce will command a premium price......because it's aquaponics produce. No, it won't.

The organic produce market struggles to get a premium (which it needs because of its generally higher production costs) and that's after 30 years of educating the market about what organic means.

One prominent aquaponics producer in the US has reverted to hydroponics because they've found that they get produce of more consistent quality......in marketable quantities.....at more competitive prices.....by growing hydroponically.

Currently, the world is full of commercial aquaculturists and hydroponics producers who are not moving to aquaponics......simply because they remain unconvinced that it is viable to do so.

Until that changes, aquaponics will reside largely in the backyard/smallholder domain. The possible exception will be those places where the climate, labour costs and water shortages favour aquaponics over conventional horticulture.

Gary

[kellenw]

Hey Gary,

I was asked a nearly identical question a few weeks ago. My response I gave them is below. Eerily similar to your advice in many ways. hehe...

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I don't have the benefit of knowing your background or experience in aquaculture, so I apologize in advance if I tell you things you are already aware of or seem a bit negative. It's not intentional, I promise, so please don't be offended.

Operating a profitable Aquaponics business is not an easy thing to do. Don't fall for the hype that claims otherwise. Anyone telling you that you'll get rich from aquaponics is just trying to sell you something. You have to be a cynic to survive in this industry. It's hard work and a lot of financial risk. Some of the most brilliant folks in the industry are struggling to make a go at it. I believe it will become much less risky over the next several years as technology improves and better scientific methods are utilized, but it is definitely a challenge currently. It requires a pretty hefty financial investment. Initial capital expenses can easily exceed $100,000 US in the first year before you see a single penny of revenue for just a small scale commercial endeavor. A real commercial system requires commercial grade equipment. You won't get by on DIY stuff like you would with a home system. Commercial = mission critical... and that costs money.... lots of it. Plus, you'll need redundant systems, industrial grade power backup systems, monitoring and automation systems, etc. Finding an honest and truly knowledgeable consultant in the industry is quite a challenge as well. There are a LOT of snake oil salesmen out there unfortunately.

If you have some experience with owning your own business and in writing business plans, that will certainly help. However, prior to investing the time in the business plan process, I would suggest researching markets for your fish and veggies. If you can't find a market for your products, there is no point in proceeding. You quite literally cannot afford to put the cart before the horse. You also need to decide on what you can reasonably risk financially, and what you expect to earn from such a venture, and how soon. For instance, can you afford not to bring in an income for at least 9 months from the venture? What about 24 months? Can you afford to risk the capital required for startup and initial operating costs? Do you plan on funding it entirely from your own personal net worth? If not, do you have good enough credit to qualify for enough loan money for the startup capital required to begin? Do you have enough money to pay the loan payments while you're not pulling in any revenue initially? You'll likely have to personally guarantee any loans. Can you afford to risk your personal assets on a business venture? Those are just a few of the answers you'll need to come up with prior to working on a business plan.

Additionally, if you are not experienced in the operational side and business side of the aquaculture and food industry, you need to get this experience and education before you even consider starting your own operation. The same goes for learning the ins and outs of running a business. For instance, you must understand sound accounting practices and financial analysis. You must have a reasonable understanding of taxes as they pertain to a business and associated tax consequences for a self-employed individual. You must be able to sell, which typically includes cold calling and in person sales presentations. You must be able to understand liability implications as well as have at least a basic understanding of business law. You must have a solid grasp on how to set prices, analyze cost of goods sold and set reasonable margins. You must understand what "phantom income" is, and know how to prevent this as best you can in order to avoid tax liabilities that could potentially destroy cash flow.

Taking classes from some of the aquaponics training sources will help to give you some basic knowledge, and they are a good, low investment start, but nothing will replace real classroom experience with credentialed professors in biology, chemistry, horticulture, etc. Don't get me wrong, most of these "training organizations" mean well and do a pretty good job at providing a basic understanding of aquaponics systems, but really, how much experience do THEY have in operating a truly financially sustainable AP business of any kind of respectable scale? Many of them have little to none.

Hiring people with all this knowledge will eat up all of your profits unless you have enough capital to go HUGE, so it's pretty much out of the question in most cases.

There's a little bit for you to think about! hehe... sorry for the headache. Feel free to shoot me an email if you have any questions, and I'll do my best to help out.

Take Care,
Kellen

[MarkEinOz]

Thanks Gary for that timely editorial.

It certainly does not take much to get all giddy with excitement at the propect of "doing AP" for a living, but as you point out - you need to know how to run a business. I fear for a lot of new start-ups in the game who receive extremely naive "advice" regarding scalability and input/output units. I have not seen a great deal of evidence to disuade me that to make a small fortune from AP, first you start off with a large fortune....

To wit, as someone with a small winery & cidery in it's infancy - I am highly sensitive to the balance of lifestyle/commercialsm and ROI.

Beware (of) people, and be aware.

Keep up the good advice Gary.

[Damon]

I really really reallll hate to say this, but friendly aquaponics turns a profit as an organic aquaponic farm. Now most people point to their prime growing conditions as the reason for that, but really that has only a small part to do with it.

Granted they do get great sunlight pretty much year round, but they also get too much of it causing a percentage of their crop to bolt rendering it useless. Their trick is what they sell is a "value added" product. Selling just straight heads of lettuce is not a viable business when dealing with aquaponics, ill give gary that, but if you accent the growing power of aquaponics with its ease of harvesting, and add some tlc to the mix, you've now added minimum of $2-$3 to you origional product.

Ive seen, and managed, their raw numbers, and they work. When your running costs are $3k monthly and you income is $10k monthly... it doesnt take an accounting wizard to see that there is a profit margin to manage. Now subtract the labor average labor wage, and youll find your margin is smaller, but theres wiggle room if you do some of the work yourself.

Their farm, from a commercial standpoint, was small, only producing 400 lbs of lettuce a week. Now a mixed lettuce sells for less than lets say ice burge or romain. But the value added aspects that they apply help their cause.

Also the labor wages are on a sort of inverse curve. Its not always for one unit of work applie you get and equil amount back. 1 more helper can produce more help than you'd expect. To harvest 200 lbs and do the value added stuff on their farm only took 4 well trained people 8-9 hours... with 6 people we'd complete the same task in 6 hours... with 8 people we'd do the same amount of work before lunch.

Gary's correct when he mentions needing a market to sell to, but there's more than just the costco or sams club markets, depending on your location. Theres also the restaurant industry that has its own independant produce vendors.

Once set up, and if set up, run, and managed efficiently, AP systems stand to lterally be a license to print your own money. You just have to be able to full recognize and accept what ou're doing, and reccognize and accept a cost of running portion of your AP system from what most would lead you to beleve is supposed to be a profit producing portion of your farm.

Also, one of the biggest problems i saw on the friendly aquaponics in the large amount of time i spent there is you have to know and live by the limits of your farm. Needless expenses and building senseless projects without the proper capital set aside will hurt your business, but this will come to most of you reading this as common sense.

I've seen the numbers work, it's really only a matter of scale, market, and management. I can lend a heaft vote in the direction of AP being a viable way of farming, it just has to be fully realized froma business aspect and things need to find their proper place of importance, I.E. raising mass amounts of fish is not viable, but seeing the fish raising as a running cost and not a profit producer will produce a profit if managed as such.

Efficiency in your fish rearing will ensure success. By not having, and not feeding, more fish than necessary you'll reduce your running cost while maintaining your production of produce. The friendly aquaponics didnt make $110k last year selling their fish, they did it by selling their value added lettuce product... i think they'd be lucky to claim that they made any where close to $5k on their fish sales. And those numbers are public knowledge known to anyone that has attended their farm tour.

[kellenw]

Hi Damon,

I really appreciate your willingness to share information about your experiences at Friendly AP. I really enjoy reading your posts. I do want to point out though, that there are some extremely important benefits that apply to operating an aquaponics business in Hawaii that most other locations simply do not have. This GREATLY skews the numbers in favor of commercial aquaponics when using one from Hawaii as a model system/operation. It would be quite a different story if Friendly AP was operating the same system, using the same model, in, say, Iowa.

- Hawaii offers possibly the most perfect climate available for year round aquaponics operations. Temperatures are mild and extremely consistent all year round. This means no heating or cooling is required, greenhouses are not needed, plants grow at optimal levels, etc. This translates into lower capital expenses and significantly reduced ongoing operating costs.
- Hawaii imports most of their food. This comes at a great cost and drives up food prices compared to other areas. Simply put, food costs more in Hawaii because of this. This means a local grower, aquaponics related or not, has the ability to charge more than most other areas, and yet his operating costs remain significantly lower than they would be in the vast majority of other worldwide locations due to the great climate. He charges more and pays less. Bigger product margins = Better chance for overall profitability and positive operating income. In addition, a local farmer/grower in Hawaii has a bit of a competitive advantage over large corporate food suppliers. He doesn't have to build transportation costs into his pricing structure like the others do. The market in Hawaii offers a nice bit of geographic protection that isn't enjoyed in most markets.
- Hawaii is HUGE on "local foods". The demand is much higher for such food items, and supply simply hasn't caught up yet. In Hawaii, it's possible it never will. A premium can likely be charged for "local" in much of Hawaii, depending on the product. Not so in many other locales.

Just some things to consider.

[Damon]

The average air temp of friendly ap is aound 78 degrees f. Lettuce thrives around 65 degrees f. The heat is in a way detramental.

The sun light there is great, until the clouds roll in everyday at 4pm. Also, since lettuce is derived from northen latitudes, it doesnt really require all the lumins that are available in hawaii... this alos causes the lettuce to bolt.

The only thing the temp. Really 100% fully benefits is the fish, but as ive stated before since their fish sales are negatable when it comes to their yearly bottom line, you could use a local cold water fish like perch, walleye, or even channel cat fish, all of which can tolerate poor water conditions.

And yes, their market does help their price... but at any local store you'll still find that a regular every day head of lettuce is still dirt cheap. Now when you walk into the costco in kona, you'll see a bag of their lettuce selling for around $7 per pound right next to a pink package of romaine that has 8 heads packed together, and their average size is 3 inches across and about 1ft tall... and those go for $12 a package. So they do have competition against a higher quality product.

And lets not get too short sighted. Other cool temp. Crops such as green onions that can either be sold whole or as chives can br grown... also with the seed at which they replicate bulbs, after a few crop rotations your biggest problem would be finding a solution to getting rid of the excess bulbs.

Like ive mentioned before, copious times, i live in norther ohio, 20 minutes from the now frozen great lake erie. And in my area there are already 3 indoor commercial farms that have no problem turning a profit while keeping their multi acre green houses heated to a mere 65 deggrees and sunlight this time of year is a rarity, but the amount of solar radiation that makes it through the constant cloud cover seem to be more than enough for these farms to keep up production year round. Check out the chefs garden and green circle growers... these are just two of many farms of their kind here.

Now add in the benefits of aquaponics... faster growth rates to speed up production amounts, higher planting density to maximize spacial performance when restricted to a set indoor spacial limit, and the ease of crop harvesting and rotation, and the shear amount of water saved by using a recirculating system... thse benefits far outweigh the cost of running a water pump, and air pump, and the cost of fish food... basically by using an ap farm they could produce 4-6 times the amount of product in the same space that they are currently using nearly twice as fast... which means 8-12 times their origional amount of production, with only a margional increase in running cost.

Really until some one can tell me how the benefits of ap simply wouldnt work in a green house that already exists and is turning a profit using conventional growing methods im going to contine to be a firm advocate of using ap instead of conventional farming methods. The space is already being heated so the ambient air temp inside the green house would be more the adequit for any type of lake erie fish. And like i said in the post beforw that if you manage you fish as a running cost instead of a profit supply, food cost could be held at a minimum as well as electrical usage for aeration of their tanks, and money saved in that area could be then used for artifical lighting if you fell that what already is working in my area still isnt good enough.

[Damon]

One thing i did forget to mention is you're right about the higher food prices, but what you didnt cover is the cost of building materials, which is more expensive on hawaii, the cost of water, which is more expensive on hawaii, the cost of electricity, which is more expensive on hawaii, and the cost of labor, which is more expensive on hawaii, and im pulling that last one based on the fact that hawaii is the only place ive seen where at McDonalds worker starts out at $9 and hour to flip burgers instead of the federal minimum wage which i believe is around $7.50.

So yes, they may be charging more than you would get on the mainland, but that's only to reciprcate the fact that it costs more to produce, and since they aren't shipping off island or to some place where they could charge a larger mark up on price... the profit margin ratio stands to benefit those on the mainland with access to electricity thats about half the cost, and water that is a far cry less expensive... oh and on the mainland you wouldnt have to pay and extra dollar per pound on average to have fish food shipped to your farm.

So in the arena of cost effictivness... hawaii may not be the best place when dealing souly within the scope of ap... yes it may be cheaper than conventional... but thats comparing apples to oranges... now when you compare a commercial system on hawaii with a proposed commercial system on the mainland in lets say arazon, nevada, southern cali, texis, or anyplace in the cotton belt region... well then we'd be talking all about apples... and when it comes to growing power and places in the mid west and north east... those are colder apples, but still apples none the less.

[kellenw]

The average air temp of friendly ap is aound 78 degrees f. Lettuce thrives around 65 degrees f. The heat is in a way detramental.

78 degrees looks to be about the average high throughout the year, but the average low is right around 67 or 68 throughout the year. That is a fantastic range of temps for YEAR ROUND lettuce production, and it's hard to find much better anywhere in the world, except for a few very, very specific places. http://www.weather.com/weather/wxcli...ly/graph/96727

The sun light there is great, until the clouds roll in everyday at 4pm. Also, since lettuce is derived from northen latitudes, it doesnt really require all the lumins that are available in hawaii... this alos causes the lettuce to bolt.

Shade cloth would go a long way in fixing this problem and costs very little. I'm surprised they wouldn't use it.

The only thing the temp. Really 100% fully benefits is the fish, but as ive stated before since their fish sales are negatable when it comes to their yearly bottom line, you could use a local cold water fish like perch, walleye, or even channel cat fish, all of which can tolerate poor water conditions.

Relative to most of the world, the temp range and consistent nature of it in Hawaii is a HUGE benefit to year round plant growth, not just the fish growth. As far as the fish selections you mentioned, Perch are a pretty reasonable fish for some locations, but growth rates can be a bit on the slow side and canabalism is often quite high at the fry and fingerling stages. Catfish are a pretty good fish for a wide range of climates, but local market demand isn't always that great. Walleyes are not well suited at all for AP systems.

And yes, their market does help their price... but at any local store you'll still find that a regular every day head of lettuce is still dirt cheap. Now when you walk into the costco in kona, you'll see a bag of their lettuce selling for around $7 per pound right next to a pink package of romaine that has 8 heads packed together, and their average size is 3 inches across and about 1ft tall... and those go for $12 a package. So they do have competition against a higher quality product.

So in other words, from that perspective, they have their own niche that they currently fill without competition, which leaves them fairly independant of the imported food supplier's pricing model, allowing them to charge more for basically an inferior product because it's "local". However, if you believe that's the case, and it very well could be, should a few more local commercial AP operations pop up, Friendly AP could be in some trouble. Supply saturation could turn their currently advantaged niche "goods" into a standard commodity, and then it would simply be a matter of price positioning for sales and market share. This inevitably leads to reduced consumer prices (good for the consumer) and lower profit margins for the supplier (bad for the farmer).

Really until some one can tell me how the benefits of ap simply wouldnt work in a green house that already exists and is turning a profit using conventional growing methods im going to contine to be a firm advocate of using ap instead of conventional farming methods. The space is already being heated so the ambient air temp inside the green house would be more the adequit for any type of lake erie fish. And like i said in the post beforw that if you manage you fish as a running cost instead of a profit supply, food cost could be held at a minimum as well as electrical usage for aeration of their tanks, and money saved in that area could be then used for artifical lighting if you fell that what already is working in my area still isnt good enough.

Converting an existing, established, profitable greenhouse from standard soil based growing methods to aquaponics is really quite a bit different than starting up an aquaponics operation from scratch. If a standard/traditional greenhouse is profitable, the hard part has already been done to a large extent. A viable business with a profitable clientele has already been established. The operation is ALREADY successful. The risk is minimal, assuming the grower is qualified to run an aquaponics based growing system and can do so at the same or reduced cost versus traditional methods. What we (Gary and I) are saying is that marketing savvy and business acumen is vital to the success of an aquaponics venture, and even then there is plenty of risk, just like most any business startup. However, there are a lot more people trying to sell the IDEA that commercial aquaponics can rake in massive profits than there are people actually DOING it.

[Damon]

Ok, ill come out and say it, the amount of sunlight falling on their farm is very close to disasterious. Theres a man in kona with 3 large family sized trough areas. His biggest problem is keeping his lettuce, and really all of his produce safe from the sun. All of his plants have surpassed their their heat limitations and wilt, which damages the lettuce and reduces the shelf life and also robs the lettuce of a crsip crunch while eating. Yes the average low temp may be around 65, but. Thats only for a few short hours.

Keeping shade cloth anywhere commercially. Is a pot dream and quite frankly a giant waste of money. One good gust of wind over 20mph and all of your hard work wll end up in a neighbors feild.

the "world tribe lettuce" grown by friendly aquaponics is accompanied on the shelf by 3 and most weeks 4 similar products, all in their own unique packaging and styles but all of them are sold as a lettuce mixe and all of them are sold for around the same price. Again i point to commercial restaurant vendors like sysco and gordon foods as potential buyers... ive found 2 buyers of this fashion since ive been home looking for a farm such as an ap farm to supply them. Yes, in certain areas in the west. There may be a market saturation of produce because eating healthy is the new bigthing, but most of the produce grown in ohio is shipped out for consumption. Chefs garden supplies high end facilities in new york for example with their microgreens, yet another crop that would do exceedingly well in an indooor system. And when it comes to finding a market, well... thats the whole reason you'd run a market demographic like any bother sensable business person... of course you would build a burger joint right next to a mcdonalds... that why you have to know your market or face the cost of shipping your food.

And yes there is a difference between build a new facility from scratch as opposed to converting. But when you run the demographic before you decide to build in a certain area, that takes out alot of the business gamble.

All i was pointing out is the fact that indoor fcilities already thrive in colder regions without the added advantages of ap. And of course it doest take a person with ap knowledge to manage an ap farm... but just as anyother business that also runs also the lines of common sense... not many burger flippers running law firms... its a silly metaphore but it hits the mark. In any situation you're going to need to know what youre doing before you get started, thats why i spend 3 hours a night answering questions about ap business fesibility. And just as tim and susanne will tell you, each persons business modle will be different from the next, so of course what may work in Mich. Might be overkill in north carolina.

All im saying is if someone is already using the wheel in my area out of stone, how then could it not be beneficial to use a rubber tire?

[Damon]

And really whats eats me up on both of the forums that im apart od is the large amount of backyard bobbiests making claims about things they dont full comprehend based on either lack of expierence of false information. And this goes with both side of the business viability argument.

Ill be the first person to cast a vote for the viability of commercial ap on here, but i also be the first person to shoot down any false claims about the profitability as well... because when others make false claims about the grandiosity of ap to make a quick buck it makes it harder for people like me who are looking for an honest job managing a commercial ap farm.

And really when it comes to making any sort of claims in dealing with ap viability theres only a hand full of people with any sort of athority on the matter based souly on the fact that those people are the only ones with commercial running cost numbers and sales records.

Im strongly opposed to those people selling pipe dream ap kits that make impossible claims, but im also opposed to people a quarter of the world away making claims with only half of the numbers and insight at the disposal.

There are going to be pros and cons when dealing with any business, and ap is no exception to the rule. But just like any other business its not limited to any specific region, and it is subject to all variables that can make or break your lively hood. Im not saying jump right in and start up a commercial ap farm, all im suggesting is that if a lower standard of farming is already working who is anyone to say that with its benefits that ap cant be an option.

And to answer on point thati forgot about, you are right, there are only a few people at the moment that have any sort of knowledge when it comes to a commercial farm, but i am one of those chosen few that can understand the pros and cons on ap and manipulate a system amd its costs to make a system viable. Are systems viable in the tundra? Probably not. But they arent viable in death valley either. Two opposing enviroments with their own set of pros and cons... so to base an idea and make claims against one or the other souly based on what has been done before without any type of system adjustments it not only careless, but detramental to the entire science of ap itself.