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The costs and returns of salmon farming in British Columbia Lee, Bradley Trenton 1988

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THE COSTS AND RETURNS OF SALMON FARMING IN BRITISH COLUMBIA by BRADLEY TRENTON LEE A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE i n THE FACULTY OF GRADUATE STUDIES A g r i c u l t u r a l Economics We ac c e p t t h i s t h e s i s as conforming t o the r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA June 1988 © B r a d l e y Trenton Lee, 1988 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 DE-6rV81> i i ABSTRACT Data were c o l l e c t e d from p a r t i c i p a t i n g grow-out salmon farmers, p r o c e s s o r s , and the B.C. Salmon Farmers' A s s o c i a t i o n , through i n t e r v i e w s , and u t i l i z e d to d e f i n e a base farm. A microcomputer based spreadsheet model was c o n s t r u c t e d to capture the important b i o l o g i c a l and economic v a r i a b l e s . The model d e t a i l s the o p e r a t i n g c o s t s and r e t u r n s of a farm f o r f i v e years, and assumes o p e r a t i n g c o s t s are c o n s i s t e n t with the f i f t h year to provide cash flows f o r a t o t a l of 20 y e a r s . The f i n a n c i a l a n a l y s i s i n c l u d e s an examination of the net present v a l u e s , the net farm income, and the i n t e r n a l rate of r e t u r n . R e s u l t s i n d i c a t e that the base farm i s a v i a b l e investment at a 6.9% discount r a t e . A s e n s i t i v i t y a n a l y s i s i s u t i l i z e d to determine the c r i t i c a l v a r i a b l e s i n the o p e r a t i o n of a grow-out salmon farm. The most s e n s i t i v e v a r i a b l e turned out to be the growth rate of salmon. The base farm was found to be v u l n e r a b l e to economic v a r i a b l e s such as the product p r i c e , and the feed p r i c e . Other important b i o l o g i c a l v a r i a b l e s are the feed c o n v e r s i o n r a t i o and the m o r t a l i t y r a t e , both of which have a s i g n i f i c a n t e f f e c t on the v i a b i l i t y of the base farm. i i i TABLE OF CONTENTS T i t l e Page i A b s t r a c t i i Table of Contents i i i L i s t of Tables v i L i s t of Fi g u r e s i x Acknowledgements x 1. CHAPTER 1 INTRODUCTION 1 1.1 Overview of the B.C. Salmon Farming i n d u s t r y 1 1.2 Problem Statement 3 1.3 O b j e c t i v e s 5 1.4 Methodology 5 1.5 T h e s i s Guide 6 2. CHAPTER 2 SALMON FARMING 8 2.1 Industry Background and Development 8 2.2 Produ c t i o n Cycle 15 2.3 Pro d u c t i o n Inputs 18 2.3.1 B u i l d i n g s 18 2.3.2 Machinery 19 2.3.3 Netpens or Seacages 20 2.3.4 Anchors 20 2.3.5 Nets 21 2.3.6 Feeders - Automatic 23 2.3.7 Smolts 24 2.3.8 Feed 25 2.3.9 Labour 26 2.3.10 Species A v a i l a b l e 29 2.3.11 Required Permits and L i c e n s e s 30 2.4 B i o l o g i c a l F a c t o r s Relevant to Salmon Farming i n B.C 32 2.4.1 Feed Conversion R a t i o 32 2.4.2 Growth Rate 34 2.4.3 M o r t a l i t y Causes 36 2.5 Economic F a c t o r s Relevant to Salmon Farming i n B.C 39 3. CHAPTER 3 THE MODEL 44 3.1 Model Features 44 3.1.1 De s i r e d Model C h a r a c t e r i s t i c s 44 3.1.2 M o d e l l i n g Methods 45 3.1.3 Model Review 47 3.1.4 Model For Th i s Study 49 3.1.5 Model Use 54 3.2 Methodology 55 3.2.1 Data C o l l e c t i o n 56 3.3 B i o l o g i c a l and Returns E s t i m a t i o n 58 3.3 .1 F i s h Growth, Feed and Marketing 59 3.3.2 Market Returns 63 3.4 Cost E s t i m a t i o n - D i r e c t Operating Costs 64 3.5 Cost E s t i m a t i o n - I n d i r e c t Operating and Non-Cash Costs 68 3.6 F i n a n c i a l E s t i m a t i o n 75 3.7 Investment A n a l y s i s 85 CHAPTER 4 THE BASE FARM AND RESULTS 90 4.1 Input Costs and L e v e l s 90 4.1 .1 V a r i a b l e Input Costs 90 4.1.2 V a r i a b l e Input L e v e l s 93 4 . 1 . 3 Fixed Input Costs 95 4.2 C a p i t a l Investment Costs - Machinery 98 4.3 C a p i t a l Investment Costs - S t r u c t u r e s and Equipment 103 4.4 B i o l o g i c a l and P h y s i c a l V a r i a b l e s 112 4.4 .1 Mean F i s h Weight 112 4.4.2 Monthly M o r t a l i t y 114 4 .4 .3 Feed Conversion Ratio 117 4 .4 .4 S t o c k i n g D e n s i t y 118 4 . 4 . 5 Smolt and Annual Production 118 4.5 Economic V a r i a b l e s 119 4.5 .1 Product P r i c e 119 4.5.2 Marketing Rate 120 4.6 F i n a n c i a l R e s u l t s 122 4.6.1 Cumulative Cash Flow 122 4.6.2 Net Farm Income 124 4.6 .3 Breakdown of T o t a l Cost of P r o d u c t i o n ...... 125 4.6.4 Average Cost of Production 127 4.6 .5 Comparing the Model 130 4.7 Investment R e s u l t s 132 4.8 S e n s i t i v i t y A n a l y s i s 133 4.8 .1 B i o l o g i c a l V a r i a b l e s 134 4.8.2 Economic V a r i a b l e s 138 4 .8 .3 E l a s t i c i t i e s and Ranking of C r i t i c a l V a r i a b l e s 143 4 .8 .4 Management C o n s i d e r a t i o n s 147 CHAPTER 5 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ... 151 5.1 Summary 151 5.2 Conclusions 153 5.2.1 Base Farm R e s u l t s 153 5.2.2 V a r i a b l e S e n s i t i v i t i e s 157 5.2.3 Salmon Farm V i a b i l i t y 159 5.3 Recommendations f o r Further S t u d i e s 161 5.3.1 B i o l o g i c a l Research 161 5.3 .1 Economic Research 161 V 6. REFERENCES 166 7. APPENDIX A - MODEL 170 Al Model Description and Background Information on i t s use 170 A2 Model Instructions and Technical Information 181 A3 Equation Description 183 A3.1 In f l a t i o n Factors 183 A3.2 Loan Schedule 183 A3.3 Inventory 184 8. APPENDIX B - CAPITAL EQUIPMENT DATA 185 B l - Farm Mean Cost Data for Capital Equipment and Machinery 185 B2 - Sample Mean Cost, Standard Deviation and Range of Costs for Equipment and Machinery 186 9. APPENDIX C - MEAN FISH WEIGHT 187 CI - Data on Monthly Chinook Weight 187 C2 - Mean and Standard Deviation of Monthly Chinook Weight 188 C3 - Average Monthly Weight for Four Chinook Crops ... 189 C4 - Data, Mean and Standard Deviation of Monthly Coho Weight 190 C5 - Average Monthly Weight for Three Coho Crops 191 10. APPENDIX D - MEAN FISH MORTALITY ... 192 Dl - Data, Mean and Standard Deviation of Monthly Chinook Mortality Rates 192 D2 - Data and Mean of Monthly Coho Mortality 19 3 11. APPENDIX E - PRICE AND PROCESSING COST DATA 194 12. APPENDIX F - MAP OF AQUACULTURE ZONE VALUES 195 13. APPENDIX G - QUESTIONNAIRES 196 Gl - Salmon Farm Questionnaire 196 G2 - Salmon Processing Questionnaire 203 v i LIST OF TABLES Table 1.1 Norwegian Export of Fresh Farmed Salmon to the United S t a t e s , 1982 - 1985 2 Table 2 . 1 .1 P r o d u c t i o n of Farmed Salmon i n B.C., Norway and Washington S t a t e , 1971 - 1986 11 Table 2 . 1 . 2 Number of L i c e n s e d Salmon Farms i n B.C., 1977 - 1988 14 Table 2 . 3 . 1 Summary of Required L i c e n s e s and Permits to Farm Salmon i n B.C 32 Table 2 . 5 .1 Range of P r i c e s Paid f o r Farmed Salmon from B.C. During 1985 42 Table 4 . 1 . 1 V a r i a b l e Costs Assigned to the Base Farm ..... 93 Table 4 . 1 . 2 V a r i a b l e Input L e v e l s Assigned to the Base Farm 95 Table 4 . 1 . 3 F i n f i s h / A q u a c u l t u r e Zone Values i n B.C 97 Table 4 . 1 . 4 Fixed Input Costs Assigned to the Base Farm .. 98 Table 4 . 2 . 1 Mean Cost and Range of Costs f o r Machinery, and the Values Assigned to the Base Farm . . . 102 Table 4 . 2 . 2 Annual Machinery Use, Fuel Consumption and Repair Rates 103 Table 4 . 3 . 1 Mean Costs, Range of Costs, and Costs Assigned to the Base Farm f o r S t r u c t u r e s and Seapens 106 Table 4 . 3 . 2 Mean Costs, Range of Costs, and Values Assigned to the Base Farm f o r Nets and Equipment 110 Table 4 . 3 . 3 Time and Quantity of Pens, Feeders, Nets, Sheds, and Anchoring Purchases, Years 1 to 20 112 Table 4 . 4 . 1 Monthly Chinook Weight Assigned to the Base Farm and Adjusted Monthly Mean Coho Weight.. 114 Table 4 . 4 . 2 Mean Values f o r Monthly Chinook M o r t a l i t y Rates and the Cumulative M o r t a l i t y Rates ... 116 v i i Table 4.4.3 Base Farm Annual Smolt Purchases, Years 1 to 20 119 Table 4.5.1 Mean F i s h P r i c e s Assigned to the Base Farm ... 120 Table 4.5.2 Summary of the Base Farm 121 Table 4.6.1 Net and Cumulative Cash Flows by Year of the Base Farm, Years 1 to 20 124 Table 4.6.2 Net Farm Income of the Base Farm, Years 1 to 20 125 Table 4.6.3 Percentage Breakdown of T o t a l Cost of Pro d u c t i o n by Input, Years 1 to 5 127 Table 4.6.4 Comparison of Average Cost of Pr o d u c t i o n Between Entech Environmental C o n s u l t a n t s ' Model R e s u l t s and R e s u l t s From the Model Used i n t h i s Study 131 Table 4.7.1 I n t e r n a l Rate of Return (IRR) and Net Present Values (NPV) f o r the Base Farm 133 Table 4.8.1 Change i n Investment Measures Caused by a 10% Change i n the Base Farm Values f o r the Monthly M o r t a l i t y Rates, Feed Conversion R a t i o (FCR) , and Growth Rate 138 Table 4.8.2 Change i n Investment Measures Caused by a 10% Change i n the Base Farm Values f o r F i s h , Feed and Smolt P r i c e s 140 Table 4.8.3 Change i n Investment Measures Caused by a 10% Change i n the Base Farm Values f o r the Pr o c e s s i n g Cost, O f f a l Loss, and Labour Wage 142 Table 4.8.4 Ranking of V a r i a b l e s by E l a s t i c i t y f o r the Investment Measures and the V a r i a b l e E l a s t i c i t i e s 146 Table 4.8.5 Weights and Marketing Rates of Chinook to Supplement the Base Farm, Months 25 to 30 .. 148 Table A l D e s c r i p t i o n of Farm Growth P r o f i l e s 171 Table A2 D e f a u l t Values f o r the V a r i a b l e Input Costs .. 172 v i i i T able A3 D e f a u l t Values f o r the V a r i a b l e Input L e v e l s . 173 Table A4 Mean F i s h P r i c e s Assigned to the Base Farm ... 174 Table A5 D e f a u l t Machinery Costs, Expected L i f e , Salvage Values, Hours of Use Per Year, Fuel Codes, and Repair Rates 176 Table A6 D e f a u l t Values f o r Equipment Costs, Expected L i f e , Salvage Values, and Repair Rates 177 Table A7 D e f a u l t Values f o r the B i o l o g i c a l Parameters f o r Months 1 to 10 179 i x LIST OF FIGURES Fi g u r e 2 . 2 .1 F i g u r e 3 .1 .1 F i g u r e 3 . 1 .2 F i g u r e 4 . 6 . 1 F i g u r e 4 . 6 . 2 F i g u r e 4 .8 .1 F i g u r e 4 . 8 . 2 Flow Chart of the Farmed Salmon Pro d u c t i o n Cycle 17 Flow Chart of the Biomass E s t i m a t i o n , and a Summarization of the Operating, Overhead, Labour and Loan Costs i n the Computer Model.. 52 Flow Chart of the D e r i v a t i o n of Costs and Returns, and F i n a n c i a l and Investment .Statements from the Biomass and Operating Costs i n the Computer Model 53 The Cumulative Cash Flows f o r the Base Farm, Months 1 to 120 123 Average Cost of Production Over 24 Months f o r the F i r s t F i v e Generations of F i s h f o r the Base Farm 129 Net Present Value (NPV 4%) and Net Farm Income (NFI) R e s u l t i n g from +10% to -30% Changes i n the Base Farm M o r t a l i t y Rate Values 135 Net Present Value (NPV 4%), Net Farm Income (NFI), and I n t e r n a l Rate of Return (IRR) R e s u l t i n g from +10% to -30% Changes i n the Base Farm Feed Conversion R a t i o ... 136 X ACKNOWLEDGMENTS This study would not have been possible without the par t i c i p a t i o n of a number of salmon farmers, who unfortunately can not be named. Many thanks go to my thesis advisor, Dr. George Kennedy, for his continual guidance during t h i s study. I would also l i k e to thank the members of my thesis committee, Dr. Cameron Short, Dr. George Iwama, and Dr. John Zahradnik, for their helpful advice and comments. A special thanks to Mr. A. Archibald and the B.C. Salmon Farmers' Association for th e i r help i n selecting farm participants, and advice with the study. The B.C.A.S.C.C. i s to be credited with acknowledging the value of this study by f i n a n c i a l l y supporting i t . I would l i k e to thank the staff of the commercial f i s h e r i e s branch of the B.C. Ministry of Agriculture and Fisheries for t h e i r assistance in data c o l l e c t i o n , and model construction. And a special thanks to Cheryl Zurowski for her editing comments and perseverance, "patience i s but a v i r t u e " . 1 CHAPTER 1 INTRODUCTION 1.1 OVERVIEW OF THE B.C. SALMON FARMING INDUSTRY Salmon farming i n B r i t i s h Columbia i s a new i n d u s t r y , s t i l l i n the d e v e l o p i n g stage, and e x p e r i e n c i n g r a p i d growth. One i n d i c a t o r of the r a p i d growth of the i n d u s t r y i s the s i g n i f i c a n t i n c r e a s e i n the number of o p e r a t i n g farms*, from 11 to 82 i n the p e r i o d 1983 to 1986. T h i s trend i s f u r t h e r supported by the new farm e s t i m a t e s of 41 and 70 f o r 1987 and 1988 r e s p e c t i v e l y (Deegan 1987; A r c h i b a l d 1987). A primary reason f o r growth i n the i n d u s t r y i s the p o t e n t i a l of the North American market, s p e c i f i c a l l y the United S t a t e s . The exports of Norwegian f r e s h farmed salmon to the U.S. have i n c r e a s e d markedly i n recent y e a r s , from 711 tonnes i n 1982 to 6473 tonnes i n 1985. An o p e r a t i n g farm i s one a c t u a l l y having f i s h i n s a l t w a t e r . 2 TABLE 1.1 Norwegian Export of Fresh Farmed Salmon to the United S t a t e s , 1982 - 1985. Year Tonnes 1982 1983 1984 1985 711 2,405 4,639 6,473 Source: Canadian Embassy i n Norway, from Lee, 1986. The U.S. seafood market i s regarded by many as the l a r g e s t underdeveloped market i n the world. Current U.S. annual per c a p i t a consumption of f i s h and s h e l l f i s h grew 13 percent from 5.82 to 6.59 kilograms (kg) between 1980 and 1985 ( P i e r c e ) . For B.C., the ready access to t h i s market pro v i d e s a p o t e n t i a l t r a n s p o r t advantage over the Norwegian s u p p l i e r s . Salmon farming i n B.C. comprises three major stages. The f i r s t stage i n v o l v e s h a t c h e r i e s , d e a l i n g with the freshwater phase of the farmed salmon l i f e c y c l e , o b t a i n i n g eggs from the f e d e r a l Department of F i s h e r i e s and Oceans (DFO) or from p r i v a t e 2 broodstocks. The h a t c h e r i e s r a i s e the eggs to the smolt stage. In the next stage, the grow-out farmer purchases smolts from a hatchery, then r a i s e s the f i s h u n t i l h a r v e s t . The t h i r d stage i s the p r o c e s s i n g and marketing of farmed salmon. The grow-out 2 Refer to S e c t i o n s 2.2 and 2.3.7 f o r a d e s c r i p t i o n of smolts. 3 farmer can take i t upon h i m s e l f to l o c a t e a buyer f o r h i s salmon, or l e t a broker or processor deal with the task. T h i s study i s concerned with the grow-out stage of salmon farming o n l y , which i s d e f i n e d as the p e r i o d between the purchase of smolts and t h e i r subsequent growth i n s a l t w a t e r u n t i l harvested, and f o r t h i s study r e f e r r e d to as salmon farming. Within the B.C. salmon farming i n d u s t r y , the f i s h are t y p i c a l l y harvested 17 - 24 months f o l l o w i n g i n i t i a l e n t r y i n t o s a l t w a t e r . Some f i s h are kept up to 30 months before h a r v e s t i n g . The feed c o s t r e p r e s e n t s 40 - 45 percent of t o t a l c o s t (B j (|>rndal) , the m a j o r i t y of which i s r e q u i r e d d u r i n g the l a t t e r p a r t of the p r o d u c t i o n c y c l e . Growth of the farm e n t e r p r i s e , be i t f o r economies of s c a l e , to keep up with i n c r e a s i n g demand, or otherwise, has and w i l l continue to cause s i g n i f i c a n t negative cash flows f o r many farms. To s u r v i v e t h i s , farm o p e r a t o r s seek f i n a n c i n g from the banking i n d u s t r i e s and p r i v a t e i n v e s t o r s . 1.2 PROBLEM STATEMENT Although there appear to be s u b s t a n t i a l market o p p o r t u n i t i e s f o r farmed salmon, salmon farming i n B.C. remains a r i s k y venture. Improved operator a b i l i t i e s and f i n a n c i a l support ( p r i v a t e and p u b l i c ) would b e n e f i t the i n d u s t r y i n t h i s development stage. D e c i s i o n s on f i n a n c i n g and o p e r a t i o n s management r e q u i r e a c c u r a t e i n f o r m a t i o n . The newness of the i n d u s t r y and the l a c k of c o s t and r e t u r n i n f o r m a t i o n has 4 i n f l u e n c e d many of the t r a d i t i o n a l f i n a n c i n g sources to be c o n s e r v a t i v e . When d e a l i n g with other a g r i c u l t u r a l e n t e r p r i s e s , the banker has h i s t o r i c a l i n f o r m a t i o n on which to base loan d e c i s i o n s . For example, i n a b r o i l e r o p e r a t i o n , given a p r o d u c t i o n p l a n , the i n d u s t r y standards on feed conversion, feed c o s t s and m o r t a l i t y , the banker can check a producer's a b i l i t y to repay a debt. With respect to salmon farming, very l i t t l e i n f o r m a t i o n e x i s t s , and t h i s i s l i k e l y a s i g n i f i c a n t negative f a c t o r i n the presen t f i n a n c i n g problems experienced by some salmon farms. These problems have l e d to concern f o r the f u t u r e s t a b i l i t y of i n d i v i d u a l farms and the i n d u s t r y as a whole. Farm e f f i c i e n c y and v i a b i l i t y are a f f e c t e d by v a r i o u s b i o l o g i c a l and economic v a r i a b l e s . These i n c l u d e growth and m o r t a l i t y r a t e s , as w e l l as feed and product p r i c e s . Some of these v a r i a b l e s have been i n v e s t i g a t e d by p r i v a t e c o n s u l t a n t s and p r o v i n c i a l m i n i s t r y o f f i c i a l s . Researchers, extension people, and p r o v i n c i a l m i n i s t r y o f f i c i a l s are f i n d i n g that a number of salmon farmers are e x p e r i e n c i n g d i f f i c u l t i e s . The models a v a i l a b l e to them, along with the l a c k of b i o l o g i c a l and economic data, are of l i t t l e help i n recommending c o r r e c t i v e a c t i o n or s u p p o r t i v e p o l i c i e s . A s p e c i f i c d e t e r m i n a t i o n of the c r i t i c a l v a r i a b l e s and t h e i r impacts on v i a b i l i t y should improve the d e c i s i o n making a b i l i t i e s of a l l p a r t i e s concerned. 5 1.3 OBJECTIVES The o v e r a l l o b j e c t i v e s of t h i s t h e s i s are: 1. To determine the c r i t i c a l b i o l o g i c a l and economic v a r i a b l e s i n salmon farming i n B.C. 2. To determine whether salmon farming i s economically v i a b l e i n B.C. Th i s w i l l i n v o l v e : a) determining the c o s t s and re t u r n s of salmon farming i n B.C.; and b) determining the cash flow requirements of salmon farming i n B.C.; Both o b j e c t i v e s r e q u i r e c o l l e c t i n g r e a l world data on important b i o l o g i c a l and economic v a r i a b l e s , and b u i l d i n g a microcomputer model which i n c o r p o r a t e s these v a r i a b l e s . 1.4 METHODOLOGY Through d i s c u s s i o n s with p r o v i n c i a l M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s o f f i c i a l s , members of the B.C. Salmon Farmers' A s s o c i a t i o n , and B.C. Research s t a f f , problems i n determining the c o s t s and retur n s of B.C. salmon farms w i l l be i d e n t i f i e d . Based on the i d e n t i f i e d problems, and e x i s t i n g cash flow models, a cash flow model w i l l be developed which i n c o r p o r a t e s the important v a r i a b l e s . U t i l i z i n g a case study approach, p a r t i c i p a t i n g farms w i l l be c o n t a c t e d , and interviewed to o b t a i n data on r e l e v a n t b i o l o g i c a l and economic v a r i a b l e s . The cost i n f o r m a t i o n w i l l then used to d e f i n e a base farm. A cash flow stream over 20 years w i l l be estimated, and analyzed to 6 determine the v i a b i l i t y of a base grow-out salmon farm. F i n a l l y a s e n s i t i v i t y analysis w i l l be done to determine the c r i t i c a l variables in grow-out salmon farming. 1.5 THESIS GUIDE This thesis consists of five chapters. Following this introduction, Chapter 2 presents background information on f i s h farming, including a b r i e f history, the necessary inputs of an operating grow-out salmon farm, and the relevant b i o l o g i c a l and economic factors a f f e c t i n g grow-out salmon farms in B.C. Chapter 3 consists of three sections. The f i r s t section discusses various model features. This includes the desired c h a r a c t e r i s t i c s of a cash flow model, a summary of alternative modelling methods, a review of existing models, and an overview of the model used for t h i s study. The second section presents the methodology used in this study to determine the costs, returns, and the c r i t i c a l variables of salmon farming in B.C. A discussion on the data source and c o l l e c t i o n procedure i s also included. The t h i r d section focuses on the methods applied to derive c a p i t a l and operating costs of salmon farming, the growth and mortality rates of salmon, and f i n a l l y the f i n a n c i a l analysis theory applied to determine the economic v i a b i l i t y of salmon farming. In Chapter 4, the results of running the model are analyzed in two sections. The f i r s t section involves an analysis of the data, with the results used to define a base farm. The base 7 farm i s then run through the computer model, followed by an analysis of the re s u l t s . The second section consists of a s e n s i t i v i t y analysis to determine the c r i t i c a l variables of salmon farming. Chapter 5 summarizes the study, followed by a discussion of the conclusions, and the conditions for the conclusions to hold. Limitations of the base assumptions are pointed out with respect to how the results should be interpreted and applied to the other salmon farms. Ending the chapter i s a discussion of the data gaps of the study and recommendations for further studies. The model i t s e l f i s described in Appendix A, with in s t r u c t i o n s for use of the computer model. The data are l i s t e d in Appendices B, C, D, E. Appendix C also includes graphs of the average weight over time for a number of chinook and coho crops i n the data set. Appendix G l i s t s the questionnaire used to obtain data from farmers and processors. 8 CHAPTER 2 SALMON FARMING PRODUCTION Chapter 2 i s composed of f i v e s e c t i o n s . The f i r s t s e c t i o n d e s c r i b e s the h i s t o r i c a l background of salmon f a r m i n g i n N o r t h A m e r i c a , and the r e c e n t i n d u s t r y developments i n B r i t i s h C o lumbia. The second s e c t i o n g i v e s a b r i e f d e s c r i p t i o n of the l i f e c y c l e of farmed P a c i f i c salmon. S e c t i o n t h r e e f o c u s e s on the i n p u t s f o r grow-out salmon f a r m i n g i n B.C. The f o u r t h and f i f t h s e c t i o n s d i s c u s s the r e l e v a n t b i o l o g i c a l and economic f a c t o r s i n farmed salmon p r o d u c t i o n . 2.1 INDUSTRY BACKGROUND AND DEVELOPMENT The husbandry of a q u a t i c a n i m a l s i s one w i t h a l o n g h i s t o r y . One of the f i r s t r e c o r d i n g s of t h i s was by Fan Lee who d e s c r i b e d f i s h c u l t u r e i n China some 2,500 y e a r s ago ( A l l e n e t a l . ) . On the N o r t h American c o n t i n e n t , salmon a q u a c u l t u r e d a t e s back t o 1763, when a German L i e u t e n a n t , J a c o b i propagated salmon f r y . A t t e m p t s were made i n 1872 by L i v i n g s t o n Stone t o b u i l d a salmon h a t c h e r y i n C a l i f o r n i a w i t h the i n t e n t o f t r a n s p l a n t i n g the P a c i f i c salmon to the A t l a n t i c Ocean ( T o b o l s k i ) . Reasons f o r the l a c k o f salmon on the A t l a n t i c c o a s t stemmed from the damming o f streams and c o n s t a n t o v e r f i s h i n g . The thought t h a t the w i l d P a c i f i c salmon r e s o u r c e was i n e x h a u s t i b l e was becoming q u e s t i o n a b l e , as the l a n d i n g s of salmon d e c r e a s e d s i g n i f i c a n t l y from 1900 t o 1974 among c a t c h e s 9 3 4 from A l a s k a , Washington, Oregon and B.C. Salmon enhancement programs throughout the P a c i f i c Rim (U.S.S.R., Japan, U.S.A., Canada) are b e l i e v e d t o have s t a b i l i z e d t he w i l d P a c i f i c salmon r e s o u r c e such t h a t the t o t a l commercial f i s h e r i e s c a t c h t o 2010 5 i s e x p e c t e d t o i n c r e a s e 0.3 p e r c e n t a n n u a l l y ( P i e r c e ) . The i n c r e a s e i n per c a p i t a s e a f ood consumption i n de v e l o p e d C o u n t r i e s (as mentioned i n Chapter 1) has l e a d beyond enhancement of w i l d s t o c k s t o farmed salmon p r o d u c t i o n . Grow-out salmon f a r m i n g i s more d e v e l o p e d i n Norway than i n o t h e r c o u n t r i e s . From i t s b e g i n n i n g i n the 1960's, i n d u s t r y development i n the e a r l y y e a r s was slow, as the farmers g a i n e d e x p e r i e n c e i n the new t e c h n o l o g y . The growth o f the Norwegian salmon f a r m i n g i n d u s t r y has not been s o l e l y due t o the i n c r e a s i n g number o f f a r m e r s . A number o f o t h e r f a c t o r s have c o n t r i b u t e d s i g n i f i c a n t l y t o the i n d u s t r y ' s s u c c e s s f u l development. S i n c e 1970, Norwegian r e s e a r c h e r s have been s y s t e m a t i c a l l y s e l e c t i n g and b r e e d i n g salmon a c c o r d i n g t o s c i e n t i f i c g e n e t i c p r i n c i p a l s used i n the d o m e s t i c a t i o n o f o t h e r The Alas k a c a t c h from 1960-1974 averaged 60.9 m i l l i o n f i s h , 1970-1974 h a r v e s t s averaged 44.8 m i l l i o n f i s h ( T o b o l s k i ) . 4 The record sockeye harvest of 31 m i l l i o n f i s h was i n 1913. Since that time, the peak ha r v e s t had been 15 m i l l i o n i n 1958 (Pynn). ^Regional f l u c t u a t i o n s continue to occur as noted by the expected d e c l i n e of r e t u r n i n g chinook and coho to Georgia S t r a i t i n 1988. 10 farmed animals (Gordon)^. Other f a c t o r s c o n t r i b u t i n g to the s u c c e s s f u l growth of the Norwegian salmon farm i n d u s t r y are export market development, l o c a l manufacture of feed, and supply of s p e c i a l i z e d equipment. 7 U n t i l the 1970's, there was no p r i v a t e o p e r a t i o n on the West Coast of North America to e i t h e r r a i s e salmon to market s i z e i n an enclosed environment (farming) or rear salmon and r e l e a s e them to the n a t u r a l environment to be c a p t u r e d upon r e t u r n (ranching) ( T o b o l s k i ) . The f i r s t salmon farm i n the P a c i f i c Northwest was Domsea Farms, Inc. i n Washington State which began i n 1970 as a j o i n t government/industry p r o j e c t . The primary p r o d u c t i o n was of pan-sized (approximately 250-300 grams) salmon ( T o b o l s k i ) . The salmon farming i n d u s t r y i n B.C. e s s e n t i a l l y began i n 1972 (Bj<f>rndal and Schwindt), with the emphasis on the p r o d u c t i o n of pan-size salmon. The B r i t i s h Columbia M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s (BCMAF), Marketing Branch l i s t s the f i r s t p r o d u c t i o n of farmed salmon as one tonne i n 1976. From 1976 to 1980, annual p r o d u c t i o n grew to 41 tonnes. S i g n i f i c a n t growth i n p r o d u c t i o n began i n 1981, i n c r e a s i n g from 41 tonnes to 157 tonnes (see Table 2.2.1). Growth i n annual salmon p r o d u c t i o n continued u n t i l 1982, with a peak of 273 tonnes. The ^Gordon s t a t e s from p e r s o n a l communication with A. K i t t e l s e n (Research S t a t i o n f o r Salmonids, Sunndals<j>ra, Norway) th a t a f t e r more than three generations of s e l e c t i o n and breeding of A t l a n t i c salmon, measurable improvements i n growth (12% per generation) and s u r v i v a l are evident (1984, p. 35). ^ E x c l u d i n g n a t i v e Indian o p e r a t i o n s . 11 TABLE 2.1.1 P r o d u c t i o n of Farmed Salmon i n B.C., Norway and Washington State (WN), 1971 - 1986. Year B.C. 3 Norway WN° tonnes tonnes tonnes 1971 98 1972 146 1973 171 1974 601 1975 862 1976 1 1,431 179 1977 7 2,137 131 1978 13 3,540 196 1979 41 4,389 759 1980 157 4,312 391 1981 176 8,418 871 1982 273 10,695 678 1983 125 17,298 833 1984 107 21,881 e 1,176 1985 1986 119° 397 d 29,473 e 45,500 e aB.C. M i n i s t r y of Environment, 1976-1984, from Lee 1986. ^Based on s t a t i s t i c s compiled by the Norwegian C e n t r a l Bureau of S t a t i s t i c s , from Gordon 1984. c D a l e Ward, Washington State's Department of F i s h e r i e s Record Custodian, Washington S t a t e , from Lee 1986. dB.C. M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s 1987, from A r c h i b a l d 1987. eBj<f>rndal 1987. s i g n i f i c a n t i n c r e a s e i n pr o d u c t i o n from 1981 to 1982 was p a r t l y due to the l i q u i d a t i o n of the i n v e n t o r y of Apex Bio-Resources L i m i t e d , one of the l a r g e r salmon farms at the time. The 12 subsequent decrease i n annual p r o d u c t i o n f o r 1983 and 1984 was a t t r i b u t e d to the implementation of a government broodstock program and the cease of o p e r a t i o n s at Apex Bio-Resources L i m i t e d ( L e e ) . The broodstock program r e q u i r e d farmers to h o l d f i s h f o r r e p r o d u c t i v e purposes, thus reducing the q u a n t i t y that may be harvested i n those y e a r s . A s h i f t i n o b j e c t i v e s was a l s o t a k i n g p l a c e , as the farmers began to r a i s e f i s h to l a r g e r s i z e s ( g r e a t e r than one kg). The Norwegian i n d u s t r y has succeeded i n producing and marketing salmon i n l a r g e r s i z e s , while Washington State continues to emphasize the p r o d u c t i o n of p a n - s i z e d salmon. I t i s the success of the Norwegian i n d u s t r y together with continued expansion i n p r o d u c t i o n , that has been the major impetus fo r the growth of the B.C. salmon farming i n d u s t r y . The f e d e r a l and p r o v i n c i a l governments have supported the i n d u s t r y to d i f f e r e n t degrees. The f e d e r a l Department of F i s h e r i e s and Oceans f o r f i v e years operated an experimental salmon farm i n Nanaimo (1973-77) to help determine the v i a b i l i t y of commercial f i s h farming. An I n d u s t r y Task Force on Aquaculture has s t a t e d that Canada must allow the p r i v a t e s e c t o r to e s t a b l i s h an i n t e g r a t e d p r o f i t a b l e i n d u s t r y as r a p i d l y as p o s s i b l e (1984). In B.C., the p r o v i n c i a l M i n i s t r y of I n d u s t r y and Small Business Development has the Aquaculture I n c e n t i v e Program (AIP) to encourage the e s t a b l i s h m e n t and expansion of f i r m s engaged i n aquaculture p r o d u c t i o n (March 1986). The AIP permits repayable loans f o r up to 50 percent of a l l o w a b l e c o s t s 13 to a maximum of $100,000. The l o a n i s i n t e r e s t f r e e , with no p r i n c i p a l payments r e q u i r e d u n t i l the f o u r t h year, and must be r e p a i d at the end of f i v e years . F o r e i g n investment has a l s o spurred on the i n d u s t r y . As of 1986, 20 percent of a l l grow-out farms i n B.C. had f o r e i g n support, r e p r e s e n t i n g 57 percent of t o t a l c a p i t a l investment (Bj<j>rndal and Schwindt). T h i s suggests t h a t a m i n o r i t y of farms, those having f o r e i g n support, have a m a j o r i t y of c a p i t a l investment ( i . e . c a p i t a l equipment). However, a number of farms have u t i l i z e d l e s s expensive pen s t r u c t u r e s , whereas those with f o r e i g n investment may have been i n f l u e n c e d to purchase more expensive, f o r e i g n b u i l t pen s t r u c t u r e s , p o s s i b l y c r e a t i n g a biased r e l a t i o n s h i p . Growth i n B.C. farm numbers were gradual u n t i l 1985, when they i n c r e a s e d from 39 to 82 between March and December of 1986. These s i g n i f i c a n t i n c r e a s e s are expected to continue through 1988. Table 2.1.2 l i s t s the number of farms from 1977 to 1985 i n B r i t i s h Columbia, and p r o j e c t i o n s f o r 1986 to 1988. The B r i t i s h Columbia M i n i s t r y of Economic Development p r e d i c t s the t o t a l number of farms f o r 1987 and 1988 at 251 and 722 r e s p e c t i v e l y (1987). These numbers are presumably based on the number of proposals and i n v e s t i g a t i v e permits granted to date. The a c t u a l number of farms that w i l l r e s u l t from the i n i t i a l p roposals are l i k e l y to be s i g n i f i c a n t l y l e s s . T h i s i s a t t r i b u t e d to a f i r m ' s i n a b i l i t y to r a i s e the necessary funding, or t h a t a f i r m may have made m u l t i p l e s i t e p r o p o s a l s , c a r r y i n g 14 through with o n l y one or two s i t e s ( A r c h i b a l d 1987; Deegan 1987). The reasoning behind a p p l i c a t i o n s f o r more than one s i t e i s to permit e v a l u a t i o n of numerous s i t e s and r e t a i n the r i g h t s o to make the best s i t e or s i t e s an o p e r a t i n g f i s h farm . The fee T A B L E 2 . 1 . 2 Number of L i c e n s e d Salmon Farms i n B.C., 1977 - 1988. Year Number (as of March) of Farms 1977 5 1978 4 1979 4 1980 9 1981 10 1982 11 1983 16 1984 14 1985 27 1986 39 1986 82 a 1987 110 a 1988 165 a Source: BC M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s . The B r i t i s h Columbia Aquaculture Newsletter 1986, Vol.6(4). a E n d of year estimates from Rick Deegan, B.C. M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s , 1987; and A. A r c h i b a l d , B.C. Salmon Farmers' A s s o c i a t i o n , 1987. Although a l l a p p l i c a t i o n s from a s i n g l e f i r m may not be granted a l i c e n s e , d u r i n g a p p l i c a t i o n p r o c e s s i n g the s i t e s are e s s e n t i a l l y r e s e r v e d , thus e x c l u d i n g o t h e r s from a p p l y i n g f o r a l i c e n s e at the same l o c a t i o n u n t i l the f i r s t a p p l i c a t i o n i s re f u s e d by the a p p l i c a n t or the government. 15 f o r these a p p l i c a t i o n s ( p r e v i o u s l y known as S e c t i o n 10 i n v e s t i g a t i v e permits) was $110, but i n 1987 i t was i n c r e a s e d to $500 to deter f u r t h e r m u l t i p l e s i t e a p p l i c a t i o n a c t i v i t y . Other s i g n i f i c a n t producers of farmed salmon are Japan, Scotland, C h i l e , and New Zealand. Japan and S c o t l a n d tend to market a l l p r o d u c t i o n d o m e s t i c a l l y . C h i l e and New Zealand are exporters to the North American market. 2.2 PRODUCTION CYCLE Th i s s e c t i o n summarizes the stages of freshwater development of salmon, and the s a l t w a t e r growth i n which the grow-out farmer i s i n v o l v e d . The necessary i n p u t s f o r grow-out salmon farming i n B.C. are d e s c r i b e d i n s e c t i o n 2.3. Eggs f o r salmon farming p r o d u c t i o n are purchased by h a t c h e r i e s from the f e d e r a l Department of F i s h e r i e s and Oceans (DFO) and/or pen-reared broodstock kept by the hatchery or grow-9 out producer . With respect to egg supply, broodstock development i n the i n d u s t r y i s expected to make p r i v a t e h a t c h e r i e s the primary source, removing the dependence on the DFO and w i l d s t o c k salmon r e t u r n s . These eggs are then r a i s e d by the hatchery through v a r i o u s stages u n t i l the f i s h become smolts. From f e r t i l i z e d eggs, the g e n e r a l i z e d stages are: l ) E y e d egg - egg stage i n which the eyes are c l e a r l y g I f a grow-out farm operates a hatchery, the hatchery f a c i l i t i e s may be l o c a t e d at the grow-out s i t e , or at some independent s i t e . v i s i b l e . 2) Hatching takes p l a c e . 3) A l e v i n s - newly-hatched salmonid f i s h p r i o r to a b s o r p t i o n of the y o l k sac, with r e l a t i v e l y l a r g e eyes. 4) Swim-up f r y - swimming j u v e n i l e t hat has completely absorbed the yolk sac. 5) Parr - j u v e n i l e f i s h having c h a r a c t e r i s t i c dark patches or bars on the l a t e r a l s u r f a c e of the body p r i o r to m i g r a t i o n . 6) Pre-smolt - p r i o r to m i g r a t i o n i n the w i l d . 7) Smolt - stage when the f r y undergoes the p h y s i o l o g i c a l , m o r p h o l o g i c a l , and b e h a v i o u r a l changes to l i v e i n s a l t water; s i l v e r y i n c o l o u r . (March and Walsh). In the w i l d , eggs incubate over the winter months, h a t c h i n g i n l a t e w i n t e r . The swim up f r y stage i s t y p i c a l l y some time i n the s p r i n g . Young pink and chum f r y leave immediately f o r sea, but others w i l l remain i n streams, r i v e r s or lakes to grow f o r up to two y e a r s . The m a j o r i t y of chinook head towards the sea w i t h i n a few months f o l l o w i n g emergence from the g r a v e l beds. Coho tend to remain i n f r e s h water f o r longer p e r i o d s , u s u a l l y one to two y e a r s . The flow c h a r t i n Figure 2.2.1 summarizes the hatchery stage j u s t d e s c r i b e d , as w e l l as the subsequent grow-out and p r o c e s s i n g stages i n the farmed salmon p r o d u c t i o n c y c l e . The grow-out stage begins with the purchase of smolts from h a t c h e r i e s . T y p i c a l l y , smolts f i r s t enter the water at a s i z e 17 FIGURE 2.2.1 Flow Chart of the Farmed Salmon P r o d u c t i o n C y c l e . HATCHERY STAGE Months from F e r t i l i z a t i o n GROW-OUT STAGE Months from Saltwater e n t r y Approximate Weight (g) Eggs from DFO or broodstock 2 3 3- 4 4- 5 7-9 Eye d egg Hatching A l e v i n Swii m up F r y Parr Smolt -> 0 0-6 6-12 9-15 9-15 12-30 17-30 P u r c h a s e Smolts 13mm Net 19mm Net 2 5mm Net 38mm Net 51mm Net H a r v e s t 5-15 5-300 50-350 300-900 600-1000 >900 >910 Broodstock P r o c e s s i n g 18 ranging from 5 - 1 5 grams, between the p e r i o d of l a t e A p r i l to e a r l y June. Chinook tend to s m o l t i f y * ^ when about 5 grams,whereas coho s m o l t i f y when approximately 15 grams (Kennedy). The smolts are kept i n f l o a t i n g netpens"*"* or seacages (unless the farm i s l a n d based), where they grow i n s i d e 12 of nets of v a r i o u s dimensions u n t i l they are h a r v e s t e d . Some f i s h are not harvested, but kept as broodstock f o r f u t u r e egg supply. Those harvested, become processed and shipped to the w h o l e s a l e r or r e t a i l e r . 2.3 PRODUCTION INPUTS To operate a grow-out salmon farm, numerous i n p u t s are r e q u i r e d . The e s s e n t i a l i n p u t s are d i s c u s s e d as s t a t e d by the BCMAF and B.C. Salmon Farmers' A s s o c i a t i o n members. The r e q u i r e d c a p i t a l equipment are d i s c u s s e d f i r s t . These i n c l u d e b u i l d i n g s , machinery, netpens, anchors, nets and automatic f e e d i n g systems. T h i s i s f o l l o w e d by a d i s c u s s i o n of smolts, feed, labour and s p e c i e s of f i s h a v a i l a b l e . F i n a l l y the r e q u i r e d permits and l i c e n s e s are b r i e f l y d i s c u s s e d . 2.3.1 B u i l d i n g s The main b u i l d i n g ranges from a simple o f f i c e to a b u i l d i n g *^To s m o l t i f y i s to complete the smolt stage of development such that the salmon can l i v e and grow i n s a l t w a t e r . Purchased smolt may not completely s m o l t i f y , yet are capable of l i v i n g i n s a l t w a t e r , but e x h i b i t i n g marginal i f any growth. "^See S e c t i o n 2.3.3 f o r d e t a i l s . 12 See S e c t i o n 2.3.5 f o r d e t a i l s . 19 housing an o f f i c e , k i t c h e n , bedrooms and a bathroom. In a d d i t i o n , storage f a c i l i t i e s may be a p a r t of the main b u i l d i n g to s t o r e feed and equipment. T h i s b u i l d i n g i s u s u a l l y a f l o a t and connected to the netpen system, but may be l o c a t e d on the l a n d base of the farm s i t e . T y p i c a l l y , secondary b u i l d i n g s e x i s t , to s t o r e feed and/or equipment. The shed i s e i t h e r l o c a t e d on l a n d or on a barge connected to the f l o a t i n g pen/walkway system. A l a r g e feed shed may be used to s t o r e , i n a d d i t i o n to feed, d i v i n g equipment and v a r i o u s maintenance t o o l s . The use of a s m a l l e r shed may r e q u i r e a d d i t i o n a l b u i l d i n g s f o r i n c r e a s e d feed storage or to house l a r g e machines (e.g. feed mixer, p a l l e t mover). I f the main b u i l d i n g has a l a r g e storage c a p a c i t y , a secondary f a c i l i t y may not be necessary. 2.3.2 Machinery Farm machinery i n c l u d e s : a) a t r u c k , f o r t r a n s p o r t of equipment, s u p p l i e s , and personnel to the farm s i t e or nearest dock; b) a generator i f there i s no d i r e c t power source to the s i te ; c) a water pump f o r use i n c l e a n i n g the n e t s ; d) one or two boats; one (a s k i f f ) i s used f o r moving nets and pens, and other heavy duty work on the farm; the other i s used f o r general t r a n s p o r t or l i g h t duty work; e) a p a l l e t j a c k . 20 2.3.3 Netpens or Seacages Each water based grow-out farm r e q u i r e s a f l o a t i n g netpen 13 or seacage system . The pens may be c o n s t r u c t e d of wood, metal, p o s s i b l y i n c o n j u n c t i o n with co n c r e t e , or a combination of a l l t h r e e . These pens are f l o a t e d with the use of foam b l o c k s , foam f i l l e d p l a s t i c pipe, or hollow f l o a t s of r e i n f o r c e d concrete (Kennedy). Each pen i s connected to a main walkway co n s t r u c t e d of s i m i l a r m a t e r i a l to the pens and t y p i c a l l y f l o a t i n g on foam b l o c k s . The standard shape of the pens i s e i t h e r square, octagonal or c i r c u l a r . The i n t e r i o r dimensions of a pen range from 6 meters square to a c i r c l e or square with a diameter or width of 39 meters (130 f e e t ) . On the i n s i d e edge of most pens i s a r a i l i n g approximately one meter i n height, to which the nets are t i e d . Other types of pens may have pins attached to the r a i l i n g s from which the net hangs. 2.3.4 Anchors An anchor and rope system is. used to secure the f l o a t i n g pen system ( i n c l u d i n g b u i l d i n g s i f f l o a t i n g ) a g a i n s t c u r r e n t and wave motion. The number of anchors and the s i z e of the anchors depends upon the l o c a t i o n of the farm. I f the s i t e i s an exposed l o c a t i o n , s u b j e c t to strong c u r r e n t s , t i d a l changes, or wave a c t i o n , then h e a v i e r (up to ten tonnes and three tonnes f o r primary and secondary anchors r e s p e c t i v e l y , at one farm), and 13 I f a farm i s land based (e.g. Hagensborg, Nanaimo, B.C.) the netpens are r e p l a c e d with s o l i d ponds (concrete or s t e e l ) , and a p u m p i n g / f i l t r a t i o n system. The p u m p i n g / f i l t r a t i o n system i s r e q u i r e d to t r a n s p o r t s a l t w a t e r to the ponds and to cleal with f e c a l m a t e r i a l . 21 more numerous anchors w i l l be required. Anchor l i n e s t y p i c a l l y are attached to the walkway systems, permitting mobility of the pens themselves. The anchors are usually made of concrete, and securing lines of nylon. 2.3.5 Nets A minimum of three d i f f e r e n t net mesh sizes are used throughout the production cycle, with the mesh size increasing as the size of the f i s h increases. The net mesh sizes used are 13, 19, 25, 38, and 51 mm mesh. The mesh size i s the greatest distance between knots or intersections, measured diagonally when the net i s stretched. The nets come either i n knot or knotless forms, and in a square or diamond hung format. The knotless net supposedly poses less of a hazard to the f i s h by not catching the g i l l s of small f i s h (which can be f a t a l to the f i s h ) , and has fewer fouling problems (discussed below). The square or diamond hung format refers to the shape of the mesh when the net i s hung from a pen. A number of nets have double bottoms to reduce access to dead f i s h (which sink to the bottom of the net) to predators. The dimensions of nets are the same as the inner perimeter of the pens, from 5m x 5m to 39m x 39m, with depths t y p i c a l l y from 5m to 15m. Other farms may u t i l i z e an additional outer predator net which hangs from the periphery of the pens. The predator nets tend to be second hand salmon seine nets having a 90 mm mesh and measuring 30.5 m X 30.5 m X 15 m deep. Net fouling i s a problem with a l l nets, but more so with 22 smaller mesh nets. F o u l i n g i n c l u d e s the growth of a q u a t i c organisms (e.g. algae, mussels), and c o l l e c t i o n of d e b r i s or such items as j e l l y f i s h on the outer perimeter of the net. Any type of net f o u l i n g decreases the amount of water flow through the net. In a d d i t i o n , net f o u l i n g can i n c r e a s e the weight of the net, which i n turn s t r e t c h e s the net, thus reducing the openings between the mesh, and e x a c e r b a t i n g the water flow problems. The decreased water flow may d e t r i m e n t a l l y a f f e c t the growth p o t e n t i a l of the f i s h v i a decreased d i s s o l v e d oxygen (DO) 14 l e v e l s . In the event of an a l g a l bloom, the f o u l i n g may a c t u a l l y reduce the d e t r i m e n t a l e f f e c t of the bloom ( t h i s i s not advice to permit i n c r e a s e d f o u l i n g of n e t s ) . However t h i s b e n e f i t i s probably l e s s than the c o s t i n growth p o t e n t i a l of the f i s h . An o c c a s i o n a l problem with the nets has been that of shape a l t e r i n g i n the water due to c u r r e n t and f o u l i n g . T h i s tends to decrease pen volume and i n c r e a s e f r i c t i o n between nets. The i n c r e a s e d f r i c t i o n i n turn w i l l tend to reduce the l i f e span of the net. One method used to make the net assume the r e q u i r e d shape i s to t i e weights to lengths of rope j u s t short of the depth of the net, a t t a c h the rope to the r a i l i n g near the corner of the net, and lower the weight towards the bottom corner of the net. Another method i s to a t t a c h weights to the bottom of the net i t s e l f . In a d d i t i o n , nets can be purchased with a l e a d Low DO leads to s t r e s s , which leads to a negative e f f e c t on f i s h growth and on d i s e a s e r e s i s t a n c e . 23 l i n e sewn to the bottom of the net, thereby a i d i n g the net i n keeping i t s r e q u i r e d shape. 2.3.6 Feeders - Automatic The support system f o r the automatic feeders c o n s i s t s of a t u b u l a r pipe along which the feed hopper moves, and an A-frame on f l o a t s to support the hopper over the c e n t r a l region of the pen area. The feed hopper i s a p l a s t i c bucket ( c a p a c i t y of 50 or 100 l i t r e s ) with a l i d . At the bottom are two e l e c t r i c motors, the f i r s t operates a v a l v e , and the second operates a r i d g e d , s p i n n i n g d i s k d i r e c t l y below the v a l v e . Whenever the v a l v e opens, the d i s k spins to d i s t r i b u t e the feed over a g r e a t e r s u r f a c e a r e a . The e l e c t r i c motors are u s u a l l y powered by 12 v o l t b a t t e r i e s . The feeders are c o n t r o l l e d by r e l a y switches, or secondary computers which are i n t u r n c o n t r o l l e d by a main c o n t r o l or primary computer. Through the primary computer, the operator can program the frequency of feeding d i s t r i b u t i o n , and the d u r a t i o n of each d i s t r i b u t i o n . For example, a feeder can be set to d i s t r i b u t e feed once every minute f o r 1.5 seconds. This program can be r e s e t whenever the operator d e s i r e s , to i n c r e a s e the t o t a l d a i l y feed r a t i o n . F i r s t g e n e r a t i o n primary computers c o n t r o l l e d a given number of feeder u n i t s a l l at once, at the same frequency and d u r a t i o n . Thus i f d i f f e r e n t f r e q u e n c i e s and/or d u r a t i o n s are d e s i r e d , a second primary computer would be necessary. Newer or second g e n e r a t i o n computers permit changes i n feeding frequency per feeder, independent from a l l other f e e d e r s . They are a l s o 24 capable of a u t o m a t i c a l l y i n c r e a s i n g the t o t a l d a i l y feed r a t i o n a c c o r d i n g to a growth program based on water temperature and i n i t i a l s i z e , and r e c o r d i n g t o t a l feed d i s p e r s a l per pen per day. Another type of automatic feeder d i s p e r s e s the feed under water, using water to c a r r y the feed from the storage hopper to the netpen. 2.3.7 Smolt The term smolt r e f e r s to a young salmon at the stage where p h y s i o l o g i c a l changes have taken p l a c e f o r a d a p t a t i o n to s a l t w a t e r . At t h i s time the f i s h takes on the s i l v e r y c o l o u r of an a d u l t . This u s u a l l y occurs i n w i l d f i s h as they move downstream i n t o b r a c k i s h waters (where the r i v e r or stream j o i n s the ocean). Grow-out farmers purchase smolts from h a t c h e r i e s , weighing between 5 and 15 grams, p r e f e r r i n g d e l i v e r y from l a t e A p r i l to e a r l y June. E a r l y maturation ( j a c k i n g ^ ) problems of f i s h i s a cost as the value of the f i s h s i g n i f i c a n t l y decreases, and i f i d e n t i f i e d too l a t e , i s e s s e n t i a l l y a m o r t a l i t y l o s s . The male f i s h have a gre a t e r chance of j a c k i n g . One attempt to solve the j a c k i n g problem i s to s e x u a l l y a l t e r the f i s h i n the freshwater stages at the hatchery. The s e x u a l l y a l t e r e d smolts have been t r e a t e d with hormones to r e s u l t i n monosexed or feminized smolts. When hormonal changes cause an unappealing p h y s i c a l appearance f o r marketing, and the muscle t i s s u e begins to d e t e r i o r a t e . 25 2.3.8 Feed The m a j o r i t y of farms i n B.C. i n i t i a l l y use a p e l l e t i z e d form of feed f o r smolts, p o s s i b l y changing to an extruded feed i n l a t e r stages of the p r o d u c t i o n c y c l e . The extruded feed i s a l s o i n a p e l l e t i z e d form, but processed at a lower temperature than the standard p e l l e t i z e d feed. T h i s process r e t a i n s more n u t r i e n t s per u n i t of feed, than that f o r p e l l e t i z e d feed. Other s i g n i f i c a n t advantages of the extruded feed are that i t i s more e f f i c i e n t i n terms of d i g e s t i b i l i t y , and s i n k s slower i n the netpen, thus g i v i n g the f i s h more time to consume i t before the feed passes through the bottom of the net. The d i e t of the w i l d salmon i n c l u d e s c r u s t a c e a n s , one of the main c o n t r i b u t o r s to the pink c o l o r a t i o n of the muscle t i s s u e . I t i s b e l i e v e d that consumers p r e f e r a f i s h f l e s h c o l o u r resembling t h a t of w i l d caught salmon (Kennedy). In a d d i t i o n , a number of farmers b e l i e v e that many consumers have been unable to d i s t i n g u i s h the d i f f e r e n c e i n t a s t e or appearance of the f l e s h between a t r o u t and a salmon. The s i g n i f i c a n t p r i c e d i f f e r e n c e between the two i s an i n c e n t i v e to ensure consumer awareness t h a t a salmon i s being purchased. To achieve t h i s pink f l e s h c o l o u r , the salmon farmer can u t i l i z e feed i n a pigmented form. E a r l y feeds used s y n t h e t i c c a n t a x a n t h i n ( c a r o p h y l l red) to c o l o u r the f l e s h of pan s i z e f i s h . The c a r o p h y l l belongs to the c a r o t e n o i d group of chemicals, and i s used by p o u l t r y farmers to enhance egg-yolk c o l o u r (Kennedy). Every farmer p a r t i c i p a t i n g i n the study uses pigmented feeds 26 d u r i n g the l a t t e r p a r t of the p r o d u c t i o n c y c l e or throughout the c y c l e . The Norwegian salmon farms use pigmented feed f o r s i m i l a r reasons (Gordon). 2.3.9 Labour a ) F e e d i n g On farms without automatic f e e d e r s , f e e d i n g of f i s h by hand r e q u i r e s a s i g n i f i c a n t amount of l a b o u r . Farms equipped with automatic feeders r e q u i r e the hoppers to be r e f i l l e d throughout the day. P a r t i c i p a t i n g farms i n t h i s study are equipped with automatic f e e d e r s , and f u r t h e r d i s c u s s i o n on f e e d i n g assumes the use of such a f e e d i n g system. Feed consumption i s dependent upon a number of f a c t o r s , one of which i s the metabolic rate of the f i s h . The metabolic rate i s a l s o a f f e c t e d by a number of f a c t o r s , the water temperature being one of them. Changes i n water temperature from day to day can t h e r e f o r e a f f e c t feed consumption. Thus feed consumption i s not a c o n t i n u a l l y i n c r e a s i n g f u n c t i o n , and human judgement on the f i s h ' s a p p e t i t e can prevent e x c e s s i v e waste of feed. To ensure some degree of monitoring of f i s h behaviour, a p p e t i t e , and g e n e r a l f i s h h e a l t h , a small percentage of the d a i l y r a t i o n i s hand f e d . Feeding to " s a t i a t i o n " appears to be the standard among salmon farmers. However, MacDougall and Gordon a l s o found t h a t the d e f i n i t i o n of " s a t i a t i o n " or judgement of s a t i a t i o n may d i f f e r from farm to farm. I t i s predominantly dependent on the a b i l i t y of the person fe e d i n g and m o n i t o r i n g the f i s h , and based 27 upon the eagerness or a g g r e s s i o n of the f i s h when f e e d i n g . I f the farm i s not f e e d i n g to s a t i a t i o n , then the f i s h are fed to a percentage of body weight, normally 1 to 1.5 p e r c e n t . T h i s f e e d i n g regime, to a percent of body weight, a l l o c a t e s a s e t d a i l y r a t i o n of feed to the f i s h , r e g a r d l e s s of a p p e t i t e . Thus, i f the f i s h appear h u n g r i e r than normal, the set d a i l y r a t i o n i s the maximum q u a n t i t y of feed the f i s h w i l l r e c e i v e . I f the f i s h are consuming feed at a l e s s than normal r a t e , the d a i l y r a t i o n can be reduced. T h i s method tends to decrease feed wastage. A number of farmers f e e l t h a t r e s t r i c t i o n to a set d a i l y r a t i o n when the f i s h are hungry, may r e s u l t i n a l o s s of p o t e n t i a l weight g a i n , a l o s s t h at can not be regained by l a r g e r d a i l y i n c r e a s e s i n l a t e r days. b ) H a r v e s t i n g The h a r v e s t i n g of f i s h v a r i e s , depending on the procedure chosen by the farm o p e r a t o r , or i n some cases, the p r o c e s s o r p u r c h a s i n g the f i s h . The f i s h may be taken out of the nets and put i n t o i c e water, or i n t o water with i n c r e a s e d l e v e l s of carbon d i o x i d e (CO^). The o b j e c t i v e i s to decrease the l e v e l of p h y s i c a l a c t i v i t y of the f i s h such t h a t they w i l l be e a s i e r to handle. Small amounts of e l e c t r i c a l v o l t a g e have a l s o been experimented with to achieve t h i s o b j e c t i v e . The f i s h are then cut i n the g i l l s and p e r m i t t e d to swim i n a tank, thus b l e e d i n g themselves to death. E x c e s s i v e c o n c e n t r a t i o n s of CG^ have been noted to o v e r l y reduce the a c t i v i t y of the f i s h , and thereby i n c r e a s e the time r e q u i r e d f o r complete b l e e d i n g . Once b l e d , 28 the f i s h are s t o r e d i n i c e and shipped to a p r o c e s s i n g p l a n t for c l e a n i n g ( g u t t i n g ) , packaging, and t r a n s p o r t to the u l t i m a t e buyer. Another method i s the l i v e t r a n s p o r t of f i s h to the p r o c e s s i n g p l a n t . T h i s r e q u i r e s the use of a sh i p or truck capable of c a r r y i n g water i n i t s h o l d s . In these cases, f i s h are pumped d i r e c t l y from the pens i n t o the hold s , c)Overhead Labour time i s r e q u i r e d to " s p l i t " or change nets, to r e p a i r and maintain equipment, to c l e a n n e t s , and on some farms to d i v e i n the pens to r e t r i e v e dead f i s h ("morts"). The s p l i t t i n g of nets reduces the s t o c k i n g d e n s i t y of f i s h w i t h i n a net. One method of s p l i t t i n g a net i s to s t i t c h one side of the f u l l net to an adjacent s i d e of an empty net. With both nets i n the water, the s t i t c h e d s i d e of the nets i s lowered i n the water to permit f i s h to swim i n t o the empty net. When approximately h a l f of the f i s h have been herded i n t o the second net, the s t i t c h e d s i d e i s p u l l e d out of the water. The s t i t c h i n g i s then removed and the nets p l a c e d over the s t a n c h i o n p i n s , or lashed to the r a i l i n g s of t h e i r r e s p e c t i v e pens. Changing a net i s the replacement of a net with one having a l a r g e r mesh s i z e , or with a cl e a n net because the present one i s badly f o u l e d . To a l l e v i a t e f o u l i n g , the nets can be t r e a t e d i n i t i a l l y , and are cleaned, e i t h e r w hile i n the water, or out of the water f o l l o w i n g a net change. A water pump i s used to clean the nets, or a net washing machine i s used ( e x p e n s i v e ) . Net 29 c l e a n i n g i n t e r v a l s are t y p i c a l l y from three to s i x months, but may be more f r e q u e n t . The d i v i n g frequency to r e t r i e v e "morts" ranges from once every day to once every seven days. Once a day d i v i n g takes p l a c e when a problem occurs (e.g. b a c t e r i a l kidney d i s e a s e , a l g a l bloom), and there i s a need to remove the "morts" d a i l y to prevent a d d i t i o n a l h o r i z o n t a l spread of d i s e a s e s . The d i v i n g frequency i s higher i n the summer p e r i o d , t y p i c a l l y every 2 or 3 days, and about every 5 to 7 days d u r i n g the w i n t e r . D i v i n g i s a l s o r e q u i r e d to ma i n t a i n anchors, ropes, and pen systems. At l e a s t one farm p r e f e r s not to d i v e at a l l to r e t r i e v e "morts". The a l t e r n a t e procedure used i s to p u l l up a s e c t i o n of the net and to r e t r i e v e the "morts" w i t h d i p nets. The reason f o r t h i s method i s the b e l i e f t h a t d i v i n g may cause s t r e s s to the f i s h . 2.3.10 S p e c i e s A v a i l a b l e There are f i v e s p e c i e s of P a c i f i c salmon: Pink, Chum, Coho, Chinook and Sockeye. Of these, coho and chinook are c u r r e n t l y grown commercially i n B r i t i s h Columbia. Other s p e c i e s of f i s h t h a t can be r a i s e d on f i s h farms i n B.C. are Rainbow t r o u t , S teelhead t r o u t , and A t l a n t i c salmon. The Norwegian farmers rear the A t l a n t i c salmon. The two s p e c i e s p r e s e n t l y grown on salmon farms has l i k e l y been i n f l u e n c e d by Kennedy et a l . (1978) s t a t i n g t h a t coho and chinook make the best farm s p e c i e s , and i s supported by the p a r t i c i p a n t s of the 5th Annual Meeting of the P a c i f i c A q u aculture A s s o c i a t i o n ranking coho and chinook f i r s t 30 and t h i r d r e s p e c t i v e l y i n f a r m i n g s u i t a b i l i t y (Kennedy e t a l . 1978). T h i s was based upon growth and s u r v i v a b i l i t y r e s u l t s from the f i v e y e a r e x p e r i m e n t a l program a t Nanaimo. 2.3.11 R e q u i r e d P e r m i t s and L i c e n s e s To s t a r t a salmon farm i n B.C. a number of m u n i c i p a l , p r o v i n c i a l and f e d e r a l p e r m i t s and l i c e n s e s are r e q u i r e d . These r e g u l a t i o n s g o v e r n i n g a q u a c u l t u r e are d e s i g n e d t o : a) p r o v i d e o p t i m a l o p e r a t i n g c o n d i t i o n s ; and b) ensure the p r o s p e c t i v e salmon farmer t h o r o u g h l y u n d e r s t a n d s salmon f a r m i n g , and t h a t Crown r e s o u r c e s w i l l be used b e n e f i c i a l l y and i n b a l a n c e w i t h o t h e r r e g i o n a l and e n v i r o n m e n t a l concerns such as f o r e s t r y use, r e c r e a t i o n and w i l d s t o c k f i s h e r y . The Waste Management Branch of the M i n i s t r y o f Environment may a l s o r e q u i r e the salmon farm ( t h o s e w i t h h a t c h e r y f a c i l i t i e s ) t o posses s a P o l l u t i o n C o n t r o l P e r m i t . T h i s c e r t i f i e s any e f f l u e n t water as not b e i n g h a r m f u l t o the e n v i ronment. An a q u a c u l t u r e management p l a n must be completed and approved by the Marine Resources S e c t i o n s o f the F i s h e r i e s Branch of the BCMAF. The p l a n must s t a t e how the e n t e r p r i s e w i l l be run. The p l a n ' s a p p r o v a l i s r e q u i r e d f o r the farmer t o be i s s u e d a l o n g term a q u a c u l t u r a l l a n d l e a s e from the M i n i s t r y of Lands, Par k s and Housing. The a q u a t i c l a n d l e a s e or l i c e n s e i s r e q u i r e d f o r acce s s t o a farm s i t e ( t i d a l beach and ocean f l o o r ) . The terms of the 31 l e a s e / l i c e n s e r e q u i r e the operator to pay a rent f o r the e x c l u s i v e use of Crown la n d . I f the o p e r a t i o n i s l o c a t e d i n navigable waters, a n a v i g a t i o n compliance from Transport Canada i s r e q u i r e d to ensure no i n t e r f e r e n c e with n a v i g a t i o n . An aquaculture permit i s r e q u i r e d to be a f i s h farmer. This i s i s s u e d through the f e d e r a l Department of F i s h e r i e s and Oceans. Where salmon are processed beyond the c l e a n i n g stage, a F i s h P r o c e s s i n g Licence i s r e q u i r e d from the F i s h e r i e s Branch. I f e x p o r t i n g f i s h , the f e d e r a l Department of F i s h e r i e s and Oceans r e q u i r e s the operator o b t a i n a F i s h P r o c e s s i n g 16 R e g i s t r a t i o n C e r t i f i c a t e . Table 2.3.1 summarizes the r e q u i r e d permits and l i c e n s e s . For a more in-depth d i s c u s s i o n of the r e q u i r e d permits the reader i s r e f e r r e d to the BCMAF p u b l i c a t i o n Aquaculture i n  B.C. - G e t t i n g S t a r t e d , 1986 (or more recent v e r s i o n s ) . 32 TABLE 2.3.1 Summary of Required L i c e n s e s and Permits to Farm Salmon i n B.C. M u n i c i p a l P r o v i n c i a l F e d e r a l Zoning Compliance + Business l i c e n s e + R e g i s t r a t i o n + - R e g i s t r a r of Companies Aquaculture Management Plan + Business Plan + A q u a t i c Land Lease + - F o r e s t s and Lands P o l l u t i o n C o n t r o l Permit + -Waste Management Branch N a v i g a t i o n Compliance + -Tr a n s p o r t Canada Aquaculture Permit + -Department of F i s h e r i e s & Oceans Source: B.C. M i n i s t r y of A g r i c u l t u r e Aquaculture i n B.C. - G e t t i n g and F i s h e r i e s , S t a r t e d , 1986. 2 .4 BIOLOGICAL FACTORS RELEVANT TO SALMON FARMING IN B.C. 2 .4.1 Feed C o n v e r s i o n R a t i o The feed c o n v e r s i o n r a t i o (FCR) i s d e f i n e d as the r a t i o of the weight of food fed to the weight gained by the f i s h . The a c t u a l FCR i s a f u n c t i o n of feed management, metabolism, and the stage of p h y s i c a l development. The FCR i s d i s c u s s e d i n the i n d u s t r y as a cumulative or o v e r a l l r e l a t i o n s h i p and as a s p e c i f i c r e l a t i o n s h i p . The s p e c i f i c r e l a t i o n s h i p r e f e r s to an i n d i v i d u a l f i s h ' s a b i l i t y to convert feed to body weight, e i t h e r over a p e r i o d 33 such as a month, or over an entire production cycle. The s p e c i f i c FCR in this study i s a monthly FCR, which i s expected to be from 1.0:1 to 2.0:1 for each f i s h . The cumulative FCR considers the feed consumed by a l l f i s h , including those that have died or matured early at some point 17 during the production cycle of a given generation (class ). Since a l l feed i s not converted to l i v e or harvested f i s h weight, the term FCR i s incorrect. Over a given year or production cycle, the ratio i s the t o t a l mass of feed fed to the f i s h r e l a t i v e to the actual l i v e or harvested f i s h weight. This i s better termed the Total Feed to Fish Ratio (TFFR). The TFFR is a function of the mortality rate in two ways. F i r s t , a higher cumulative mortality rate should decrease the t o t a l mass of harvested f i s h from a respective generation of f i s h . The mass of harvested f i s h i s the denominator in the TFFR calculation, thus the TFFR increases as mass decreases (assuming to t a l feed consumption i s r e l a t i v e l y stable). Secondly, i f s i g n i f i c a n t m o r t a l i t i e s occur i n the l a t t e r part of the production cycle (with cumulative mortality unchanged), the t o t a l quantity of feed consumed w i l l increase, thus increasing the TFFR. The expected TFFR i s approximately 2:1 or greater. Smolt entering saltwater in 1986 would be referred to as the '86 generation or G. If a farm begins operations in 1986, the '86 G can also be referred to as the f i r s t year class of f i s h . 2 . 4 . 2 Growth Rate The growth rate of the salmon i s the i n t r i n s i c growth p o t e n t i a l , or the rate at which the salmon increase i n body weight. Salmon growth i s r e l a t e d to the g e n e t i c background of a f i s h , the fee d i n g regime and the environmental c o n d i t i o n s . These environmental c o n d i t i o n s i n c l u d e the s t o c k i n g d e n s i t y , ambient water temperature, s a l i n i t y and d i s s o l v e d oxygen. Sexual m o d i f i c a t i o n of the f i s h can a l s o a f f e c t the growth r a t e . a) S t o c k i n g D e n s i t y The s t o c k i n g d e n s i t y can a f f e c t the growth rate of f i s h through s t r e s s . A higher d e n s i t y can a f f e c t the DO l e v e l w i t h i n a net pen, which can l e a d to s t r e s s . The d e n s i t y can a l s o a f f e c t the e a t i n g h a b i t s of f i s h due to competition, thus a f f e c t i n g the growth r a t e . The maximum d e n s i t y i s l i m i t e d by the a v a i l a b i l i t y of oxygen. March and Walsh s t a t e the t y p i c a l 3 s t o c k i n g d e n s i t y as ranging from 5 to 15 kg/m . In Norway, the 3 s t o c k i n g d e n s i t y averages 20-25 kg/m (Bj <|>rndal) . Reasons f o r the higher s t o c k i n g d e n s i t y are b e l i e v e d to be the year-round c o o l e r water temperature, l e s s e n e r g e t i c c h a r a c t e r of the A t l a n t i c salmon compared to the P a c i f i c salmon, and the f a c t t h a t Norwegian farms are r e g u l a t e d i n o p e r a t i n g s i z e by pen volume (B j <(>rndal) . The optimal s t o c k i n g d e n s i t y f o r P a c i f i c salmon has not yet been determined. b) Temperature The water temperature can s i g n i f i c a n t l y a f f e c t the metabolism of the f i s h , and thus the growth of the f i s h . Water 35 temperature i s a l s o a f a c t o r i n development of a l g a l blooms, and can i n f l u e n c e the t o x i c i t y of p o l l u t a n t s ( i n d u s t r i a l , m u n i c i p a l , or a g r i c u l t u r a l ) (March and Walsh). Those farm s i t e s with poor water c i r c u l a t i o n can be more s u s c e p t i b l e to i n c r e a s e d t o x i c i t y of salmon farm waste products. c) S a l i n i t y Pure seawater has a s a l i n i t y of approximately 34 p a r t s per thousand (March and Walsh). The s a l i n i t y l e v e l can a f f e c t the s m o l t i f i c a t i o n process and the growth rate of the salmon. A freshwater lens can develop where there i s c o a s t a l freshwater r u n o f f . T h i s freshwater lens can be b e n e f i c i a l f o r smolt a c c l i m a t i z a t i o n , p e r m i t t i n g the smolts to choose the l e v e l of s a l i n i t y they are most comfortable a t , u n t i l - t h e y f i n a l l y move to the s a l t w a t e r zone. Ocean going salmonids l i v e i n a s a l i n i t y range of 25 to 34 p a r t s per thousand. I t has been recommended to choose a farm s i t e with a s a l i n i t y of greater than 25 p a r t s per thousand. d) D i s s o l v e d Oxygen and Water C i r c u l a t i o n Good water c i r c u l a t i o n , c u r r e n t , or water exchange i s necessary f o r the upkeep of high d i s s o l v e d oxygen (DO) l e v e l s . T y p i c a l sea water has 100 per cent s a t u r a t i o n . The water c i r c u l a t i o n i s a l s o r e q u i r e d to d i s p e r s e s o l i d , suspended and d i s s o l v e d waste m a t e r i a l . The c a r r y i n g c a p a c i t y of a grow-out o p e r a t i o n i s d i r e c t l y r e l a t e d to the water exchange rate such that the maximum c a p a c i t y of an o p e r a t i o n can be estimated based 36 on the f r e q u e n c y and d u r a t i o n of the minimum c u r r e n t (March and W a l s h ) . 2.4.3 M o r t a l i t y Causes In t h i s s t u d y m o r t a l i t i e s i n c l u d e s a l l f i s h l o s s e s . These l o s s e s can be due t o d i s e a s e s , p r e d a t i o n , n o n - s m o l t i f i c a t i o n , s t r e s s , and c a n n i b a l i s m . T h i s d i s c u s s i o n c o v e r s the problems wh i c h have or are b e l i e v e d t o have caused s i g n i f i c a n t l o s s e s . These problems i n c l u d e b a c t e r i a l k i d n e y d i s e a s e , v i b r i o s i s , f u r u n c u l o s i s , a l g a l blooms, p r e d a t i o n , and n o n - s m o l t i f i c a t i o n . a b a c t e r i a l K i d n e y D i s e a s e B a c t e r i a l k i d n e y d i s e a s e (BKD) i s one of the major problems a f f e c t i n g salmon i n B.C. (farmed and w i l d ) . I t can oc c u r i n salmon o f a l l ages, but seldom i n f i s h l e s s than 6 months o l d . M o r t a l i t y i n younger f i s h can r e s u l t i n a stea d y d a i l y l o s s such t h a t 50% or more o f the f i s h may d i e over a p e r i o d of weeks (March and Walsh; MacDougall and Gordon). BKD i s a s y s t e m i c i n f e c t i o n , a f f e c t i n g many t i s s u e s , w i t h the k i d n e y e s p e c i a l l y s u s c e p t i b l e . I n the e a r l y s t a g e s the k i d n e y has g r a y i s h w h i t e l e s i o n s beneath the c a p s u l e o f the k i d n e y on the v e n t r a l s i d e . The k i d n e y becomes s w o l l e n i n advanced s t a g e s and the number of l e s i o n s i n c r e a s e . L e s i o n s may a l s o o c c u r on the l i v e r and s p l e e n (March and W a l s h ) . BKD can be t r a n s m i t t e d h o r i z o n t a l l y (from f i s h t o f i s h ) or v e r t i c a l l y v i a the egg. I n f e c t i o n can oc c u r i n water t e m p e r a t u r e s r a n g i n g from 4°C t o 20.5°C. 37 b) V i b r i o s i s V i b r i o s i s i s a d i s e a s e which l e a d s t o haemorrhaging of the b l o o d v e s s e l s . The b l o o d v e s s e l s themselves are weakened by p a t h o g e n i c m i c r o o r g a n i s m s i n the b l o o d . O c c a s i o n a l l y , haemorrhage i n t o the eye i s the f i r s t s i g n of v i b r i o s i s . The b l o o d v e s s e l s may break down l e a d i n g t o development of l a r g e b l o o d y l e s i o n s under the s k i n . These l e s i o n s may break l e a v i n g open s o r e s . B l o o d v e s s e l s i n the g i l l s become so f r a g i l e t h a t b l e e d i n g can be i n d u c e d from o n l y s l i g h t p r e s s u r e on the operculum ( g i l l c o v e r ) . A l s o , p r e s s u r e on the b e l l y w i l l cause a d i s c h a r g e of b l o o d y m a t e r i a l from the anus (March and Wa l s h ) . A l l s p e c i e s of salmon are s u s c e p t i b l e , w i t h p i n k and chum b e i n g the most s u b j e c t t o i n f e c t i o n . Among B.C. salmon farms, v i b r i o s i s i s p r o b a b l y t r a n s m i t t e d o r a l l y , w i t h e v i d e n c e t h a t e x t e r n a l i n j u r y may a l s o p r o v i d e a c c e s s f o r i n f e c t i o n . V i b r i o s i s i s v e r y common i n younger f i s h , w i t h l o s s e s a p p a r e n t l y around 5% (MacDougall and Gordon). c) F u r u n c u l o s i s F u r u n c u l o s i s i s an i n f e c t i o n w hich may be e i t h e r a c t i v e or l a t e n t depending on the water t e m p e r a t u r e . I f the water t e m p e r a t u r e i s low, a l a t e n t i n f e c t i o n d e v e l o p s . A t h i g h t e m p e r a t u r e s , 20°C, s u s c e p t i b l e f i s h d e v e l o p f u r u n c u l o s i s i n 4 to 12 days (March and W a l s h ) . The b a c t e r i a produce enzymes whi c h break down p r o t e i n s i n the b l o o d v e s s e l w a l l s . The weakened v e s s e l s then l e a k b l o o d i n t o s u r r o u n d i n g t i s s u e which can l e a d t o the appearance of l e s i o n s or f u r u n c l e s . Death may 38 r e s u l t due to general s e p t i c e m i a before development of f u r u n c l e s . Transmission of f u r u n c u l o s i s i s o r a l l y . d)Plankton Blooms Plankton blooms are r e g u l a r occurrences i n c o a s t a l areas of B.C., e s p e c i a l l y more p r e v a l e n t i n waters with higher summer temperatures (20°C). Phytoplankton are the o n e - c e l l e d p l a n t s that provide the energy base, v i a ph o t o s y n t h e s i s , f o r marine food c h a i n s . Rapid i n c r e a s e s i n phytoplankton p o p u l a t i o n s , or "blooms", u s u a l l y occur i n the s p r i n g and f a l l when environmental c o n d i t i o n s are f a v o r a b l e . There are two sp e c i e s of plankton i n B.C. c o a s t a l waters which can cause s i g n i f i c a n t l o s s e s of pen-reared salmon. Chaetoceros convolutus i s a l a r g e diatom which u s u a l l y blooms i n l a t e summer and e a r l y f a l l . Chains of Chaetoceros p r o j e c t hollow spines l i n e d with p r o t r u d i n g , s m a l l e r s p i n e s . At high c o n c e n t r a t i o n s they can c l o g the g i l l l a m e l l a e of salmonids, p r e v e n t i n g adequate gas exchange and cause s u f f o c a t i o n . The spines may become lodged i n the g i l l l a m e l l a e , break o f f and cause haemorrhaging. This can a l s o cause death, or s t i m u l a t e mucus s e c r e t i o n which w i l l l e a d to s u f f o c a t i o n (March and Walsh; Kennedy et a l . 1978). The other important phytoplankton i s Heterosigma akashiwo which i s a small f l a g e l l a t e c o n t a i n i n g m u c u s - f i l l e d v e s i c l e s . Blooms of Heterosigma occur i n s p r i n g and e a r l y summer. High c o n c e n t r a t i o n s can p h y s i c a l l y c l o g the g i l l s , and mucus 39 s e c r e t i o n s from the p l a n k t o n can h e l p s u f f o c a t e the f i s h (March and Walsh). e) P r e d a t i o n P r e d a t o r y l o s s e s ( e.g. sea o t t e r s , b i r d s , s e a l s ) have been e s t i m a t e d t o be as h i g h as 30% of i n v e n t o r y . The a c t u a l l o s s due t o p r e d a t i o n i s v e r y d i f f i c u l t t o v e r i f y . Some farmers b e l i e v e these l o s s e s t o be s m a l l , c l a i m i n g up t o 5% of t o t a l i n v e n t o r y . Losses may a l s o occur due t o s t r e s s induce by the presence of a p r e d a t o r o u t s i d e of the netpen i t s e l f . f ) N o n - s m o l t i f i c a t i o n A number of farms have e x p e r i e n c e d problems w i t h p u r c h a s i n g smolts t h a t do not complete the s m o l t i f i c a t i o n stage of development. These, f i s h e s s e n t i a l l y do not grow and thus become a l o s s of p o t e n t i a l l y h a r v e s t e d f i s h , and an o p p o r t u n i t y c o s t i n terms of unused netpen volume. One smolt s u p p l i e r g uarantees a l l s m o l t s s o l d , such t h a t the c o s t of a l l non-smolts w i l l be refunded. An a d d i t i o n a l problem f o r the f u t u r e i s the impact t h a t f e c a l m a t e r i a l w i l l have on the water environment, the e f f e c t on f i s h growth and p o t e n t i a l problems f o r nearby r e s i d e n t s . 2.5 ECONOMIC VARIABLES RELEVANT TO SALMON FARMING IN B.C. A number of economic v a r i a b l e s are i m p o r t a n t to salmon f a r m i n g as t o how th e y may a f f e c t the p r o f i t a b i l i t y of the farm. These v a r i a b l e s i n c l u d e the feed p r i c e , i n t e r e s t r a t e , l a b o u r 40 wage r a t e , and product p r i c e . Each of these v a r i a b l e s i s d i s c u s s e d as to why or how they may a f f e c t the p r o f i t a b i l i t y of a salmon farm i n B.C. a) Feed P r i c e There are p r e s e n t l y two major concerns with respect to the feed p r i c e and i t s a f f e c t on salmon farming p r o f i t a b i l i t y . F i r s t , h e r r i n g meal i s the major c o n s t i t u e n t of processed f i s h feed used i n B.C. A p o t e n t i a l problem i n the f u t u r e i s the supply of h e r r i n g meal (Murphy) which i s expected to d e c l i n e . Such a d e c l i n e i n s u p p l i e s of h e r r i n g meal co u l d r e s u l t i n p r i c e i n c r e a s e s i n h e r r i n g meal, and hence an i n c r e a s e i n the p r i c e of processed f i s h feed. Secondly, feed has been estimated to represent 40 - 45 percent of the t o t a l p r o d u c t i o n cost of farmed salmon. This high p r o p o r t i o n of t o t a l p r o d u c t i o n cost implies t h a t changes i n the feed p r i c e may s i g n i f i c a n t l y a f f e c t the p r o f i t a b i l i t y of salmon farming. b) I n t e r e s t Rates The i n t e r e s t rate i s important to any business u t i l i z i n g borrowed funds, or share e q u i t y . Increases i n the prime lendi n g r a t e tends to i n c r e a s e the o p e r a t i n g c o s t . The in c r e a s e i n o p e r a t i n g costs may then a f f e c t the p r o f i t a b i l i t y per share, thus share value and/or d i v i d e n d s and i n f l u e n c e a s e l l i n g of shares. An inc r e a s e i n the prime l e n d i n g rate may not only i n c r e a s e o p e r a t i n g c o s t s , but may i n f l u e n c e some i n v e s t o r s to s e l l shares, t r a n s f e r r i n g the funds to investments with banking i n s t i t u t i o n s . 41 c) Labour The c o s t of labour i s p o t e n t i a l l y a s i g n i f i c a n t o p e r a t i n g c o s t . The labour wage rate w i l l l i k e l y change as labour wages throughout the B.C. c o a s t a l economy changes. Hence, the impact on p r o d u c t i o n c o s t s and p r o f i t a b i l i t y due to such changes are important f o r the farm operator to know. d) P r o d u c t P r i c e The product p r i c e r e c e i v e d by the farmer net of p r o c e s s i n g costs ranges throughout the year and i s a f f e c t e d by changes i n supply to the r e s p e c t i v e market. The supply of f r e s h salmon i n t o the North American market i s from the w i l d commercial f i s h e r i e s , and farmed salmon from C h i l e , Norway, Washington State and B r i t i s h Columbia. The w i l d caught f i s h tend to enter t h i s market from A p r i l through to the end of August. C h i l e a n farmed salmon comes i n from January through March. The Norwegian and Washington State f i s h supply the market at much the same time as the B.C. producers, from September through May. Whenever the w i l d f i s h and C h i l e a n f i s h enter the market, the p r i c e tends to decrease. I t i s a t y p i c a l supply and demand r e l a t i o n s h i p . I f the Norwegian producers have a l a r g e crop the market p r i c e again tends to decrease with respect to the q u a n t i t y s o l d i n the North American market. A c c o r d i n g to some p a r t i c i p a n t s the w i l d caught f i s h and C h i l e a n f i s h p r e s e n t l y have the most s i g n i f i c a n t impact on the p r i c e of f r e s h salmon i n the North American market. The p r i c e s f o r f i s h i n 1985 ranged from $3.09 to $9.92 per 42 kilogram. The f i s h are s o l d i n one of f i v e weight groups. These groups and the r e s p e c t i v e p r i c e ranges are l i s t e d i n Table 2.5.1. TABLE 2.5.1 Range of P r i c e s Paid f o r Farmed Salmon from B.C. During 1985. Weight P r i c e / k g Low High < .91 $ 3.09 $ 6.06 .91 - 1.81 $ 4.85 $ 7.16 1.82 - 2.72 $ 5.73 $ 8.71 2.73 - 4.08 $ 6.17 $ 9.37 > 4.09 $ 6.61 $ 9.92 Source: Sverre 1986 from Salm 1987. During the 1986-1987 p e r i o d , the demand f o r B.C. farmed salmon had been g r e a t e r than the supply, however, the e x p e c t a t i o n s f o r the f u t u r e are not the same. With continued growth i n annual p r o d u c t i o n i n B.C., Norway, C h i l e and S c o t l a n d , a p o i n t of s a t u r a t i o n i s expected at some time. Hence the importance of e s t i m a t i n g the impact of product p r i c e changes on the p r o f i t a b i l i t y of B.C. salmon farms. e ) P r o c e s s i n g Cost A l l grow-out salmon farmers must pay f o r the c o s t of p r o c e s s i n g f i s h . T h i s cost i n c l u d e s the c l e a n i n g , packaging and t r a n s p o r t of f i s h to the wholesaler or r e t a i l e r . P r o c e s s i n g must be done by a l i c e n s e d p r o c e s s i n g p l a n t . T h i s c o s t i s p a i d f o r out of revenues from the s a l e of f i s h . The t o t a l c ost of 43 p r o c e s s i n g f i s h i s about $1 per k i l o g r a m of f i s h . T h i s s t u d y makes no attempt to i n v e s t i g a t e the r e l a t i o n s h i p between the grow-out farmer and the p r o c e s s o r , f ) A d d i t i o n a l Concerns Some a d d i t i o n a l q u e s t i o n s t o c o n s i d e r t h a t a r e management r e l a t e d a r e : a) What are the f i n a n c i a l consequences of expanding farm p r o d u c t i o n a t d i f f e r e n t r a t e s ? b) What are the f i n a n c i a l consequences o f a l t e r n a t e m a r k e t i n g s c h e d u l e s , c o n s i d e r i n g h i g h e r p r i c e s f o r l a r g e r f i s h and r i s k s o f d i s e a s e s ? 44 CHAPTER 3 THE MODEL Thi s chapter c o n s i s t s of four s e c t i o n s . The f i r s t s e c t i o n d e s c r i b e s a number of f e a t u r e s that v a r i o u s i n d u s t r y people wish to have i n a salmon farming cost of p r o d u c t i o n model. This i s fol l o w e d by a d i s c u s s i o n of methods of m o d e l l i n g the cash flows of salmon farming, the method chosen f o r t h i s study, and a d e s c r i p t i o n of the model c o n s t r u c t e d . The second s e c t i o n focuses on the data and the methodology a p p l i e d i n the study. The t h i r d s e c t i o n d i s c u s s e s the e s t i m a t i o n of b i o l o g i c a l and op e r a t i n g c o s t s u t i l i z e d i n the study. The f i n a l s e c t i o n d i s c u s s e s the f i n a n c i a l statements used i n the study. 3.1 MODEL FEATURES 3.1 .1 D e s i r e d Model C h a r a c t e r i s t i c s Numerous p a r t i e s are i n t e r e s t e d i n e s t i m a t i n g the costs and return s of salmon farming i n B.C. D i s c u s s i o n s with the p r o v i n c i a l M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s , the B.C. Salmon Farmers' A s s o c i a t i o n , c h a r t e r e d banks, an insurance company, and the farmers themselves p e r m i t t e d an i d e n t i f i c a t i o n of i n f o r m a t i o n or a b i l i t i e s d e s i r e d from a co s t of production model. The i n f o r m a t i o n sought by these groups i n c l u d e s o v e r a l l c o s t s and r e t u r n s along with e s t i m a t i o n s on the e f f e c t on income due to changes i n s p e c i f i c v a r i a b l e s , and the v i a b i l i t y of salmon farming. L i s t e d below i s a summary of f e a t u r e s or o b j e c t i v e s that are considered d e s i r a b l e by the contacted 45 groups. a) To r e a l i s t i c a l l y s i m u l a t e the l i f e c y c l e t h r o u g h o u t the grow-out s t a g e of salmon f a r m i n g . b) I n s i m u l a t i n g the salmon l i f e c y c l e , t o c a p t u r e the main b i o l o g i c a l and economic v a r i a b l e s , and the r e l a t i o n s h i p s between th e s e v a r i a b l e s . c) To c o v e r a time p e r i o d w h i c h w i l l i n c l u d e t y p i c a l s t a g e s of farm growth. d) The model s h o u l d be f l e x i b l e t o p e r m i t v a r i o u s farm s i t u a t i o n s . e) The model s h o u l d be s i m p l e enough f o r use by e x t e n s i o n p e r s o n n e l . f ) The model s h o u l d comprise enough d e t a i l t h a t w i t h i n y e a r d e c i s i o n s can be made. g) The model s h o u l d be c a l c u l a t e d a t l e a s t monthly t o p e r m i t an adequate a n a l y s i s of cash f l o w s and w o r k i n g c a p i t a l . h) For a l l o f the above, the model must be c a p a b l e o f r e a l i s t i c a l l y r e p r e s e n t i n g salmon f a r m i n g i n B.C. 3.1.2 M o d e l l i n g Methods V a r i o u s methods e x i s t t o model and a n a l y z e a salmon farm. These i n c l u d e s i m u l a t i o n , m a t h e m a t i c a l programming ( l i n e a r and n o n - l i n e a r ) and s p r e a d s h e e t a n a l y s i s . The s i m u l a t i o n approach s h o u l d be dynamic and s t o c h a s t i c . The Monte C a r l o s i m u l a t i o n method i n v o l v e s the s o l u t i o n of m a t h e m a t i c a l problems by random s a m p l i n g from p r o b a b i l i t y d i s t r i b u t i o n s ( A n d e r s o n ) , thus t e s t i n g the randomness of 46 v a r i a b l e s . The randomness however i s dependent on the p r o b a b i l i t y d i s t r i b u t i o n of the r e s p e c t i v e v a r i a b l e s . For salmon farming, the p r o b a b i l i t y d i s t r i b u t i o n f o r the incidence of a l g a l blooms, d i s e a s e s , and other causes of f i s h l o s s are not known. Mathematical programming i s a management d e c i s i o n making t o o l which determines the optimal use of r e s o u r c e s . Sakalauskas u t i l i z e d such a method f o r beef ranch o p e r a t o r s . Data obtained from numerous ranches was used to d e f i n e a h y p o t h e t i c a l ranch. A m u l t i - p e r i o d l i n e a r programming model was c o n s t r u c t e d , supplemented by a matrix generator. Together they are capable of s o l v i n g budgeting and o p t i m i z a t i o n problems f o r beef ranchers. Other mathematical programming models i n a g r i c u l t u r a l economics maximize p r o f i t with r e s p e c t to a h i s t o r i c a l p r i c e c y c l e ( B e n t l e y and Shumway 1981), or the replacement value of an animal ( B e n t l e y , Waters, and Shumway 1976). Huntley uses two stages s i m i l a r to Sakalauskas to model Rainbow t r o u t i n On t a r i o . The f i r s t stage i s the p r o c e s s i n g of case study i n f o r m a t i o n with a microcomputer. In the second stage, the r e s u l t i n g i n f o r m a t i o n i s used i n a s i n g l e p e r i o d l i n e a r program to determine the set of resources that maximize p r o f i t s . The use of mathematical programming has i t s own d i f f i c u l t i e s f o r a study such as t h i s . The c o n s t r a i n t s for a l l a c t i v i t i e s i n salmon farming have not been determined, the c o n s t r a i n t s f o r the f u t u r e are not known, and fewer personnel 47 know how to i n t e r p r e t and use mathematical programming as an a n a l y t i c a l t o o l . Once more research i n t o the b i o l o g i c a l and economic aspects of salmon farming can provide t h i s i n f o r m a t i o n , the use of mathematical programming w i l l become more a p p r o p r i a t e . Spreadsheets d e r i v e v a l u e s from a given set of assumptions ( v a r i a b l e s ) and permit the a n a l y s i s of changes i n one or more v a r i a b l e s . Spreadsheets can be c o n s t r u c t e d i n BASIC language or commercially a v a i l a b l e software can be u t i l i z e d . The type of model which w i l l be used i n t h i s study i s a microcomputer based spreadsheet. The microcomputer i s becoming a u s e f u l management t o o l f o r extension people, business and banking p e r s o n n e l , and farmers. One of the s u b - o b j e c t i v e s of t h i s study i s t h a t the model w i l l have the a b i l i t y to be used by numerous groups of people, without becoming r e s t r i c t e d to s p e c i f i c groups (e.g. r e s e a r c h s t a f f ) . Use of a microcomputer spreadsheet i s a good medium f o r t h i s o b j e c t i v e . With accurate equations, the spreadsheet permits the e s t i m a t i o n of f u t u r e c o s t s and revenues. 3.1.3 Model Review Two spreadsheet models were c o n s t r u c t e d f o r the BCMAF by S. Combs and R.J. MacGregor. Other spreadsheet models have been produced by p r i v a t e c o n s u l t i n g companies such as Scantech Resources L i m i t e d , Entech Environmental C o n s u l t a n t s Inc., Envirocon L i m i t e d . Models have a l s o been c o n s t r u c t e d by R. Salm, and P f e i f f e r and J o r j a n i . MacGregor's model d e t a i l s annual o p e r a t i n g costs f o r machinery and equipment, loans, labour and pen requirements on a q u a r t e r l y b a s i s . A l l o p e r a t i n g c o s t s are summarized a n n u a l l y . The b i o l o g i c a l c y c l e i s based on a given schedule of f i s h weights, m o r t a l i t y and m a t u r i t y r a t e s . Revenues are determined from a t a b l e of p r i c e s corresponding to a number of f i s h weight groups. MacGregor emphasizes annual f i n a n c i a l statement, and input c o s t s per kilogram of f i s h . Combs' model i s s i m i l a r to MacGregor's with l e s s d e t a i l o machinery, equipment, and labour c o s t s . The m a j o r i t y of o p e r a t i n g c o s t s are assumed to be f i x e d q u a r t e r l y or annual c o s t s . The v a r i a b l e c o s t s , feed, and v e t e r i n a r y c o s t s , are a f u n c t i o n of the end of p e r i o d f i s h weight, number of f i s h and f i s h s a l e s . Combs' emphasis i s on q u a r t e r l y cash flow and a breakdown of input c o s t s . Salm's model u t i l i z e s annual cash flows to analyze farm v i a b i l i t y by means of net present v a l u e s and i n t e r n a l r a t e of r e t u r n . E n v i r o c o n L i m i t e d c o n s t r u c t e d a cash flow model to determine the v i a b i l i t y of v a r i o u s a q u a c u l t u r e e n t e r p r i s e s . The v i a b i l i t y i s based on cash flows over a 20 year p e r i o d , u s i n g the i n t e r n a l rate of r e t u r n as the investment measure. 18 Information p u b l i s h e d by Scantech Resources L i m i t e d i s The models c o n s t r u c t e d by p r i v a t e companies such as Scantech Resources, Envirocon L i m i t e d and Entech Environmental C o n s u l t a n t s have not been examined i n t h i s study. Comments are based on model assumptions and r e s u l t s p u b l i s h e d by these f i r m s . 49 based on t h e i r own model. The model o b j e c t i v e s seem s i m i l a r to Salm's, emphasizing investment e v a l u a t i o n as w e l l as p r o f i t a b i l i t y . The p r o f i t a b i l i t y measure i s the r e t u r n on e q u i t y and a break-even p r i c e , a f t e r a given term, f o r v a r i o u s s i z e s of farms. Another model c o n s t r u c t e d by Entech Environmental Consultants L i m i t e d uses monthly cash flows as w e l l as f i n a n c i a l accounting statements. T h i s model emphasizes cash flow, cost of production and investment a n a l y s i s from a c o r p o r a t e p o i n t of view, c o n s i d e r i n g f i n a n c i n g through loans and p u b l i c shares. P f e i f f e r and J o r j a n i obtained a data s e t from Rainbow t r o u t farmers i n O n t a r i o , c o n s t r u c t e d a model which c a l c u l a t e d annual f i n a n c i a l statements. F i n a n c i a l i n d i c a t o r r a t i o s and cash flows are then d e r i v e d from the f i n a n c i a l statements. The o b j e c t i v e s were to achieve a f i n a n c i a l f e a s i b i l i t y (performance) and investment a n a l y s i s , u s i n g accounting r a t i o s , net present v a l u a t i o n and the i n t e r n a l rate of r e t u r n . 3.1.4 Model For T h i s Study The model c o n s t r u c t e d f o r t h i s study captures the b i o l o g i c a l l i f e c y c l e of farmed salmon i n a s i m i l a r manner to MacGregor and Combs, v i a growth, m o r t a l i t y , and marketing 19 schedules . When marketing salmon, a problem with one p r i c e f o r each weight group, as used by Combs, MacGregor, and Salm, i s Although the growth and m o r t a l i t y f u n c t i o n s would be h e l p f u l to more a c c u r a t e l y model grow-out salmon farming cash flows, the task of determining these f u n c t i o n s f o r pen-reared salmon i s beyond the scope of t h i s study. 50 t h a t the p r i c e v a r i e s throughout the year. To deal with t h i s , the model uses a p r i c e t a b l e l i s t i n g p r i c e s f o r each month and weight group. Combs and MacGregor assume that a l l s a l e s take plac e at the end of a q u a r t e r l y p e r i o d . M o d e l l i n g on a monthly b a s i s , compared to q u a r t e r l y , improves the accuracy of revenue e s t i m a t i o n when a c t u a l h a r v e s t i n g of f i s h occurs p r i o r to the end of a p e r i o d . For example, a farm h a r v e s t i n g weeks p r i o r to the end of the p e r i o d , w i l l harvest f i s h weighing, on average, l e s s than the end of p e r i o d estimated weight. Thus, use of end of p e r i o d f i s h weights w i l l tend to overestimate the revenues. Hired labour i s c o n s i d e r e d a f i x e d annual c o s t , based on a given number of employees, with a d d i t i o n a l labour requirements v a r i a b l e . Labour requirements per month are c a l c u l a t e d f o r f e e d i n g and h a r v e s t i n g based on given f e e d i n g and h a r v e s t i n g r a t e s per person per hour. Combs and MacGregor d e a l with labour i n a s i m i l a r manner, ba s i n g the requirements on the mass of f i s h . A l l o p e r a t i n g c o s t s (machinery and equipment) are given d e t a i l e d c a l c u l a t i o n s monthly f o l l o w i n g MacGregor's method, to p r o v i d e in-depth cash flow i n f o r m a t i o n . The d e p r e c i a t i o n cost i s c a l c u l a t e d u s i n g the s t r a i g h t - l i n e method i n t h i s model. MacGregor and E n v i r o c o n a l s o use the s t r a i g h t - l i n e method. MacGregor's method of u t i l i z i n g a separate t a b l e to determine the economic c o s t of salmon p r o d u c t i o n aside from the cash flow budget i s used. 51 To more a c c u r a t e l y f o l l o w o p e r a t i n g c o s t s of v a r i o u s farm growth r a t e s , any combination of smolt purchases i n the f i r s t f i v e years can be accommodated. Any combination of equipment and machinery purchases can a l s o be accommodated, to b e t t e r f o l l o w the a s s e t changes of a farm over the f i r s t f i v e y e a rs. In a d d i t i o n , changes i n b i o l o g i c a l v a r i a b l e s from year to year can be t e s t e d f o r each of f i v e g e n e r a t i o n s . The input cost breakdown method from Combs i s used along with a monthly average c o s t c a l c u l a t i o n to determine a break-even p r i c e . For f i n a n c i a l accounting purposes, a number of f i n a n c i a l r a t i o s are used, based on annual f i n a n c i a l statements. For investment a n a l y s e s , the monthly cash flows are u t i l i z e d to determine the net present value and the i n t e r n a l rate of r e t u r n . The model i s s i m i l a r to Combs' i n t h a t i t i s run i n r e a l p r i c e s f o r t h i s study. The model does have the a b i l i t y to run i n nominal terms i f a user wishes to do so (See Appendix A ) . T h i s model does not s i m u l t a n e o u s l y determine c o s t s and r e t u r n s f o r both chinook and coho. I n i t i a l development allowed f o r t h i s , but l a c k of computer memory d i c t a t e d the c a l c u l a t i o n f o r one s p e c i e s . T h i s does not take away the f l e x i b i l i t y of the model, as the c o s t f o r two salmon s p e c i e s can be c a l c u l a t e d , o n l y i ndependently. Scantech's model appears to f u n c t i o n i n a s i m i l a r manner. Flow c h a r t s i n Figures 3.1.1 and 3.1.2 d e p i c t the l i n k s between d i f f e r e n t s e c t i o n s of the model used i n t h i s study. F i g u r e 3.1.1 summarizes the b i o l o g i c a l and economic i n f o r m a t i o n i n c o r p o r a t e d i n the model and Fig u r e 3.1.2 summarizes the cost and r e t u r n s a n a l y s i s . FIGURE 3.1.1 Flow Chart of the Biomass E s t i m a t i o n , and a Summarization of Operating, Overhead, Labour and Loan Costs i n the Computer Model. BIOLOGICAL INFORMATION VARIABLE INPUT LEVELS AND COSTS FOR EACH PERIOD CAPITAL & OPERATING COSTS OVERHEAD LOANS -# of M o r t a l i t i e s -# of M a t u r i t i e s -# of F i s h Sold -# of F i s h L e f t -Feed Consumption -Pen Requirements - D i v i n g (labour) •Fuel Costs •Repair Costs -Depr e c i a t i o n Costs -Int. Costs -Labour -Legal -Accounting -Lease & Permits -Insurance - P r i n c i p a l payments - I n t e r e s t payments BIOMASS FEED AND SMOLT COSTS LABOUR 53 FIGURE 3.1.2 Flow Chart of the D e r i v a t i o n of Costs and Returns, F i n a n c i a l and Investment Sstatement from the Biomass and Ope r a t i n g Costs i n the Computer Model RETURNS SUMMARY COSTS SUMMARY BIOMASS HARVEST PRODUCT PRICE GROSS REVENUE FEED AND SMOLT CAPITAL & OPERATING LABOUR TOTAL COSTS COST & RETURNS SUMMARY ANNUAL FINANCIAL STATEMENTS 1 INVENTORY SCHEDULE CASH FLOW INCOME STATEMENT BALANCE SHEET INVESTMENT ANALYSIS OVERHEAD LOANS 54 The changes or improvements over e x i s t i n g models, i n p a r t i c u l a r those c o n s t r u c t e d by Combs and MacGregor, are summarized as f o l l o w s : a) Monthly cash flow e s t i m a t i o n as compared to q u a r t e r l y ; b) Monthly f i s h p r i c e s and f i s h weights, which improve the e s t i m a t i o n of feed consumption and hence feed c o s t ; c) Permits m o d e l l i n g of v a r i o u s farm growth p a t t e r n s ; d) E s t i m a t e s changes i n cost as a farm s t a b i l i z e s over 5 y e a r s ; e) Permits the user to vary the c a p i t a l equipment composition over 5 y e a r s ; f) C a l c u l a t e s average cost of p r o d u c t i o n monthly. 3 . 1 . 5 Model Use The model c o n s t r u c t e d f o r t h i s study d e t a i l s o p e r a t i n g c o s t s monthly f o r f i v e y e ars. The model can be run f o r a p e r i o d g r e a t e r than f i v e years by assuming t h a t c o s t s from the f i f t h year are c o n s t a n t f o r a l l succeeding y e a r s . The maximum p e r i o d the model can be run f o r i s 20 y e a r s . For c o s t of p r o d u c t i o n a n a l y s i s , the minimum p e r i o d the model c o u l d be run f o r i s 24 months, assuming the pro d u c t i o n c y c l e i s l e s s than or equal to 24 months. I f the p r o d u c t i o n c y c l e i s up to 36 months, then the minimum p e r i o d the model could be run w i l l be 3 years. The model f o r t h i s study w i l l be used to analyze salmon farming as an investment; that i s , to d e a l with the o b j e c t i v e s of d e t e r m i n i n g farm v i a b i l i t y based on cash flows, and to determine the c r i t i c a l v a r i a b l e s . I t should be noted that the model i s f l e x i b l e , such that i t can be used f o r management 55 p u r p o s e s . Management d e c i s i o n s , w i t h r e s p e c t t o l o a n repayments, b o r r o w i n g c a p a c i t y , or bala n c e sheet a n a l y s i s , can be a i d e d by the i n f o r m a t i o n from f i n a n c i a l s t a t ements and r a t i o s w h i c h the model c a l c u l a t e s . To accommodate t h i s a b i l i t y , the model i n c l u d e s v a r i a b l e s f o r w o r k i n g c a p i t a l , term l o a n s , and o p e r a t i n g l o a n s f o r each y e a r . The reader i s r e f e r r e d t o Appendix A f o r d o c u m e n t a t i o n on use of the model. 3 . 2 METHODOLOGY Methods of d e t e r m i n i n g the c o s t s and r e t u r n s of salmon f a r m i n g i n B.C. i n c l u d e : 1. A wi d e s p r e a d c o s t s u r v e y among the salmon f a r m e r s ; 2. A study of a sample of r e p r e s e n t a t i v e salmon farms; 3. Case s t u d i e s o f s p e c i f i c salmon f a r m e r s . The f i r s t method r e q u i r e s the p a r t i c i p a t i o n of a l a r g e number of farms which have been i n o p e r a t i o n f o r a number of y e a r s . There i s a r e q u i r e m e n t o f two ye a r s of o p e r a t i o n t o re a c h the f i r s t h a r v e s t s t a g e ; however, o n l y 14 l i c e n s e d farms (7 a c c o r d i n g t o Lee) were o p e r a t i n g i n 1984, thus not f a c i l i t a t i n g a su r v e y o f c o s t s . A sample of r e p r e s e n t a t i v e farms would be p r o b l e m a t i c g i v e n the d i v e r s i t y among farms and the s m a l l number which have been i n o p e r a t i o n f o r a t l e a s t two y e a r s . Thus the second method i s d i f f i c u l t t o u t i l i z e . The t h i r d method o f case s t u d i e s i s a p p r o p r i a t e where few farms a c t u a l l y p o s s e s s the r e q u i r e d d a t a . However, t h e r e e x i s t s 56 the l i m i t a t i o n of having case farms that may not have i n f o r m a t i o n v a l i d f o r use on other farms. The d i v e r s i t y among farms, which i n c l u d e s d i f f e r e n t c a p i t a l a s s e t combinations, d i f f e r e n t b i o p h y s i c a l environmental c o n d i t i o n s , or d i f f e r e n t stages of development, may not permit f a i r comparisons between farms w i t h i n the i n d u s t r y . Since there are so few farms which have been i n op e r a t i o n f o r at l e a s t two ye a r s , t h i s study has adopted the case study approach. Information from the case s t u d i e s w i l l be used to d e f i n e a base case, thus r e f l e c t i n g the average s i t u a t i o n f o r the case farms s t u d i e d . A s e n s i t i v i t y a n a l y s i s of the p r o d u c t i o n v a r i a b l e s i s done with the base farm as the standard. The r e s u l t s i n the s e n s i t i v i t y a n a l y s i s are used to rank the v a r i a b l e s w i t h r e s p e c t to t h e i r impact on farm v i a b i l i t y . 3.2.1 Data C o l l e c t i o n The p a r t i c i p a t i n g farms were s e l e c t e d by the B.C. Salmon Farmers' A s s o c i a t i o n . I n i t i a l contact with the farms was done by the B.C. Salmon Farmers' A s s o c i a t i o n to v e r i f y w i l l i n g n e s s to p a r t i c i p a t e . Each farm was informed t h a t the c o s t of salmon p r o d u c t i o n f o r t h e i r farm w i l l be determined u s i n g a two year v e r s i o n of the computer model. Due to the s e l e c t i o n process, the data set can not be considered to be a r e p r e s e n t a t i v e sample of the i n d u s t r y . The data s e t f o r t h i s study i s d e f i n e d as the in f o r m a t i o n o b t a i n e d from e i g h t p a r t i c i p a t i n g farms, two p r o c e s s o r s , the B.C. Salmon Farmers' A s s o c i a t i o n , B.C. Research, and the BCMAF. 57 F i v e of the farms are l o c a t e d i n the Sunshine Coast ( S e c h e l t ) and south Vancouver I s l a n d (from Courtenay), and the remaining three i n the north Vancouver I s l a n d r e g i o n . The s i z e of the farms (with respect to expected p r o d u c t i o n i n 1987-88) ranges from 25 tonnes to over 300 tonnes. A l l of the s i t e managers/farm opera t o r s have some type of experience e i t h e r with r a i s i n g salmon i n B.C. or Norway, or i n a g r i c u l t u r e . A few a l s o have academic t r a i n i n g i n marine b i o l o g y , or b u s i n e s s . Half of the farms u t i l i z e d a microcomputer at the time that data was o b t a i n e d . A l l p a r t i c i p a t i n g farms f i r s t put smolts i n t o seawater i n 1985 or 1986. The o r i g i n a l p l a n was to o b t a i n data from farms t h a t had been o p e r a t i n g f o r at l e a s t two y e a r s , and h o p e f u l l y p o s s e s s i n g data on most of the b i o l o g i c a l and economic aspects on the grow-out of salmon. However, over time t h i s became u n r e a l i s t i c , as a number of the p a r t i c i p a t i n g farms possessed l i m i t e d d a ta. The l i m i t e d data i s due to farm o p e r a t i o n s having r e c e n t l y begun, and pr e s e n t salmon farming techniques which do not i n c l u d e frequent data c o l l e c t i o n necessary f o r determining average f i s h weight f o r d i f f e r e n t p e r i o d s . In f a c t , the sampling of f i s h causes s t r e s s and may i n f l u e n c e the f i s h ' s s u s c e p t i b i l i t y to d i s e a s e . Thus, i t becomes a q u e s t i o n of not knowing the s t a t u s of f i s h weight, h e a l t h , and numbers, or i n c r e a s i n g f i s h s t r e s s by sampling. To o b t a i n data, i n i t i a l c o ntact was made v i a telephone, at which time a meeting and i n t e r v i e w were arranged. When 58 p o s s i b l e , the i n t e r v i e w took place at the farm s i t e . A q u e s t i o n n a i r e was used with a l l p a r t i c i p a n t s to o b t a i n data i n the most e f f i c i e n t manner (see Appendix G). Interviews followed the format of the q u e s t i o n n a i r e . Data was o b t a i n e d from recorded m a t e r i a l on the farm, from o p e r a t o r s ' and employees' o p i n i o n s as to time r e q u i r e d to achieve s p e c i f i c t a s k s , and d e r i v e d from annual expense accounts where p o s s i b l e . While on the farms, a d d i t i o n a l questions p e r t a i n i n g to f i s h development and farm o p e r a t i o n s were asked. A t a b l e of monthly average f i s h p r i c e s and p r o c e s s i n g c o s t s was used to o b t a i n i n f o r m a t i o n from a number of p r o c e s s o r s . A d d i t i o n a l data and o p i n i o n s with r e s p e c t to the model were obtained from BCMAF, the B.C. Salmon Farmer's A s s o c i a t i o n , B.C. Research and the F a c u l t y of A g r i c u l t u r a l S c i e n c e s , UBC. The q u a l i t y of data v a r i e s as the managerial techniques used among the farmers v a r i e s . T h i s of course i s a l s o a f u n c t i o n of the a b i l i t i e s of the farm employees when i t i s t h e i r r e s p o n s i b i l i t y to r e c o r d i n f o r m a t i o n . The data o b t a i n e d f o r t h i s study i s of a p r o p r i e t a r y nature, and to m a i n t a i n c o n f i d e n t i a l i t y f o r the p a r t i c i p a t i n g p a r t i e s , no mention of farm e n t e r p r i s e s or l o c a t i o n s w i l l be made i n t h i s study; thus no s p e c i f i c source i s a t t r i b u t e d to any of the data l i s t e d i n the appendices. 59 3.3 BIOLOGICAL AND RETURNS ESTIMATIONS The next three s e c t i o n s d e s c r i b e how the model estimates biomass and o p e r a t i n g c o s t s . R e f e r r i n g to Figure 3.1.1, the f i r s t s e c t i o n d i s c u s s e d r e l a t e s to the b i o l o g i c a l i n f o r m a t i o n . The second s e c t i o n d e s c r i b e s d i r e c t c o s t s , which tend to be d e r i v e d from the b i o l o g i c a l e s t i m a t i o n s . The t h i r d s e c t i o n d e s c r i b e s i n d i r e c t c o s t s which r e l a t e to the other blocks p r e s e n t e d i n Figure 3.1.1, the c a p i t a l and o p e r a t i n g c o s t s , overhead c o s t s and lo a n s . 3.3.1 F i s h Growth, Feed and Marketing a) F i s h Number At the s t a r t of each g e n e r a t i o n of f i s h , the model s e t s the be g i n n i n g of p e r i o d (BOP) number of f i s h equal to the number of smolts purchased. The number of f i s h at the end of the p e r i o d (EOP) i s equal to the BOP number of f i s h l e s s any changes due to m o r t a l i t i e s , m a t u r i t i e s or marketing d u r i n g the p e r i o d . T h i s EOP number of f i s h i s c a r r i e d over to the f o l l o w i n g p e r i o d as the BOP number of f i s h . T h i s i s c a l c u l a t e d using equation 3.3.1. EOPF = BOPF - Mt - Jk - FS (3.3.1) whe re: EOPF = End of p e r i o d number of f i s h BOPF = Beginning of p e r i o d number of f i s h Mt = Number of m o r t a l i t i e s d u r i n g the p e r i o d Jk = Number of m a t u r i t i e s d u r i n g the p e r i o d FS = Number of f i s h s o l d d u r i n g the p e r i o d b) M o r t a l i t y The number of m o r t a l i t i e s i n each p e r i o d i s the beginning of the p e r i o d number of f i s h m u l t i p l i e d by the m o r t a l i t y rate f o r the p e r i o d . M o r t a l i t i e s i n c l u d e a l l causes of f i s h l o s s except f o r those that have been s o l d or that have matured e a r l y . The p e r i o d m o r t a l i t y rate i s equal to one l e s s the p e r i o d s u r v i v a l rate (from values entered by the model u s e r ) . The p e r i o d m o r t a l i t y i s c a l c u l a t e d u s i n g formula 3.3.2. Mt = (1 - S) x BOPF (3.3.2) whe re: Mt = Number of m o r t a l i t i e s f o r the p e r i o d S = S u r v i v a l rate f o r the p e r i o d - BOPF = Beginning of p e r i o d number of f i s h The m a t u r i t i e s or jacks (see footnote 15, p. 24) i s c a l c u l a t e d i n a s i m i l a r manner to m o r t a l i t i e s , from the maturation rate f o r each p e r i o d . Jacks are assumed to be a l o s s 20 i n t h i s study, that i s they are not marketed c ) F i s h Sold The number of f i s h s o l d i s the number of f i s h at the beginning of the p e r i o d m u l t i p l i e d by the value given i n the marketing schedule f o r the r e s p e c t i v e p e r i o d . The marketing value or rate i s a percentage of the beginning of p e r i o d i n v e n t o r y . The number of f i s h s o l d i s c a l c u l a t e d u s i n g equation 3.3.3. FS = BOPF x MR (3.3.3) where: FS = Number of f i s h s o l d i n the p e r i o d BOPF = Beginning of p e r i o d number of f i s h MR = Marketing rate T h i s i s because not a l l farms have attempted to s e l l j a c k s . 61 d) F i s h Weight The average weight of f i s h i s taken d i r e c t l y from the b i o l o g i c a l parameter schedule. The t o t a l weight i s c a l c u l a t e d f o l l o w i n g e q u a t i o n 3.3.4. TW = EOPF x WF (3.3.4) where: TW = T o t a l weight of f i s h at the end of p e r i o d EOPF = End of p e r i o d number of f i s h WF = Average weight of f i s h at the end of p e r i o d e) Feed Consumption The q u a n t i t y of feed consumed i n each p e r i o d i s equal to the product of the average number of f i s h d u r i n g the p e r i o d , the p e r i o d weight g a i n , and the p e r i o d FCR. The average number of f i s h i s d e f i n e d as the number of f i s h at the end of the pe r i o d , p l u s one h a l f of the number of f i s h s o l d , and the number of m o r t a l i t i e s and m a t u r i t i e s , f o r the p e r i o d , as i n equation FS + Mt + Jk ANF = EOPF + (3.3.5) 2 where: ANF = Average number of f i s h f o r the p e r i o d EOPF = End of p e r i o d number of f i s h FS = Number of f i s h s o l d i n the p e r i o d Mt = Number of m o r t a l i t i e s d u r i n g the p e r i o d Jk = Number of m a t u r i t i e s d u r i n g the p e r i o d The p e r i o d weight gain i s equal to the average weight of f i s h f o r the r e s p e c t i v e p e r i o d , l e s s the average weight of f i s h f o r the p r i o r p e r i o d . The p e r i o d feed consumption i s c a l c u l a t e d f o l l o w i n g e q u a t i o n 3.3.6. 62 PFC = WG x ANF x FCR (3.3.6) where: PFC = Period feed consumption WG = Weight ga i n d u r i n g the p e r i o d ANF = Average number of f i s h FCR = Feed c o n v e r s i o n r a t i o f o r the p e r i o d A problem i n e s t i m a t i n g feed consumption i n any p e r i o d i s the a c c u r a t e determination of feed consumed by f i s h that e i t h e r d i e or mature e a r l y at some time d u r i n g the p e r i o d . The average number of f i s h i n a p e r i o d i s u t i l i z e d i n t h i s model assuming m o r t a l i t i e s , m a t u r i t i e s ( j a c k s ) , and f i s h s a l e s are evenly d i s t r i b u t e d i n each p e r i o d . Combs and MacGregor assume that m o r t a l i t i e s and m a t u r i t i e s are ev e n l y d i s t r i b u t e d throughout each p e r i o d . f)Pen Requirements The number of pens r e q u i r e d f o r each p e r i o d i s equal to the t o t a l mass of the average number of f i s h at the end of the p e r i o d , d i v i d e d by the d e s i r e d pen volume c a p a c i t y . The t o t a l mass of f i s h i s the product of the average number of f i s h and the end of p e r i o d average f i s h weight. The d e s i r e d pen c a p a c i t y i s the product of the pen volume and the d e s i r e d maximum s t o c k i n g d e n s i t y . This i s c a l c u l a t e d a c c o r d i n g to equation 3.3.7. WF x ANF NPR = (3.3.7) PV x SD where: NPR = Number of pens r e q u i r e d per p e r i o d WF = Weight of f i s h at the end of p e r i o d ANF = Average number of f i s h d u r i n g the p e r i o d (see equation 3.3.5) PV = Pen volume SD = Stocking d e n s i t y 63 3.3.2 Market Returns a)Gross Weight of Marketed F i s h The mass of f i s h s o l d i s c a l c u l a t e d f o r each p e r i o d , with the r e s p e c t i v e d o l l a r value subsequently c a l c u l a t e d . For each of f i v e weight groups the model f i r s t c a l c u l a t e s the mean of the average EOP f i s h weight of the c u r r e n t p e r i o d and the p r i o r p e r i o d , a c c o r d i n g to equation 3.3.8. CWF + PWF MFW = (3.3.8) 2 where: MFW = Mean f i s h weight d u r i n g the p e r i o d CWF = Average weight of f i s h at the end of the curr e n t p e r i o d PWF = Average weight of f i s h at the end of the p r i o r p e r i o d This mean weight i s m u l t i p l i e d by the number of f i s h s o l d d u r i n g the p e r i o d to c a l c u l a t e the gross weight of f i s h s o l d . The mean weight of f i s h over two per i o d s i s used to prevent 21 o v e r e s t i m a t i o n of f i s h s a l e s . Combs and MacGregor assume a l l s a l e s take plac e at the end of each r e s p e c t i v e p e r i o d ( q u a r t e r ) . Equation 3.3.9 i s used to c a l c u l a t e the gross weight of f i s h s o l d . GFS = FS x MFW (3.3.9) where: GFS = Gross weight of f i s h s o l d during p e r i o d FS = Number of f i s h s o l d d u r i n g p e r i o d MFW = Mean f i s h weight f o r the p e r i o d Sales e s t i m a t i o n based overestimate the mass of f i s h s o l d at v a r i o u s p o i n t s d u r i n g on EOP s a l e s and EOP weight can s o l d when i n r e a l i t y the f i s h are a p e r i o d . 64 b)Net Value of Marketed F i s h The value of the mass of f i s h marketed each p e r i o d i s c a l c u l a t e d by f i r s t l o o k i n g f o r the average weight of f i s h marketed and the month i n which i t i s marketed. T h i s weight/month i n f o r m a t i o n i s used to f i n d the corresponding p r i c e from the market p r i c e t a b l e f o r f i s h . The value of the marketed f i s h i s then c a l c u l a t e d according to equ a t i o n 3.3.10. FV = GFS X (1 - OL) X FP ( 3 . 3 . 1 0 ) whe re: FV = F i s h value f o r the p e r i o d GFS = Gross weight of f i s h s o l d d u r i n g p e r i o d OL - O f f a l Loss from P r o c e s s i n g FP = F i s h p r i c e The p r o c e s s i n g c o s t s are c a l c u l a t e d by m u l t i p l y i n g the gross weight of f i s h s o l d by the r e s p e c t i v e p r o c e s s i n g cost (marketing, t r a n s p o r t , c l e a n i n g and packaging). 3.4 COST ESTIMATION - DIRECT OPERATING COSTS The o p e r a t i n g c o s t s are s p l i t up i n t o d i r e c t c o s t s , i n d i r e c t c o s t s , and non-cash c o s t s a l l of which are recorded i n a c o s t s and r e t u r n s summary. The d i r e c t c o s t s i n c l u d e the cost o f : a) purchasing smolts b) purchasing feed plus d e l i v e r y charges c) scuba tank f i l l s d) v e t e r i n a r i a n s e r v i c e s and/or medication e) pen and automatic feeder r e p a i r and maintenance f) labour ( f e e d i n g and ha r v e s t i n g ) 65 a) Smolts Smolts are u s u a l l y ordered i n September or October f o r d e l i v e r y between l a t e A p r i l and e a r l y June. The standard method of payment f o r smolts r e q u i r e s 15 to 25 percent of the t o t a l c o s t to be pa i d i n September or October, with the remainder due upon d e l i v e r y . T h i s study assumes 25 percent i s payable i n September f o r c o n s e r v a t i v e cost e s t i m a t i o n . b) Feed Feed and d e l i v e r y c o s t s are charged as 100 percent of the p e r i o d requirements. The cost of feed alone per p e r i o d i s c a l c u l a t e d from the q u a n t i t y of feed consumed (equation 3.3.6), m u l t i p l i e d by the given p r i c e per k i l o g r a m of feed. The co s t of feed d e l i v e r y per p e r i o d i s determined from the product of the q u a n t i t y of feed consumed and the d e l i v e r y charge per ki l o g r a m of feed. The t o t a l cost of feed per p e r i o d i s the sum of the feed c o s t and feed d e l i v e r y c o s t . c) Scuba Tank F i l l s The c o s t of scuba tank f i l l s per p e r i o d i s c a l c u l a t e d u s i n g e quation 3.4.1. NPO STC = X DF x CTF (3.4.1) NPPT whe re: STC = Scuba tank c o s t s per p e r i o d NPO = Number of pens occupied by the f i s h NPPT = Number of pens d i v e d per tank DF = D i v i n g frequency per month CTF = Cost per tank f i l l d) V e t e r i n a r y and N e d i c a l Costs The v e t e r i n a r y and medical c o s t s have not r e c e i v e d 66 c o n s i d e r a b l e a t t e n t i o n to date. Data e x i s t s which r e l a t e s medical c o s t s to the q u a n t i t y of f i s h harvested. No data was found to permit e s t i m a t i o n of medical c o s t s on a per mass of f i s h per month b a s i s . One reason f o r t h i s i s that the m a j o r i t y of farms u t i l i z e r e a c t i v e treatments ( t r e a t i n g when a problem occurs) i n c o n t r a s t to p r e v e n t a t i v e treatments ( t r e a t i n g to prevent p r o b l e m s ) ( L i t t l e ) . Since the t o t a l mass of har v e s t e d f i s h i s a f u n c t i o n of a number of b i o l o g i c a l v a r i a b l e s (e.g. m o r t a l i t y , f e e d i n g ) , i t w i l l l i k e l y be i n c o n s i s t e n t from one year to the next, u n t i l such time as the i n d u s t r y becomes s t a b l e . Despite t h i s disadvantage, the mass of h a r v e s t e d f i s h b a s i s i s used to c a l c u l a t e these c o s t s a c c o r d i n g to equation 3.4.2. THF VMCP - x VMCK (3.4.2) 12 whe re: VMCP = V e t e r i n a r y and medical c o s t per p e r i o d THF = Annual t o t a l weight of harvested f i s h VMCK = V e t e r i n a r y and medical c o s t per ki l o g r a m e)Pen and Automatic Feeder Repair and Maintenance The pen and feeder r e p a i r and maintenance c o s t s are c a l c u l a t e d from the annual r e p a i r and maintenance c o s t f o r pens and f e e d e r s , which i s dependent on the number of pens used each year (see equation 3.5.3). The number of pens r e q u i r e d i s i t s e l f dependent on the t o t a l biomass of f i s h i n a year and the s t o c k i n g d e n s i t y i n each pen. f ) L a b o u r Labour time i s u t i l i z e d on v a r i o u s t a s k s , i n c l u d i n g f e e d i n g , h a r v e s t i n g , and r e p a i r and maintenance of equipment. A s e p a r a t e t a b l e i s used t o c a l c u l a t e the l a b o u r r e q u i r e m e n t s f o r each p e r i o d , g i v e n f e e d i n g and h a r v e s t i n g r a t e s on a k i l o g r a m per hour per pe r s o n b a s i s . The f e e d i n g l a b o u r requirement i s de t e r m i n e d by d i v i d i n g the p e r i o d f e e d consumption by the g i v e n f e e d i n g r a t e u s i n g e q u a t i o n 3.4.3. PFC FLRQ = (3.4.3) LFR whe r e : FLRQ = F e e d i n g l a b o u r r e q u i r e m e n t PFC = P e r i o d f e e d consumption LFR = Labour f e e d i n g r a t e The h a r v e s t i n g l a b o u r r e q u i r e m e n t i s c a l c u l a t e d by d i v i d i n g the biomass of f i s h s o l d i n the p e r i o d by the h a r v e s t i n g r a t e u s i n g e q u a t i o n 3.4.4. PFH HLRQ = (3.4.4) LHR where: HLRQ = H a r v e s t l a b o u r r e q u i r e m e n t PFH = P e r i o d mass of f i s h h a r v e s t e d LHR = Labour h a r v e s t i n g r a t e Most farms employ a number of p e o p l e on a f u l l time b a s i s , t h e s e are c l a s s e d as " h i r e d l a b o u r " i n t h i s s t u d y . The model c a l c u l a t e s the t o t a l a v a i l a b l e h i r e d l a b o u r based on a s t a n d a r d 8 hour day, and a 5 day work week. In p e r i o d s where, a c c o r d i n g t o the l a b o u r f e e d i n g and h a r v e s t i n g r a t e s , not a l l of the a v a i l a b l e time i s used f o r f e e d i n g or h a r v e s t i n g , the remainder i s a c c o u n t e d f o r as a l a b o u r c o s t under i n d i r e c t c o s t s ( i . e . 68 overhead). During h a r v e s t i n g p e r i o d s , the a v a i l a b l e labour can be l e s s than the r e q u i r e d labour time ( f o r f e e d i n g and h a r v e s t i n g ) . In such s i t u a t i o n s , the r e q u i r e d a d d i t i o n a l labour i s a u t o m a t i c a l l y added and accounted f o r as a d i r e c t c o s t to f i s h p r o d u c t i o n under " c o n t r a c t l a b o u r " . An " a d d i t i o n a l labour c o s t " which comprises Unemployment Insurance premiums (U.I.C.), Canada Pension Plan (CP.P.) payments, Workmen's Compensation Board (W.C.B.) premiums, and other employer c o s t s such as h o l i d a y pay, i s i n c l u d e d i n the wage r a t e s . The d i r e c t labour c o s t per p e r i o d i s c a l c u l a t e d u s i n g e q u a t i o n 3.4.5. DLC = (FL + HL) x W + (CL x CW) (3.4.5) whe r e : DLC = D i r e c t labour c o s t FL = Feeding labour time HL = Harvest labour time W = H i r e d labour wage + a d d i t i o n a l labour cost CL = Contract labour time CW = C o n t r a c t labour wage + a d d i t i o n a l labour cost Note: I f FL + HL + r e q u i r e d overhead labour are l e s s than or equal to a v a i l a b l e " h i r e d labour", then CL i s equal to zero. 3.5 INDIRECT OPERATING AND NON-CASH COSTS I n d i r e c t c o s t s a r i s e from work t h a t i s b e n e f i c i a l to the farm as a whole, or not d i r e c t l y a t t r i b u t a b l e to salmon p r o d u c t i o n (eg. m o r t a l i t y insurance i s not a d i r e c t i n put i n salmon p r o d u c t i o n , but i s a necessary c o s t ) . Included i n the i n d i r e c t cash c o s t s are: 69 a) overhead ( i n c l u d i n g a d m i n i s t r a t i o n c o s t s ) b) machinery and equipment o p e r a t i n g costs c) overhead labour d) m o r t a l i t y insurance e) i n t e r e s t on o p e r a t i n g l o a n f) i n t e r e s t on term loans These c o s t s represent s e r v i c e s rendered throughout the year, and are e q u a l l y d i s t r i b u t e d over twelve months. Although some s e r v i c e s r e q u i r e a s i n g l e payment (and would be reported as such f o r cash flow purposes), the equal d i s t r i b u t i o n of the cost a v o i d s c r e a t i n g any b i a s i n the monthly average cost of p r o d u c t i o n c a l c u l a t i o n , a)Overhead The overhead c o s t s c o n s i s t of estimates of annual l e g a l and acc o u n t i n g f e e s , annual insurance ( f i r e and v e h i c u l a r ) , l i c e n s e s , annual u t i l i t y c o s t s (telephone, FAX, e l e c t r i c i t y ) , manager's s a l a r y (where a p p l i c a b l e ) , and land tax. Equation 3.5.1 i s a summary formula to c a l c u l a t e each of these overhead c o s t s per p e r i o d . EOH OVHC = (3.5.1) 12 whe re: OVHC = Overhead c o s t per p e r i o d EOH = Estimated or h i s t o r i c a l annual overhead c o s t b)Machinery and Equipment Operating Costs The o p e r a t i n g c o s t s of machinery and equipment (where equipment i s n o n - f u e l consuming machinery, t o o l s and b u i l d i n g s ) c o n s i s t s of d e p r e c i a t i o n , i n t e r e s t and o p e r a t i n g c o s t s . The o p e r a t i n g c o s t s f o r machinery i n c l u d e s r e p a i r and maintenance c o s t s p l u s f u e l c o s t s . The o p e r a t i n g cost f o r equipment i s the annual r e p a i r and maintenance c o s t . A l l c o s t s f o r machinery are f i r s t c a l c u l a t e d on a per hour b a s i s . The reason f o r t h i s i s because the f u e l consumption rate of a given machine i s stat e d or c a l c u l a t e d per hour. Since the o p e r a t i n g c o s t s are c a l c u l a t e d on an annual b a s i s , the monthly o p e r a t i n g costs are d e r i v e d by d i v i d i n g the annual c o s t by twelve. i ) M a c h i n e r y O p e r a t i n g Costs Machinery f u e l consumption ra t e s per hour, and h i s t o r i c a l or estimated data on average annual r e p a i r c o s t s and number of hours used per year, are necessary. The annual r e p a i r rate i s a percentage value of the i n i t i a l c o st of the machine. This percentage i s c a l c u l a t e d from the estimated or h i s t o r i c a l average annual r e p a i r cost d i v i d e d by the i n i t i a l c o s t , using e quation 3.5.2. ARC RR = (3.5.2) IC where: RR = Annual r e p a i r rate ARC = Annual r e p a i r c o s t IC = I n i t i a l c ost of machine 71 The o p e r a t i n g cost i s c a l c u l a t e d from the annual r e p a i r cost ( r e p a i r rate x i n i t i a l cost) d i v i d e d by the number of hours the machine i s used per year, plus the f u e l cost per hour. Equation 3.5.3 i s used to c a l c u l a t e the o p e r a t i n g cost per hour. (IC x RR) OPCH = + (FC x FR) (3.5.3) NHU where: OPCH = Operating cost per hour IC = I n i t i a l c o s t RR = Annual r e p a i r rate NHU = Number of hours machine i s used per year FC = Fuel c o s t per u n i t ( l i t r e ) FR = Fuel consumption rate per hour i i ) M a c h i n e r y D e p r e c i a t i o n Cost D e p r e c i a t i o n i s a decrease i n the market value of a machine due to wear, obsolescence, and age. I t i s c a l c u l a t e d i n t h i s study u s i n g the s t r a i g h t - l i n e method. T h i s method i s not a true economic r e p r e s e n t a t i o n of d e p r e c i a t i o n f o r those a s s e t s which tend to d e p r e c i a t e f a s t e r i n the f i r s t few years than i n l a t e r years. However, i t does provide a reasonable e s t i m a t i o n of 22 d e p r e c i a t i o n c o s t s over the e n t i r e l i f e of the a s s e t D e p r e c i a t i o n i s a non-cash c o s t s i n c e no cash i s a c t u a l l y p a i d . Equation 3.5.4 i s used to c a l c u l a t e the d e p r e c i a t i o n c o s t . For a more complete d i s c u s s i o n on d e p r e c i a t i o n , see M. Couture Farm Business Management, MacDonald Campus of M c G i l l U n i v e r s i t y , 1980, p. 66-70, and Boehlje and Eidman, Farm  Management, Toronto, John Wiley and Sons, 1984, p 139. 72 IC - SV DH = (3.5.4) LY x NHU whe re: DH = D e p r e c i a t i o n cost per hour IC = I n i t i a l c o s t SV = Salvage value LY = Expected l i f e of machine, i n years NHU = Number of hours machine i s used per year The salvage values and expected l i v e s of s t r u c t u r e s , equipment and machinery are based on the estimates and expe r i e n c e s of the p a r t i c i p a t i n g farmers. Some of the estimates are based on experience with s i m i l a r equipment i n Norway, i i i ) M a c h i n e r y I n t e r e s t Cost The i n t e r e s t cost f o r machinery and equipment i s the economic concept or o p p o r t u n i t y cost f o r the use of c a p i t a l i n v e s t e d i n a machine. The average investment i n a machine over i t s l i f e i s approximated by d i v i d i n g the sum of the i n i t i a l c o st and salvage value by 2 (Boehlje and Eidman). The h o u r l y i n t e r e s t c o s t i s c a l c u l a t e d u s i n g equation 3.5.5. (IC + SV)/2 ITC = x OIR (3.5.5) NHU where: ITC = I n t e r e s t c o s t per hour IC = I n i t i a l c o s t SV = Salvage value NHU = Number of hours machine i s used per year OIR = Oppor t u n i t y i n t e r e s t rate iv)Equipment Operating Costs The equipment o p e r a t i n g c o s t s are c a l c u l a t e d by the same method used f o r machinery d i f f e r i n g only i n that the number of 73 hours of use per year and f u e l consumption are not a p p l i c a b l e . These c o s t s are c a l c u l a t e d u sing equation 3.5.6. OPC - IC x RR (3.5.6) where: OPC = Operating cost of equipment IC =» I n i t i a l c o st RR = Repair rate c) Overhead labou r Labour c o s t s accounted f o r under i n d i r e c t c o s t s ( f o r r e p a i r and maintenance work) as d i s c u s s e d i n s e c t i o n 3.4f, page 67, are c a l c u l a t e d from the r e s i d u a l labour time a v a i l a b l e p l u s any r e p a i r and maintenance time given f o r a case farm, m u l t i p l i e d by the h i r e d labour wage r a t e . d) M o r t a l i t y Insurance M o r t a l i t y i nsurance i s purchased to p r o t e c t the farm a g a i n s t the l o s s of f i s h stock, f o r the market value of the f i s h , l e s s a d e d u c t i b l e of 10 to 30 percent of the l o s s . I f the farm o b t a i n s an o p e r a t i n g loan, the banks r e q u i r e m o r t a l i t y insurance on the f i s h (Borgen and Smith). The premiums are based on the expected harvest value of the f i s h at year end. The annual premium i s c a l c u l a t e d by m u l t i p l y i n g the expected h a r v e s t value at year end by the insurance r a t e (normally 4 to 5.5 p e r c e n t ) . e) I n t e r e s t on O p e r a t i n g Loan I t i s assumed t h a t a farm i s capable of o b t a i n i n g an o p e r a t i n g l o a n or o p e r a t i n g l i n e of c r e d i t . Operating loans from Canadian c h a r t e r e d banks can be o v e r l a p p i n g , t y p i c a l l y have a one year term, w i t h simple i n t e r e s t c a l c u l a t e d d a i l y , accrued monthly, and payments are r e q u i r e d monthly (Smith). At the end of the one year term, both the p r i n c i p a l and the accrued i n t e r e s t must be p a i d . The margin f o r o p e r a t i n g loans tends to be 50 percent of the expected value of f i s h , l e s s the d e d u c t i b l e on i n s u r a n c e . The i n t e r e s t r a t e i s u s u a l l y prime plus .5 - 1.5 percent (Borgen and Smith). The o p e r a t i n g loan i n t e r e s t c a l c u l a t i o n i s s i m p l i f i e d f o r use i n the model. In each p e r i o d , i f a cash flow d e f i c i t i s i n c u r r e d , the value of the d e f i c i t i s used as the loan amount. With the o p e r a t i n g loan i n t e r e s t r a t e given as an annual r a t e , the i n t e r e s t i s c a l c u l a t e d u s i n g e q u a t i o n 3.5.7. OTIR POLI = x Df (3.5.7) 12 where: POLI = P e r i o d o p e r a t i n g l o a n i n t e r e s t OTIR = Operating l o a n i n t e r e s t rate Df = Value of p e r i o d d e f i c i t E quation 3.5.7 does not c a l c u l a t e the i n t e r e s t on a d a i l y b a s i s . I t o n l y estimates the i n t e r e s t c o s t of borrowing money on an o p e r a t i n g loan monthly. Since the t r u e o p e r a t i n g i n t e r e s t i s c a l c u l a t e d d a i l y , equation 3.5.7 w i l l tend to overestimate the i n t e r e s t c o s t f o r each p e r i o d . f)Term Loan I n t e r e s t The payment on term loans i s c a l c u l a t e d based on a set a m o r t i z a t i o n p e r i o d from 5 to 10 years ( p o s s i b l y up to 2 0 ) , at a f i x e d l o a n r a t e . Term loans can be granted f o r equipment, pens and p o s s i b l y machines. The time p e r i o d of the term loan w i l l 75 depend on the a s s e t which i s purchased. A term lo a n from a Canadian c h a r t e r e d bank i s t y p i c a l l y r e f e r r e d to as a "semi-a n n u a l l y compounded" l o a n . Any payment i s a p p l i e d to the p r i n c i p a l owed. I n t e r e s t i s c a l c u l a t e d monthly on the remaining p r i n c i p a l and accrued independent of the p r i n c i p a l . Every s i x months the accrued i n t e r e s t i s added to the p r i n c i p a l owed (Smith). The model does not c a l c u l a t e i n t e r e s t i n the same manner as d e s c r i b e d above. The term loan i n t e r e s t i s c a l c u l a t e d q u a r t e r l y . The model can accommodate two term loans i n the f i r s t year, and one term loan i n years two through f i v e . The i n t e r e s t i s c a l c u l a t e d u s i n g equation 3.5.8. TLPI - P x (R/4) (3.5.8) where: TLPI = Term loan p e r i o d i n t e r e s t P = P r i n c i p a l owed at beginning of p e r i o d R = Annual i n t e r e s t rate Term loa n payment c a l c u l a t i o n s are d i s c u s s e d i n Appendix A. 3.6 FINANCIAL ESTIMATION To determine the economic f e a s i b i l i t y o f , and the c r i t i c a l v a r i a b l e s i n , salmon farming i n B.C., a number of f i n a n c i a l methods w i l l be u t i l i z e d . Farm performance and f i n a n c i a l f e a s i b i l i t y a n a l y s i s w i l l use a cash flow statement, an income statement, a balance sheet and a number of f i n a n c i a l r a t i o s . The economic v i a b i l i t y of salmon farming can not be based on the a n a l y s i s of a s i n g l e year's i n f o r m a t i o n . Due to the lack of h i s t o r i c a l i n f o r m a t i o n (ranging from one to three years) 76 i n f o r m a t i o n f o r f i v e years and more must be estimated based on a number of assumptions and u t i l i z i n g the computer model. Using h i s t o r i c a l and estimated i n f o r m a t i o n , over a p e r i o d of time, the economic v i a b i l i t y w i l l be judged, based on the r e s u l t s of net present values and the i n t e r n a l rate of r e t u r n . The c r i t i c a l v a r i a b l e s w i l l be determined u s i n g a s e n s i t i v i t y a n a l y s i s , a)Cash Flow A cash flow statement i s a summary of a l l cash t r a n s a c t i o n s f o r a business over a given p e r i o d of time. The time p e r i o d s can be any chosen frequency such as weekly, monthly, q u a r t e r l y or y e a r l y . I t does not deal with non cash c o s t s such as d e p r e c i a t i o n . Like most other types of farming, the l a r g e amounts of funds r e q u i r e d i n salmon farming make the cash flow budget an important f i n a n c i a l management t o o l . The cash flow i s concerned with "when" the expenses and revenues occur. T h i s i s important f o r p r o j e c t i o n purposes when c o n s i d e r i n g f u t u r e borrowing needs and repayment c a p a b i l i t i e s . Furthermore, i t p r o v i d e s a t o o l f o r continuous monitoring of a farm's performance. A comparison of running cash flows to p r o j e c t e d cash flows helps to v e r i f y the accuracy of the p r o j e c t e d v a l u e s , and can help i n i d e n t i f y i n g the need to a d j u s t borrowing requirements or repayment p l a n s . The cash flow summary i s used i n t h i s study to analyze the cash flows only, over a 20 year p e r i o d . A more d e t a i l e d a n a l y s i s of the cash flow summary w i l l not be presented i n t h i s study. 77 A l l d i r e c t c o s t s are accounted f o r i n the same manner as i n the c o s t s and returns summary (see cost e s t i m a t i o n s i n s e c t i o n 3.4). A number of i n d i r e c t c o s t s are d e a l t with d i f f e r e n t l y , to r e p r e s e n t the a c t u a l cash flow and not the economic c o s t . These cases are d i s c u s s e d below. The annual insurance are assumed due i n the f i r s t p e r i o d of the f i s c a l year. Although the premiums could be due any month of the year, they are due o n l y once per year, thus the above assumption does not seem u n r e a l i s t i c . The manager's s a l a r y , u t i l i t y c o s t s , and l e g a l and a c c o u n t i n g fees w i l l be e q u a l l y d i s t r i b u t e d over the year. The reasoning behind t h i s , with r e s p e c t to l e g a l and a c c o u n t i n g f e e s , i s that some farms employ these s e r v i c e s p e r i o d i c a l l y throughout a year, while others u t i l i z e these s e r v i c e s at the end of the f i s c a l year. To account f o r these c o s t s i n a c o n s i s t e n t manner f o r a l l farms, i t i s d i s t r i b u t e d e q u a l l y over a l l p e r i o d s i n the year. Land taxes are normally due i n many m u n i c i p a l i t i e s i n J u l y of each year, and w i l l be accounted f o r i n t h i s month f o r each y e a r . Personal withdrawals are not i n c l u d e d i n the c o s t and r e t u r n summaries, but are accounted f o r i n the cash flow budget. M o r t a l i t y insurance t y p i c a l l y r e q u i r e s 75 percent of the premium due at the beginning of the p r o d u c t i o n year, with the remainder due at year end. During the p r o d u c t i o n year, i f any s i g n i f i c a n t changes i n the market value of the f i s h takes p l a c e , the premiums w i l l be a d j u s t e d a c c o r d i n g l y , with any d i f f e r e n c e 78 p a i d or refunded at year end (Rogish). The r e q u i r e d d e p o s i t (25 percent of c o s t ) f o r smolt i s accounted f o r i n September, with the remainder due upon d e l i v e r y , assumed to be June 1. Each farm i s assumed to be r e g i s t e r e d as a company or corporate e n t i t y . The corporate tax rate f o r 1987, up u n t i l J u l y 1, 1988 i s 46%. F o l l o w i n g J u l y 1, 1988, the corporate tax rate w i l l be 45% (Revenue Canada 1988). I f net income i s l e s s than $200,000, the farm may q u a l i f y as a small b u s i n e s s , which i s s u b j e c t to a 23% tax r a t e . I f the net income i n p r i o r years has been n e g a t i v e , the f i r m i s permitted to sum the p r i o r net incomes with the present net income u n t i l a t a x a b l e net income r e s u l t s . T h i s can be done to a maximum of seven y e a r s . The f i s c a l year i s assumed to be June 1 to May 31. The tax i s c a l c u l a t e d based on each years net income and s u b t r a c t e d i n the month of A p r i l of the f o l l o w i n g year, b)Income Statement The income statement has the primary purpose of determining the flow of income generated by the farm f o r a given time p e r i o d , and subsequently computing the p r o f i t f o r t h a t p e r i o d . Changes i n i n v e n t o r y can be another source of income, which are captured by doing the income statement on the a c c r u a l b a s i s . The income statement i s done annually f o r t h i s study. The r e s u l t s from the income statement are used i n t h i s study to determine the net farm income. T h i s i s one of the c r i t e r i a which w i l l be used to compare the base farm with v a r i o u s s c e n a r i o s . Other r e s u l t s from the income statement w i l l not be d i s c u s s e d i n t h i s study. c ) B a l a n c e Sheet Since the investment a n a l y s i s i s based on net present v a l u e s , the balance sheet i s not d i s c u s s e d d i r e c t l y i n t h i s study. However, the balance sheet i s important f o r management purposes, and f o r investment and f i n a n c i a l management a n a l y s i s , such as d e t e r m i n a t i o n of borrowing a b i l i t i e s , or business performance, thus a d i s c u s s i o n i s i n c l u d e d i n t h i s chapter. The balance sheet provides a f i n a n c i a l p i c t u r e of the farm at a p o i n t i n time. Where the income statement c a l c u l a t e s a flow of income, the balance sheet measures the stock of a s s e t s h e l d by the farm. Everything i n p o s s e s s i o n of the farm i s l i s t e d as an a s s e t . A l l a s s e t s are claimed by someone, be i t the o p e r a t o r or some other person or f i r m . The c l a i m i s based on the source of funds used to a c q u i r e the a s s e t . I f p r e v i o u s y e a r s ' e a r n i n g s were used, the o p e r a t o r has a c l a i m to the a s s e t ; i f the funds were borrowed, say from a bank, then the bank has a c l a i m on the a s s e t . The balance sheet i s based on the fundamental accounting e q u a t i o n : A s s e t s « L i a b i l i t i e s + Owners E q u i t y (net worth). Hence the balance sheet i s a l s o known as the net worth statement. I t provides data which can i n d i c a t e the solvency and l i q u i d i t y p o s i t i o n s of the farm. Solvency r e f e r s to a farm's a b i l i t y to meet i t s f i n a n c i a l o b l i g a t i o n s over a long p e r i o d of time. L i q u i d i t y r e f l e c t s the short-term debt-paying a b i l i t y of the farm, f o c u s i n g on the r a t i o between cash and almost cash a s s e t s on one s i d e , and c u r r e n t l y maturing or soon to be met o b l i g a t i o n s on the other. A l l i n t e r m e d i a t e term a s s e t s ( i . e . machinery and equipment) are accounted f o r as net of accumulated d e p r e c i a t i o n , on a cost b a s i s . The market value of these c a p i t a l items i s d i f f i c u l t to c o n f i r m . A l l f i s h are accounted f o r on a market value b a s i s from the i n v e n t o r y t a b l e . T h i s seems f a i r because any f i s h s o l d should o b t a i n the market p r i c e i f the i n v e n t o r y were to be l i q u i d a t e d . In the i n v e n t o r y t a b l e the opening number of f i s h f o r each year i s the begi n n i n g of p e r i o d number of f i s h i n June f o r the r e s p e c t i v e g e n e r a t i o n of f i s h . The value per weight of f i s h i s the p r i c e from the p r i c e t a b l e corresponding to the average weight of f i s h at the beginning of the year. For smolts, the value i s the c o s t of smolts. The c l o s i n g number of f i s h f o r each year i s the end of p e r i o d number of f i s h f o r May of the r e s p e c t i v e g e n e r a t i o n of f i s h . S u p p l i e s at year end are co n s i d e r e d to be the f o l l o w i n g month's (June) supply of feed at c o s t . Any other s u p p l i e s are c o n s i d e r e d n e g l i g i b l e . d ) F i n a n c i a l R a t i o s F i n a n c i a l i n d i c a t o r r a t i o s can be important to analyze a f i r m ' s performance, f i n a n c i a l p o s i t i o n f o r investment purposes, or to see how the f i r m ' s s t a t u s changes over time. For these reasons the f o l l o w i n g r a t i o s have been i n c l u d e d i n the model, and are d i s c u s s e d below. The f i n a n c i a l i n d i c a t o r r a t i o s used i n the model are grouped a c c o r d i n g to the aspect of business they r e f l e c t upon. The r e s u l t s from t h i s i n f o r m a t i o n are not used i n t h i s study. The f o l l o w i n g d i s c u s s i o n summarizes the r a t i o s the model c a l c u l a t e s . The groups covered by the study are: i ) L i q u i d i t y i i ) S o l v e n c y i i i ) P r o f i t a b i l i t y A set of g u i d e l i n e s have been set f o r the i n d i c a t o r r a t i o s with r e s p e c t to other areas of a g r i c u l t u r e . Due to the newness of the salmon farming i n d u s t r y , and the l a c k of data, no s e t of g u i d e l i n e s as yet e x i s t s f o r salmon farming. L i q u i d i t y Working C a p i t a l i s the amount of c u r r e n t a s s e t s not s u p p l i e d by c u r r e n t c r e d i t o r s . I t i s a measure of l i q u i d i t y i n a b s o l u t e terms, c a l c u l a t e d as a d i f f e r e n c e rather than a r a t i o . Working c a p i t a l i s d e f i n e d i n equation 3.6.1. 82 WC = CtA - CtL (3.6.1) where: WC = Working c a p i t a l CtA = Current a s s e t s CtL = Current l i a b i l i t i e s The working c a p i t a l i s considered important f o r salmon farmers. Due to d i f f i c u l t i e s i n r a i s i n g borrowed funds, the working c a p i t a l may be the l a s t source of o p e r a t i n g funds, short of s e l l i n g a s s e t s . The Current R a t i o i s working c a p i t a l expressed as a r a t i o r a t her than a d i f f e r e n c e , and i s d e f i n e d i n equation 3.6.2. CtA CR = (3.6.2) CtL where: CR = Current r a t i o CtA = Current a s s e t s CtL = Current l i a b i l i t i e s The Current Ratio i s a measure of a farm's a b i l i t y to generate cash q u i c k l y enough to meet cash o b l i g a t i o n s due w i t h i n the next year. T h i s r a t i o i s important to c o n s i d e r because a farm may be s o l v e n t i n terms of t o t a l a s s e t s and l i a b i l i t i e s , but may have 23 d i f f i c u l t y i n meeting the short term debts The Debt S t r u c t u r e Ratio i s the t h i r d l i q u i d i t y i n d i c a t o r u t i l i z e d i n t h i s study. This r a t i o i s d e f i n e d i n equation 3.6.3. With respect to most other a g r i c u l t u r a l e n t e r p r i s e s i n g e n e r a l , P f e i f f e r and J o r j a n i s t a t e that a c u r r e n t r a t i o of 1.25-1.75 i s sought by a g r i c u l t u r a l l e n d e r s ; while van B l o k l a n d s t a t e s 2 as good, but .5 or a l a r g e value such as 10 or g r e a t e r i s bad. 83 CtL DS = (3.6.3) TL whe r e : DS = Debt s t r u c t u r e r a t i o CtL = Current l i a b i l i t i e s TL = T o t a l l i a b i l i t i e s I t i s the percentage of t o t a l l i a b i l i t i e s t h a t are from c u r r e n t l i a b i l i t i e s . S olvency Net Worth i s an absolute measure of solvency and i s o f t e n r e f e r r e d to as owner's e q u i t y . I t i s d e f i n e d i n equation 3.6.4. Net Worth = A s s e t s - L i a b i l i t i e s (3.6.4) The D e b t / E q u i t y R a t i o or Leverage R a t i o , r e f e r s to the borrowing c a p a c i t y of a farm. The r a t i o i n d i c a t e s the p r o p o r t i o n of debt involvement of a farm, r e p r e s e n t i n g the c r e d i t o r s c o n t r i b u t i o n to c a p i t a l . T h i s r a t i o i s c a l c u l a t e d a c c o r d i n g to equation 3.6.5. TD D/E = (3.6.5) NW whe re: D/E = Debt/equity r a t i o TD = T o t a l debt NW = Net worth A r a t i o l e s s than one i n d i c a t e s that the farm's net worth exceeds i t s amount of debts. There i s a t r a d e o f f between a higher Debt E q u i t y r a t i o and r i s k . From the owner's p o i n t of view, a higher r a t e of r e t u r n can be earned when the leverage r a t i o i s h i g h e r , but the r i s k i s g r e a t e r . A higher r a t i o can be s u s t a i n e d as long as there i s repayment c a p a b i l i t y (Couture). The Debt/Asset R a t i o i s a r e l a t i v e measure i n d i c a t i n g how 84 v u l n e r a b l e a farm i s to d e c l i n i n g a s s e t values . I t i s c a l c u l a t e d f o l l o w i n g equation 3.6.6. TD D/A = (3.6.6) TA where: D/A = Debt/asset r a t i o TD = T o t a l debt TA = T o t a l a s s e t s P r o f i t a b i l i t y C o n s i d e r i n g the p r o f i t a b i l i t y of a farm on the b a s i s of p r o f i t alone i s not an unbiased i n d i c a t o r owing to the d i f f e r e n c e s i n farm s i z e and type. For t h i s reason, p r o f i t i s measured i n r e l a t i o n to the value of a s s e t s or e q u i t y that was employed to produce i t . The Return on A s s e t s (ROA) i s the d o l l a r r e t u r n to assets r e g a r d l e s s of who s u p p l i e d the a s s e t s ( c r e d i t o r s or farmer). Net farm income (NFI) i s used i n c a l c u l a t i n g the ROA according to equation 3.6.7. NFI + i n t - FW ROA - (3.6.7) BTA where: NFI = Net farm income Int = I n t e r e s t FW = Family withdrawals BTA = Beginning t o t a l a s s e t s Since some a s s e t s may have been s u p p l i e d by c r e d i t o r s , an adjustment to net farm income must be made. This adjustment i s Based on other a g r i c u l t u r a l e n t e r p r i s e s i n gene r a l , van Blo k l a n d s t a t e s that the debt/asset r a t i o should not be greater than .3. I f the r a t i o i s grea t e r than .4 the farm i s i n a bad f i n a n c i a l p o s i t i o n , and i f grea t e r than 1, the farm i s broke. 85 the a d d i t i o n of any i n t e r e s t expense to net farm income. A l s o , i f no f a m i l y w i t h d r a w a l s were s u b t r a c t e d i n the c a l c u l a t i o n of net farm income, then the w i t h d r a w a l s or an o p p o r t u n i t y c o s t f o r f a m i l y l a b o u r must be s u b t r a c t e d . The R e t u r n on E q u i t y (ROE) may be more i m p o r t a n t as i t measures the r e t u r n t o the farmer's (or i n v e s t o r s ' ) p e r s o n a l or e q u i t y c a p i t a l i n v e s t e d i n the farm. The ROE i s c a l c u l a t e d u s i n g e q u a t i o n 3.6.8. NFI - FW ROE - (3.6.8) BTA whe r e : NFI = Net farm income FW = F a m i l y w i t h d r a w a l s BTA = B e g i n n i n g t o t a l a s s e t s A number of per u n i t (kg) r a t i o s are a l s o c a l c u l a t e d f o r a s s e t s , i n t e r e s t , d e p r e c i a t i o n , and net income. These w i l l g i v e an a n a l y s t a p i c t u r e o f how the farm i s p r o g r e s s i n g over t i m e . 3.7 INVESTMENT ANALYSIS The purpose of the economic p r o f i t a b i l i t y a n a l y s i s or i n v e s t m e n t a n a l y s i s i s t o determine i f the i n v e s t m e n t c o n t r i b u t e s t o the l o n g - t e r m p r o f i t s of the farm, and t o p e r m i t a comparison t o o t h e r i n v e s t m e n t s . Once the cash f l o w s have been d e t e r m i n e d , a number of c r i t e r i a can be u t i l i z e d t o d e c i d e i f the p r o j e c t s h o u l d be a c c e p t e d or r e j e c t e d . The more common methods a r e the payback p e r i o d , the net p r e s e n t v a l u e , and the i n t e r n a l r a t e of r e t u r n . a)Payback P e r i o d The payback period i s a simple method, measuring the time required for the expected after-tax cash inflows to equal the o r i g i n a l cash outlay. As a measure of economic p r o f i t a b i l i t y , the payback period has a number of shortcomings. F i r s t i t ignores the timing of the cash proceeds prior to the payback period, that i s , a d o l l a r today i s worth more than a d o l l a r tomorrow. Secondly, the payback period ignores the income earned following recovery of the i n i t i a l c a p i t a l outlay. A t h i r d problem i s the c r i t e r i o n for project acceptance or r e j e c t i o n . The basis of choosing a project with a payback period of three years over one with a payback period of six years i s somewhat a r b i t r a r y . In simple terms, the payback period i s presented in equation 3.7.1 (Boehlje and Eidman). 0 PP - (3.7.1) I whe re: PP = Payback period 0 = Original outlay 1 = Average annual after-tax cash inflows It may be true that shorter payback periods are more desirable, for such reasons as reducing risk to an investor. However, few projects have annual after-tax cash inflows or earnings that are consistent from year to year. For example, where projects A and B have an i n i t i a l outlay of $10,000 and an expected l i f e of 6 years: P r o j e c t A Time A f t e r t a x cash flow 2000 5000 3000 2000 2000 2000 P r o j e c t B A f t e r t a x cash flow 0 1500 3500 5000 6000 6000 P r o j e c t A has a payback p e r i o d of 3 y e a r s , P r o j e c t B a payback p e r i o d of 4 y e a r s . Note, that f o l l o w i n g recovery of i n i t i a l o u t l a y s , P r o j e c t B has p r o f i t s of $12,000 whereas P r o j e c t A has p r o f i t s of $6,000. T h i s s i t u a t i o n i s one of the problems with b a s i n g investment d e c i s i o n s on the payback p e r i o d . The payback p e r i o d i s not t r u l y a measure of p r o f i t a b i l i t y , but one of l i q u i d i t y . I t i s widely used as a quick r u l e of thumb, but i t can le a d to i n c o r r e c t c o n c l u s i o n s , and should be used with c a u t i o n . b)Net Present Value T h i s c r i t e r i o n and the i n t e r n a l rate of r e t u r n give e x p l i c i t c o n s i d e r a t i o n to the time value of money. T h i s a n a l y s i s a l s o c o n s i d e r s the o p p o r t u n i t y c o s t of committing funds to a p r o j e c t , or the co s t of c a p i t a l f o r a f i r m or i n v e s t o r . The net present value (NPV) or d i s c o u n t e d cash flow, i s the sum of a l l f u t u r e cash flows generated by a p r o j e c t , with each cash flow d i s c o u n t e d back to the prese n t . With the e x i s t e n c e of i n t e r e s t , a given amount of money can be i n v e s t e d to earn a r e t u r n , and hence i s more v a l u a b l e than the same amount some time i n the f u t u r e . A d i s c o u n t i n g of cash flows r e f l e c t s the o p p o r t u n i t y c o s t of money. T h i s converts money flows over a f u t u r e p e r i o d i n t o a 88 s i n g l e c u r r e n t v a l u e , p e r m i t t i n g a comparison of investments. A p o s i t i v e NPV i n d i c a t e s t hat cash flows from an investment are i n excess of the funds r e q u i r e d to f i n a n c e i t . The c a l c u l a t i o n of NPV i s s t a t e d i n equation 3.7.2 ( L u s z t i g and Schwab). n Ct NPV = Z - 0 (3.7.2) T=0 (1 + R/K) where: NPV = Net present value Ct = Net a f t e r - t a x cash flow i n p e r i o d T R = Annual d i s c o u n t rate K = Number of p e r i o d s per year T = Number of p e r i o d s from zero to n 0 = O r i g i n a l o u t l a y T y p i c a l l y the NPV i s c a l c u l a t e d f o r a f i r m c o n s i d e r i n g the purchase of new equipment, where T would represent the expected l i f e of the equipment. The NPV c a l c u l a t i o n f o r t h i s study i n v o l v e s the investment f o r the e n t i r e o p e r a t i o n , the measurement p e r i o d f o r the NPV c a l c u l a t i o n i s not the expected l i f e of the farm per se, but a reasonable term over which an i n v e s t o r expects to determine the worthiness of the investment, which i s set at 10 y e a r s , c ) I n t e r n a l Rate o f Return The i n t e r n a l r a t e of r e t u r n (IRR) i s the d i s c o u n t rate that equates the present value of the cash flows of an investment to the cash o u t l a y s . I t i s a l s o the e f f e c t i v e y i e l d of an investment. T y p i c a l l y a "hurdle r a t e " i s used when e v a l u a t i n g an investment with the IRR c r i t e r i o n . I f a s p e c i f i c y i e l d or rate of r e t u r n ( f o r example the average cost of c a p i t a l ) i s expected by an i n v e s t o r , say 10 percent, then i f the IRR i s 89 g r e a t e r than t h i s hurdle r a t e , the investment b e t t e r s the e x p e c t a t i o n s . I f the hurdle rate i s g r e a t e r than the IRR, then the investment does not produce a r a t e of r e t u r n that i s expected. 90 CHAPTER 4 THE BASE FARM AND RESULTS The f i r s t p art of t h i s chapter d i s c u s s e s the v a r i a b l e input c o s t s , v a r i a b l e input l e v e l s , and the f i x e d input c o s t s f o r the case farms s t u d i e d , and the r e s p e c t i v e costs and l e v e l s used f o r the base farm. The second and t h i r d p a r t s focus on the mean c o s t s of purchasing and o p e r a t i n g the equipment and machinery f o r the case farms s t u d i e d , and the c o s t s used f o r the base salmon farm. The f o u r t h p a r t d e a l s w i t h the f i n a n c i a l and investment a n a l y s i s of the base farm. F i n a l l y a number of s c e n a r i o s are examined i n the s e n s i t i v i t y a n a l y s i s . 4.1 INPUT COSTS AND LEVELS 4.1.1 V a r i a b l e Input Costs The g a s o l i n e cost throughout 1987-88 ranged from $.399 to $.519 per l i t r e . The bulk f u e l c o s t f o r farms i n the lower mainland i s $.359 as of February 1988 ( E a s t - C h i l l i w a c k C o o p e r a t i v e 1988). The c o s t of $.42 per l i t r e i s used f o r the base farm. Smolt cost ranged from $.60 to $.80 each during the p e r i o d of 1986-87. In 1985, some smolts were purchased f o r as low as $.55. The p r i c e seems dependent on the demand r e l a t i v e to sup p l y . The smolt p r i c e used f o r the base farm i s $.75 per smolt. Lack of egg supply from 1987 to 1988 suggests the same 91 or h i g h e r p r i c e s f o r f u t u r e y e a r s . The wage p a i d t o f u l l - t i m e h i r e d l a b o u r ranged from $6.82 per hour ($1200 per month) to $10 per hour ($1800 per month). For p a r t - t i m e or c o n t r a c t l a b o u r the wage p a i d ranged from $6 t o $7 per hour. The base farm uses $9 per hour and $6.50 per hour f o r h i r e d and c o n t r a c t l a b o u r r e s p e c t i v e l y . The c o s t o f f i s h f e e d ranged from a low o f $.94/kg f o r p e l l e t i z e d f e e d , t o a h i g h of $1.20/kg of e x t r u d e d f e e d . The base farm uses the c o s t of $1.20/kg f o r f e e d s i n c e the m a j o r i t y of case farms use e x t r u d e d f e e d . The t r a n s p o r t c o s t ranged from $.04/kg t o $.12/kg, depending on the l o c a t i o n from the m a n u f a c t u r e r . A c o s t of $.09/kg f o r a d e l i v e r y charge i s used f o r the base farm. The t o t a l p r o c e s s i n g c o s t has been e s t i m a t e d by one farmer t o be $2.20/kg of f i s h ( d r e s s e d ) . Another farmer e s t i m a t e d a c o s t of $.77/kg f o r p r o c e s s i n g and $.26/kg f o r t r a n s p o r t to the p l a n t . The m a r k e t i n g c o s t i s a p p r o x i m a t e l y 8 p e r c e n t o f the Free-on-Board (FOB) p r i c e , which i s about $.36/kg. A l t h o u g h the model s e p a r a t e s the p r o c e s s i n g c o s t i n t o c l e a n i n g and packaging, a number of p a r t i c i p a n t s s t a t e d a t o t a l p r o c e s s i n g c o s t . The p r o c e s s i n g c o s t d a t a are l i s t e d i n Appendix E. The mean c o s t of p r o c e s s i n g and g e t t i n g the product t o the u l t i m a t e buyer i s $2.32/kg, h a v i n g a range from $2.16/kg t o $2.49/kg. For the base farm the p r o c e s s i n g c o s t has been b r o k e n down t o m a r k e t i n g , c l e a n i n g , and p a c k a g i n g , w i t h c o s t s of $.75/kg, $.75/kg and $.35/kg, r e s p e c t i v e l y . The t r a n s p o r t c o s t used i s $.45/kg, 92 which i n c l u d e s t r a n s p o r t to the p r o c e s s o r at $.20/kg, and approximately $.25/kg f o r export t r a n s p o r t to the u l t i m a t e buyer The present average c o s t of r e f i l l i n g an 80 cubic f o o t scuba tank i s $5. The c o s t f o r v e t e r i n a r y s e r v i c e s and medication i s d i f f i c u l t to estimate due to l i t t l e f i n a n c i a l e s t i m a t i o n w i t h i n the i n d u s t r y . Norwegian i n f o r m a t i o n suggests that the v e t e r i n a r y and medical c o s t s are 1 percent of o p e r a t i n g c o s t s , or $.08/kg of harvested f i s h ( L i t t l e 1988). The Norwegian i n f o r m a t i o n i s c o n s i s t e n t with i n f o r m a t i o n provided by the data s e t . One farm estimates medical c o s t s at $.08/kg of ha r v e s t e d f i s h . A second farm s u p p l i e d e s t i m a t e s on medical c o s t s and expected mass of f i s h to be h a r v e s t e d , which a l s o r e s u l t e d i n $.08/kg. A t h i r d farm p a i d approximately $.02/kg of h a r v e s t e d f i s h f o r v e t e r i n a r y and medical c o s t s over one year. An approximation from L i t t l e i s t h a t the q u a n t i t y two years ago was about 2 kg per tonne of harvested f i s h , one year ago i t was about 1.5 kg per tonne, and l a s t year i t was 1 kg per tonne. At an average pharmaceutical c o s t of $80/kg, the cost i s approximately $.08/kg of f i s h . C o n s i d e r i n g t h i s i n f o r m a t i o n , the r a t e of $.08 per kilogram of h a r v e s t e d f i s h i s used f o r the base farm. Table 4.1.1 summarizes the v a r i a b l e i n p u t s costs a s s i g n e d 2 5 These estimates were c o n s i d e r e d reasonable by A. A r c h i b a l d , B.C. Salmon Farmers' A s s o c i a t i o n , and personnel at BCMAF. 93 to the base farm. TABLE 4.1.1 V a r i a b l e Costs A s s i g n e d to the Base Farm. Item U n i t C o s t / U n i t G a s o l i n e l i t r e $0. 42 Smolt each $0. 75 Labour wage - h i r e d per hour $9. 00 Labour wage - c o n t r a c t per hour $6. 50 Feed per kg $1. 20 Feed - d e l i v e r y per kg $0. 09 P r o c e s s i n g c o s t s : - C l e a n i n g per kg $0. 75 - Packaging per kg $0. 75 - Transport per kg $0. 45 - Marketing per kg $0. 35 Scuba tank f i l l per tank $5. 00 V e t e r i n a r y / m e d i c a l per kg $0. 08 4.1.2 V a r i a b l e Input L e v e l s The number of employees f o r the base farm i s set at two. A d d i t i o n a l labour requirements w i l l be s u p p l i e d by c o n t r a c t l a b o u r . The f e e d i n g rate i s an estimate from the mass of f i s h that one person could tend to u s i n g automatic f e e d e r s , which i s 250 kg/hr/person. Combs uses a r a t e of 60 tonnes per month or approximately 233 kg/hr/person. The h a r v e s t i n g rate i s a mean from the case farms, at 185 kg/hr/person. T h i s i s determined by t a k i n g the q u o t i e n t of the mass of f i s h h a rvested, and the t o t a l number of man-hours r e q u i r e d to harvest them. MacGregor uses 8.09 p e r c e n t of the wage rate as an 94 a d d i t i o n a l employer c o s t ( f o r CP.P., U . I . C , and W.C.B. premiums). In 1985 and 1986, the Farm Income Insurance Branch of BCMAF s t a t e d the value of 8.1 percent of the wage rate as the a d d i t i o n a l employer c o s t i n strawberry c o s t of pr o d u c t i o n models. The C P . P . and U.I.C. premiums f o r the given pay s c a l e s , $1,200 and $1,800 per month, are approximately 4.8 and 4.9% of gross pay r e s p e c t i v e l y . W.C.B. premiums are 3% of pay. These three premiums summed i s about 7.9% of gross pay. The rate of 8.1% i s used f o r the base farm. The volume of the smolt pen i s based on the dimensions of 6m x 12m x 10m deep. I t i s assumed that lm of depth i s above the water, thus the maximum pen volume i s 648 m3. The volume of standard pens i s based on the pen dimensions of 12m x 12m x 12m deep, with lm of net above the water. The standard pen volume i s 1,584 m3. The d i v i n g frequency ranges from once a day to once a week throughout a year. An average d i v i n g frequency i s estimated to be once every three days or 10 d i v e s per month, and i s used f o r the base farm. I f d i v e s are not performed to r e t r i e v e "morts", the frequency w i l l be s i g n i f i c a n t l y l e s s . The m a j o r i t y of d i v e r s s t a t e d t h a t one tank would s u f f i c e to d i v e i n t o 12 standard s i z e d pens. T h i s however, was a f t e r becoming experienced at d i v i n g w i t h i n a netpen. For the base farm, the From Revenue Canada t a b l e s the C P . P . and U.I.C. ded u c t i o n s , at $1,200 per month, are $17.86 and $39.49 r e s p e c t i v e l y ; at $1,800 per month, these deductions are $28.66 and $59.22 r e s p e c t i v e l y . 95 number of pens dived per 80 cubic f o o t tank i s set at ten. The expected o f f a l l o s s f o r the base farm i s 15 percent, s l i g h t l y h igher than e s t i m a t i o n s from the B.C. Salmon Farmers' A s s o c i a t i o n of 12 to 14 percent. Although the range f o r m o r t a l i t y insurance rate i s from 4 to 5.5 percent, the base farm i s g i v e n the rate of 5 percent. T h i s i s presuming that the farm i s new, and the operators have some experience i n management or p r a c t i c a l f i s h farming, or both. In a d d i t i o n , the model does not decrease the premium rate i f no c l a i m s are made on the p o l i c y . Thus, 5 percent i s assumed to be an average over the 20 year l i f e of the base farm. The l e v e l s of the v a r i a b l e i n p u t s d i s c u s s e d are summarized i n Table 4.1.2. TABLE 4.1.2 V a r i a b l e Input L e v e l s Assigned to the Base Farm. I tem Rate Number Number of h i r e d employees number 2 Feeding rate kg f i s h / h r 250 H a r v e s t i n g rate kg f i s h / h r 185 A d d i t i o n a l labour cost % of^wage 8.1% Pen volume - smolt _ i m 648 Pen volume - standard m3 1,584 D i v i n g frequency per month 10 Pens d i v e d per tank pen/tank 10 O f f a l l o s s % 15% M o r t a l i t y insurance rate % 5% 4.1.3 F i x e d Input Costs Most farms purchase insurance f o r v e h i c l e s and f i r e i n s u r a n c e f o r b u i l d i n g s . The insurance cost i n c l u d e s premiums f o r f i r e p r o t e c t i o n of b u i l d i n g s and a c c i d e n t insurance f o r v e h i c l e s . The range of insurance costs from the data s e t i s from $1,300 to 4% of a s s e t v a l u e . Combs uses a f i x e d value of $2,000 per qua r t e r f o r a farm producing 300 tonnes a n n u a l l y . The insurance cost of $5,000 i s assigned to the base farm. The annual f o r e s h o r e l e a s e and l i c e n s e c osts are based on f i n f i s h / a q u a c u l t u r e zone v a l u e s as l i s t e d i n Table 4.1.3. I t has been estimated by the BCMAF that one hectare of f o r e s h o r e i s r e q u i r e d to produce 25 tonnes of f i s h a n n u a l l y . Based on t h i s e s t i m a t e , the base farm w i l l r e q u i r e f i v e h ectares of f o r e s h o r e . Zone A w i l l be used f o r the base farm having an annual c o s t of $5,450 f o r both f o r e s h o r e l e a s e and l i c e n s e . A d d i t i o n a l c o s t s i n c l u d e the B.C. Salmon Farmers' A s s o c i a t i o n f e e s , p o s s i b l e r e g i o n a l a s s o c i a t i o n fees and other miscellaneous fees such as those f o r a d i v i n g c l u b . To account f o r these c o s t s , the base farm has a t o t a l annual l e a s e c o s t of $8,000. 97 TABLE 4.1.3 F i n f i s h / A q u a c u l t u r e Zone Values i n B.C. Zone Lease License Value Rent Rent Zone 9 ($/ha) ($/ha) ($/ha) A - Georgia S t r a i t , S e c h e l t 7031 563 527 B - S.W. Vancouver I s l a n d 6375 510 478 C - N. Vancouver I s l a n d 5156 413 387 D - P r i n c e Rupert 4875 390 365 E - C e n t r a l coast 4325 346 324 Source: R. Deegan 1988. aSee Appendix F f o r a map of the zones. The range of cost f o r communications (telephone, FAX) i s from $3,000 to $4,200 per year. A number of farmers s t a t e d that they expect the c o s t of communications to i n c r e a s e as annual p r o d u c t i o n i n c r e a s e s , due to i n c r e a s e d communication between the farm operator, p r o c e s s o r s , s u p p l i e r s , and buyers. The base farm i s a ssigned the c o s t of $10,000 f o r u t i l i t i e s , which i n c l u d e s e l e c t r i c i t y and communications. The l e g a l c o s t s tend to be h i g h e s t i n the s t a r t up stages of a farm, to d e a l with the i n i t i a l r e g i s t r a t i o n and i n c o r p o r a t i o n of the farm. Accounting f e e s are expected to be s t a b l e from year to year. Legal and ac c o u n t i n g fees range from $1,000 to $50,000 per year. The $50,000 i s co n s i d e r e d e x c e p t i o n a l f o r the base farm. The base farm i s assigned the annual cost of $5,000 f o r l e g a l and ac c o u n t i n g s e r v i c e s . Table 4.1.4 summarizes the f i x e d c o s t l e v e l s f o r the Base Farm. 98 TABLE 4.1.4 Fix e d Input Costs Assigned to the Base Farm. Item Frequency Cost Insurance Annual $5,000 Lease/permits Annual $8,000 U t i l i t i e s Annual $10,000 Leg a l and acc o u n t i n g Annual $5,000 4.2 CAPITAL INVESTMENT COSTS - MACHINERY The machinery d i s c u s s e d i n t h i s s e c t i o n are boats, outboard motors, g e n e r a t o r s , t r u c k s , and water pumps. The data set i s d i s c u s s e d with respect to each machine. A l l machinery d i s c u s s i o n s end with the a cost of each machine assigned to the base farm. The s e c t i o n i s summarized with a t a b l e of machinery c o s t i n f o r m a t i o n and values assigned to the base farm. Boats A l l of the farms i n the data s e t have at l e a s t two v e s s e l s . T h i s combination can be a s k i f f and boat, or a small boat (12-16') and a l a r g e r boat (greater than 16'). One farm uses f l o a t i n g barges i n s t e a d of a s k i f f , as w e l l as one small and one l a r g e boat. The s m a l l e r boats tend to be used to get around the farm s i t e or move l i g h t equipment, while the l a r g e r boats or s k i f f s are t y p i c a l l y used to move nets, pens, and/or t r a n s p o r t 99 p e r s o n n e l . The small boat c o s t range from the data set i s from $1,400 to $4,200, with a mean of $2,350. This range i s a t t r i b u t e d to the manufacturer or the age of the boat i t s e l f . The cost of a s k i f f ranges from $3,000 to $8,000 with a mean of $5,500. The s i g n i f i c a n t range i s due to the s i z e of the s i z e of the s k i f f . The l a r g e boats range i n co s t from $13,140 to $19,000, with a mean of $16,070. The c h a r a c t e r i s t i c s of these v e s s e l s vary from 16 f e e t to 21 f e e t with a cab and crane. Three major reasons are apparent i n e x p l a i n i n g the d i f f e r e n c e s i n the co s t of t h i s v e s s e l . The f i r s t i s the q u a n t i t y of a d d i t i o n a l equipment; the second i s whether the v e s s e l i s new or used; and the t h i r d i s the l e n g t h of the v e s s e l . The use of l a r g e boats appears l i m i t e d to those farms with production l e v e l s g r e a t e r than 200 tonnes. The base farm i s assig n e d one s k i f f and one medium s i z e d boat. The higher c o s t f o r both v e s s e l s i s used, at $8,000 and $4,200 r e s p e c t i v e l y . The co s t of $8,000 f o r a s k i f f should a l s o be e q u i v a l e n t to the cost of a second boat should a farm choose not to use a s k i f f . Outboard Motors The outboard motors range i n s i z e from 7 to 150 horsepower (hp). The smaller outboard motors (7-35 hp) tend to be used w i t h a small boat, whereas the l a r g e r motors tend to be used wi t h a moderate to l a r g e boat or s k i f f . Two of the smal l e r outboard motors were 7 and 10 hp, while 100 other farms used motors up to 35 hp f o r the s m a l l e r boat. Among the l a r g e outboard motors, the 35 to 60 hp motors were t y p i c a l l y purchased new, while those i n the range of 70 to 115 hp tend to be purchased used. The cost of a new 90 hp outboard motor i s approximately $3,500. C o n s i d e r i n g the v e s s e l s assigned to the base farm, the accompanying outboard motors assigned are two i n the 35 to 70 hp range. Under the assumption that the base farm purchases outboard motors new, the assigned c o s t f o r the outboard motors f o r the base farm i s $3,000 each. From the data s e t , the mean annual use of outboard motors i s 800 hours, consuming 7.1 l i t r e s of g a s o l i n e per hour, and have an annual r e p a i r cost of 12.5% of i n i t i a l motor c o s t . Generator A number of farms i n the data set have no d i r e c t e l e c t r i c i t y , but are l o c a t e d such that employees can leave the s i t e at the end of each work day. The owners equip those farms with a small generator to recharge b a t t e r i e s ( f o r the automatic f e e d e r s ) , power feed mixers, and p o s s i b l y f o r l i g h t s and a c c e s s o r i e s f o r employees remaining on the s i t e . I s o l a t e d farms i n the data set u t i l i z e l a r g e r g e n e r a t o r s , or more than one generator, a c o s t range from $8,800 to $18,000, with a maximum use per year of 8,760 hours. From the data s e t , farms that have road access, or are i n c l o s e p r o x i m i t y to land, owner residence or a townsite, have generator c o s t s ranging from $850 to $2,800. I t i s estimated 101 that a farm with moderate i s o l a t i o n uses a generator 1,100 hours per year, and those almost not i s o l a t e d , use a generator f o r 105 hours per year. The average f u e l consumption rate f o r a generator producing 6,000 watts i s 3.1 l i t r e s per hour, with an estimated r e p a i r c o s t of 1% of i n i t i a l c o s t . The base farm i s assumed moderately i s o l a t e d ( l o c a t e d c l o s e to a road or p i e r ) , i s assigned a generator cost of $2,800, and w i l l be used f o r 1,100 hours per year. Trucks Trucks purchased f o r farm use were e i t h e r near new or approximately ten years of age. Those t r u c k s purchased new or near new ranged i n c o s t from $9,600 to $11,600, having a mean of $10,570. The range of c o s t s f o r used t r u c k s i s from $1,700 to $3,200, with a mean of $2,157. The mean annual r e p a i r rate f o r the newer v e h i c l e s i s 7.5 percent of i n i t i a l c o s t , and f o r the o l d e r v e h i c l e s , i t i s 86 percent of i n i t i a l c o s t . The base farm i s assigned a truck c o s t i n g $11,600. Fuel consumption r a t e s f o r t r u c k s v a r i e d from 15 1/hr f o r newer t r u c k s to 22.7 1/hr f o r o l d e r t r u c k s . The mean i s 18.9 1/hr, which w i l l be used f o r the base farm s i n c e i t i s assumed to be a new v e h i c l e . The number of hours used per year i s dependent on the l o c a t i o n of the farm, ranging from 150 hours to 288. For the base farm, the truck i s assumed to be used 200 hours per year, based on the l o c a t i o n of moderate i s o l a t i o n , and w i l l have an annual r e p a i r r a t e of 7.5% of the i n i t i a l c o s t . 102 Water Pump The water pump i s used predominantly to c l e a n nets, and o c c a s i o n a l l y , to pump water from o u t s i d e the net pen e n c l o s u r e i n t o the pen to i n c r e a s e the d i s s o l v e d oxygen (DO) l e v e l when net f o u l i n g causes acute DO problems. The range f o r the c o s t of a water pump i s from $400 to $1,500, with a mean cost of $863. No c o n s i s t e n t reason i s a t t r i b u t e d to t h i s range i n c o s t . The hig h e r c o s t of a water pump at $1,500 i s assigned to the base farm. Table 4.2.1 summarizes the c o s t of machinery assigned to the base farm. TABLE 4.2.1 Mean Cost and Range of Costs f o r Machinery and the Values A s s i g n e d to the Base Farm. Data Set Base Farm Range Mean Assigned Low High Cost Value I tem ($) ($) ($) ($) Boat 1,400 4,200 2, 350 4,200 Boat - l a r g e 13,140 19,000 16,070 n/a S k i f f 3,000 8,000 5,500 8,000 Outboard <35hp 1, 300 1,400 1,350 n/a Outboard >=35hp 1,500 5,000 3,040 3,000 Gene r a t o r 850 2,800 1,810 2,800 Truck 1,700 11,600 4,386 11,600 Water pump 400 1,500 863 1,500 From the data se t , the mean number of hours each machine i s used per year, the g r e a t e r f u e l consumption r a t e , and the mean 103 annual r e p a i r r a t e s (which are given as a per c e n t of i n i t i a l c o s t ) are summarized i n Table 4.2.2. With the e x c e p t i o n of v a l u e s f o r the outboard motors l e s s than 35 hp, a l l other values are assigned to the base farm. TABLE 4.2.2 Annual Machinery Use, Fuel Consumption and Repair Rates. Annual Fu e l Repair Use Consumption Rate Item (hours) (1/hr) (%) Outboard motor <35 hp 500 3.6 14.0% Outboard motor >=35 hp 800 7.1 12.5% Generator 104 3.1 1.0% Truck 200 18.9 7.5% Water Pump 130 0.3 10.0% 4.3 CAPITAL INVESTMENT COSTS - STRUCTURES AND EQUIPMENT The items d i s c u s s e d i n t h i s s e c t i o n are the barge, main farm b u i l d i n g , sheds, seapens, nets, automatic f e e d e r s , l a b o r a t o r y equipment, d i v i n g equipment and other miscellaneous farm equipment. Each item i s d i s c u s s e d as to i t s f u n c t i o n on the farm and wi t h r e s p e c t to the data s e t . A c o s t f o r the r e s p e c t i v e item i s assig n e d to the base farm c o n s i d e r i n g the data s e t . A l l b u i l d i n g s are assumed to have a salvage value of zero at the end of t h e i r u s e f u l l i f e ( Boehlje and Eidman). Barge The barge i s the primary f l o a t s u p p o r t i n g the major b u i l d i n g s ( o f f i c e or l i v i n g q u a r t e r s ) at the farm s i t e . The 104 cost i s dependent on the m a t e r i a l the barge i s c o n s t r u c t e d from and i t s o v e r a l l dimensions. The co s t i s lowest when the barge i s c o n s t r u c t e d from wood, and tends to i n c r e a s e as metal and concrete are u t i l i z e d . The cost range f o r the barge i s from $6,000 to $18,000, with a mean of $9,417. The base farm i s assigned the cost of $18,000 f o r a barge. B u i l d i n g (main) The c o s t of b u i l d i n g s at the farm s i t e depend upon the s i z e of the b u i l d i n g i t s e l f , and the degree of i s o l a t i o n , hence the degree of l i v i n g accommodations at the farm s i t e . I f the farm s i t e i s i s o l a t e d , l i v i n g q u a r t e r s are necessary, i n c r e a s i n g the cost of b u i l d i n g s . The range of c o s t s f o r a b u i l d i n g i s from $4,900 to $23,000 f o r n o n - i s o l a t e d and moderately i s o l a t e d farm s i t e s . Some farms have b u i l d i n g c o s t s i n excess of $200,000, but are considered e x c e p t i o n a l . The mean b u i l d i n g cost f o r a n o n - i s o l a t e d farm s i t e i s $13,300. The base farm i s assigned the b u i l d i n g cost of $23,000, and i t i s assumed the b u i l d i n g i n c l u d e s storage space of approximately 5m x 5m. Feed Shed The feed shed i s a b u i l d i n g separate from the main b u i l d i n g , f u n c t i o n i n g as the primary (or supplementary when the main b u i l d i n g i n c l u d e s storage c a p a b i l i t i e s ) feed and equipment storage f a c i l i t y . From the data s e t , the feed shed ranges i n cost from $1,000 to $5,700, with a mean of $2,725. One exception e x i s t s i n the data s e t , where one feed shed has approximately four times the c a p a c i t y of the other observed 105 sheds. Removing the one exce p t i o n from the data set r e s u l t s i n a range of cost from $1,000 to $3,000 and a mean of $1,920. The hig h e r c o s t of $3,000 i s used f o r the base farm. Seapens L i t t l e v a r i a t i o n e x i s t s i n the cost of smolt pens (6m x 6m), having a mean co s t of $3,417. The l a r g e r pens (12m x 12m) range i n average c o s t on farm, from $3,575 to $13,000. Reasons f o r t h i s are the c o n s t r u c t i o n m a t e r i a l used and d i f f e r e n c e s between manufacturers. I f the pen i s c o n s t r u c t e d of metal a l l o y ( n o r m a l l y manufactured o f f farm) the average cost i s $12,785. The c o s t of metal a l l o y pens has decreased r e c e n t l y , supposedly a t t r i b u t e d to l o c a l manufacturers becoming more e f f i c i e n t . Recent advertisements f o r s i m i l a r pens (e.g. Wavemaster brand) quote p r i c e s as low as $11,000 per pen when purchasing f i f t e e n pens (Canadian Aquaculture 1987). Those pens c o n s t r u c t e d from wood tend to have a lower c o s t . I f the pens are b u i l t by the ope r a t o r h i m s e l f , the co s t may be lower again. The range of c o s t s f o r wood pens i s from $3,575 to $4,169, with a mean of $3,854. The grand mean f o r a 12m x 12m pen i s $9,507. An oc t a g o n a l pen from one farm has an estimated average c o s t of $10,000. Predator nets are t y p i c a l l y second hand salmon seine nets, p l a c e d around the p e r i p h e r y of a l l pens. Each seine net can encompass four 12m X 12m pens. The approximate cost of a seine net i s $2,500, of which 25% i s c r e d i t e d to the t o t a l c o s t of a pen. 106 One of the farms u s i n g smolt pens s t a t e d that i f he were to s t a r t again, he would use a l l standard s i z e d pens (12m x 12m). H a l f of the data set use only standard s i z e pens. C o n s i d e r i n g t h i s , the base farm i s assigned only standard s i z e d pens, at a c o s t of $13,410. T h i s c o s t i s d e r i v e d from the mean cost of a metal pen at $12,785 p l u s 25% of the c o s t of a seine net. Table 4.3.1 summarizes the costs f o r s t r u c t u r e s , b u i l d i n g s , and pens, and the v a l u e s assigned to the base farm. TABLE 4.3.1 Mean Costs, Range of Costs, and Costs Assigned to the Base Farm f o r S t r u c t u r e s and Seapens. Data Set Base Farm Range Mean Assigned Low High Cost Value I tem ($) ($) ($) ($) Barge 6,000 18,000 10,500 10,500 B u i l d i n g 4,900 23,000 13,300 17,500 Feed Shed 1,000 3,000 1,733 3,000 Feed Shed - l a r g e 5,700 5,700 n/a Seapens - smolt 3,300 3,500 3,417 3,417 Seapens - standard (metal) 11,000 13,000 12,785 12,785 Seapens - standard (wood) 3,575 4,169 3,854 n/a Nets The c o s t per smolt net (6m x 6m, 13mm mesh, k n o t l e s s ) ranges from $1,000 to $1,260 with a mean co s t of $1,130 The Powell River Net L o f t estimates such a smolt net would cost $1,300. From the data s e t , the range of c o s t s f o r a 6m x 12m smolt net (from 13mm to 38mm mesh, k n o t l e s s ) i s from $1,200 to 107 $1,700, w i t h a mean c o s t of $1352. The l a r g e r ( r e f e r r e d t o as s t a n d a r d ) s i z e net (12m x 12m, from 25mm t o 51mm mesh, k n o t l e s s ) c o s t range i s from $1,100 to $3,200. the mean c o s t of the s t a n d a r d s i z e d net i s $1,843. W i t h r e s p e c t to 12m x 12m n e t s from the d a t a s e t , the two most e x p e n s i v e net p r i c e s are $2,400 and $3,200. The h i g h e r c o s t n e t s a t $3,200 are c o n s i d e r e d as e x c e p t i o n a l , and not used f o r the base farm. A number of l a r g e r mesh n e t s (51mm and g r e a t e r ) w i t h 12m x 12m d i m e n s i o n s ( o r l a r g e r ) have been pur c h a s e d i n the k n o t t e d form, as the k n o t s are b e l i e v e d t o pose l e s s of a h a z a r d t o the f i s h a t the l a t e r s t a g e s of the p r o d u c t i o n c y c l e , and reduce the c o s t per n e t . C i r c u l a r n e t s of 15m d i a m e t e r have an average c o s t of $3000. S i n c e the base farm uses 12m x 12m seapens, the 6m x 12m s m o l t n e t s and 12m x 12m r e g u l a r n e t s are a s s i g n e d a c o s t of $1,700 and $2,400 r e s p e c t i v e l y . The e x p e c t e d l i f e span of n e t s i s 3 y e a r s . The r e p a i r and maintenance c o s t per net per y e a r i s e s t i m a t e d a t a p p r o x i m a t e l y 4% o f i n i t i a l c o s t , or $100. Feeders - A u t o m a t i c From the d a t a s e t , two g e n e r a t i o n s o f computers were e n c o u n t e r e d , w i t h a d i s t i n g u i s h a b l e d i f f e r e n c e i n mean c o s t of the a u t o m a t i c f e e d e r s , i n c l u d i n g a p r o p o r t i o n a l share of the accompanying computer c o n t r o l system and w i r e s (see s e c t i o n 2.3.6). The f i r s t g e n e r a t i o n a u t o m a t i c f e e d e r systems range i n c o s t from $585 t o $905 per f e e d e r . The second g e n e r a t i o n a u t o m a t i c f e e d e r systems range i n c o s t from $1,095 to $1,400 per 108 f e e d e r . The mean cost of automatic feeders i s $997. The higher c o s t of $1,400 per automatic feeder i s used f o r the base farm. L a b o r a t o r y Equipment T y p i c a l l a b o r a t o r y equipment on a farm i n c l u d e s a microscope, two or more thermometers, a sechhi d i s k (to estimate the water v i s i b i l i t y or c o n c e n t r a t i o n of microorganisms), meters to measure the d i s s o l v e d oxygen l e v e l (a Hach k i t ) , and d i s s e c t i n g instruments. W i t h i n the sample s e t , one farm purchased more equipment than other farms, and i s c o n s i d e r e d an o u t l i e r . The mean co s t of l a b o r a t o r y equipment i s $5,469. The mean cost of l a b o r a t o r y equipment f o l l o w i n g e x c l u s i o n of the o u t l i e r , i s $1,959. The base farm i s assigned l a b o r a t o r y equipment c o s t s of $5,000. T h i s i s based on the assumption that salmon farming w i l l move towards p r e v e n t a t i v e medical p r a c t i c e s , which w i l l l i k e l y r e q u i r e improved l a b o r a t o r y equipment over what i s p r e s e n t l y used. For example a good DO meter i t s e l f i s $1,000. D i v i n g Equipment The m a j o r i t y of farms purchase the d i v i n g equipment used by t h e i r employees. One farm pays the d i v e r ( s ) an annual supplement towards the purchase of d i v i n g equipment, others have the f o r t u n e of employing personnel p o s s e s s i n g t h e i r own d i v i n g equipment, thus reducing the farm's purchases of d i v i n g equipment. D i v i n g equipment f o r a farm roughly c o n s i s t s o f : 109 a) Dry s u i t - one or two ($1,300) b) Regulator and Gauges - one to three ($500) c) Tank - two to f i v e ($250) d) Buoyancy compensator - one to two ($400) e) Mask and f i n s - one to two ($175) The mean co s t f o r a set of d i v i n g equipment i s $3,299. Based on the approximate c o s t s per item, and assuming a farm w i l l purchase one dry s u i t , two r e g u l a t o r s , three tanks, two buoyancy compensators, and two sets of masks and f i n s , the t o t a l cost would be $4,200. T h i s cost of $4,200 f o r d i v i n g equipment i s a s s i g n e d to the base farm. P a l l e t Jack From the data set the range of c o s t f o r a p a l l e t jack i s $500 to $908, with a mean of $653. The higher c o s t of $900 i s a s s i g n e d to the base farm. M i s c e l l a n e o u s Equipment Dip nets are r e q u i r e d to r e t r i e v e morts out of netpens when not d i v i n g . The number of d i p nets per farm i s approximately 6 to 10. When purchased commercially, the c o s t i s approximately $100; however, when made by the farm o p e r a t o r s , the cost i s s i g n i f i c a n t l y l e s s , averaging $35. Other m i s c e l l a n e o u s equipment i n c l u d e s power t o o l s (e.g. saws) and hand t o o l s (e.g. hammer). The t o t a l c o s t of m i s c e l l a n e o u s equipment ranges from $1,000 to about $5,000, with a mean of $2,950. The t o t a l c ost of m i s c e l l a n e o u s t o o l s f o r the base farm i s s e t at $5,000 f o r the f i r s t year, $600 f o r the second year and $300 f o r each 110 subsequent year. The $600 f o r the second year and $300 f o r each subsequent year i s to accommodate a d d i t i o n a l purchases as the farm c o n t i n u e s to expand i n s i z e , and/or to r e p l a c e t o o l s due to l o s s or breakage. Table 4.3.2 summarizes the mean c o s t , range of cost and the value a s s i g n e d to the base farm f o r nets and equipment. TABLE 4.3.2 Mean Costs, Range of Costs, and Values Assigned to the Base Farm f o r Nets and Equipment. Data Set Base Farm Range Mean Adjusted Low High Cost Mean Item ($) ($) ($) ($) Nets-smolt (6mx6m) 1,000 1,260 1,130 n/a Nets-(6mxl2m) 1,200 1,700 1,352 1,700 Nets-standard (12mxl2m) 1,400 2,400 1,843 2,400 Feeders 585 1,400 997 1,400 L a b o r a t o r y Equipment 1,618 16,000 5,470 5,000 D i v i n g Equipment 500 6,000 3,299 4,200 M i s c e l l a n e o u s Equipment 1,000 16,000 2,950 5,000 Tables 4.3.1 and 4.3 .2 l i s t the c o s t s per b u i l d i n g or group of equipment. However, a number of items are purchased i n groups and over a number of year These items i n c l u d e pens, n e t s , f e e d e r s , sheds, and anchoring c o s t s . The number of pens purchased i n each year i s r e l a t e d to the farm growth and the pen requirements per year. The number of smolt nets i s twice the number of smolt pens purchased s i n c e two smolt nets f i t i n t o a standard s i z e d pen. The number of I l l s t a n d a r d nets i s 3 t i m e s the number of pens purchased each y e a r , assuming 3 d i f f e r e n t net meshes w i l l be used per pen. S i n c e the s t a n d a r d nets have an e x p e c t e d l i f e of 3 to 4 y e a r s , a d d i t i o n a l n e t s are purchased i n the f o u r t h year to r e p l a c e worn n e t s . From the f i f t h y e a r on, n e t s are purchased o n l y t o r e p l a c e worn n e t s . One a u t o m a t i c f e e d e r i s purchased f o r each pen. A second f e e d shed i s p u r c h a s e d i n the second year t o accommodate a d d i t i o n a l f e e d r e q u i r e m e n t s . T o t a l a n c h o r i n g c o s t s f o r a s i t e s u b j e c t to moderate c u r r e n t and wave a c t i o n ( i . e . not c o m p l e t e l y exposed) ranges from $5,500 to $10,000. A n c h o r i n g c o s t s i n the f i r s t year are h i g h t o s e t up the p r i m a r y anchors f o r the b u i l d i n g s and main walkway system. Subsequent a n c h o r i n g c o s t s are r e l a t e d t o the number of pens i n s t a l l e d . T a b l e 4.3.3 s t a t e s the q u a n t i t y of b u i l d i n g s or equipment p u r c h a s e d over f i v e y e a r s as a s s i g n e d t o the base farm. 112 TABLE 4.3.3 Time and Q u a n t i t y of Pens, Feeders, Nets, Sheds and Anchoring Purchases, Years 1 to 20. Year 1 2 3 4 5 to 20 Item Number Purchased or Cost Pens -Smolt 0 0 0 0 0 -Standard 4 4 4 8 0 Feeders 4 4 4 8 0 Nets - smolt 2 0 2 1 2 Nets - standard 6 16 13 21 21 Feed shed 0 1 0 0 0 Anchoring $5,000 $2,000 $2,000 $2,500 0 4.4 BIOLOGICAL AND PHYSICAL VARIABLES 4.4.1 Mean F i s h H e i g h t Average f i s h weight data i s c o l l e c t e d as c l o s e as p o s s i b l e to the end of each month. The f i s h growth f u n c t i o n i s not estimated i n t h i s study because of the l a c k of data f o r a l l months. For example, where one farm had monthly data, another had q u a r t e r l y d a t a . A mean monthly f i s h weight i s c a l c u l a t e d from the data set to be used f o r the base farm. The data and c a l c u l a t e d means f o r chinook are l i s t e d i n Appendix C l and C2, and the monthly weights f o r four crops are graphed i n Appendix C3. The r e s u l t i n g monthly mean f i s h weights are not 113 c o n s i s t e n t l y i n c r e a s i n g . To p r o d u c e a s m o o t h e r g r o w t h c u r v e , t h e v a l u e s f o r a number o f months a r e a d j u s t e d . The a s s i g n e d v a l u e s f o r months 2, 10, 1 1 , 16, 17 and 24 d i f f e r f r o m t h e means l i s t e d i n A p p e n d i x C2. The mean w e i g h t f o r t h e 1 0 t h month i s g r e a t e r t h a n t h e mean o f t h e 1 1 t h month, and t h e 1 6 t h month i s h i g h e r t h a n t h a t o f t h e 17th month. The v a l u e s a s s i g n e d t o t h e b a s e f a r m f o r t h e s e months (10, 1 1 , 1 6 , 1 7 ) a r e d e r i v e d by e x t r a p o l a t i o n , u s i n g t h e w e i g h t s f r o m t h e 9th and 12 m o n t h s , and t h e 1 5 t h a n d 1 8 t h months as e n d p o i n t s . The means f o r t h e 2nd an d 2 4 t h months a r e b i a s e d t o w a r d s t h e f o l l o w i n g months w e i g h t a t a t i m e when f i s h g r o w t h i s n o t e x p e c t e d t o d e c r e a s e s i g n i f i c a n t l y (summer and l a t e s p r i n g ) . C o n s i d e r i n g t h i s , t h e r e s p e c t i v e w e i g h t have been r e d u c e d by 10% and 20% r e s p e c t i v e l y . The m o n t h l y c h i n o o k w e i g h t s a s s i g n e d t o t h e b a s e f a r m a r e l i s t e d i n T a b l e 4.4.1. The d a t a and mean m o n t h l y c o h o w e i g h t s a r e l i s t e d i n A p p e n d i x C4 and g r a p h e d i n A p p e n d i x C5. T a b l e 4.4.1 a l s o l i s t s t h e a d j u s t e d m o n t h l y mean w e i g h t s f o r c o h o . The s a m p l e d a t a f o r c o h o i s l i m i t e d r e l a t i v e t o t h a t f o r c h i n o o k , n u m b e r i n g a t most t h r e e f o r e a c h p e r i o d . Due t o t h i s l a c k o f d a t a , t h e coho mean v a l u e s a r e n o t u s e d f o r t h e b a s e f a r m . 114 TABLE 4.4.1 Monthly Chinook Weight Assigned to the Base Farm and Adjusted Monthly Mean Coho Weight. Month Month Number Assigned Chinook Weight (kg) A djusted Coho Weight (kg) June 1 0.02 0.01 J u l y 2 0.05 0.04 August 3 0.08 0.10 September 4 0.12 0.16 October 5 0.17 0.24 Novembe r 6 0.21 0.28 December 7 0.24 0.33 January 8 0.28 0.39 February 9 0.33 0.46 March 10 0.38 0.55 A p r i 1 11 0.44 0.73 May 12 0.60 0.90 June 13 0.70 1.09 J u l y 14 0.90 1.40 August 15 1.17 1.70 September 16 1.43 2.00 October 17 1.54 2.40 Novembe r 18 1.68 2.57 December 19 1.91 2.68 January 20 2.02 2.74 February 21 2.30 2.80 March 22 2.45 2.87 A p r i l 23 2.49 3.00 May 24 2.60 3.15 4.4.2 Monthly M o r t a l i t y The monthly m o r t a l i t y r a t e s of chinook from the data set range from 0% to 23%. One set of o b s e r v a t i o n s has high m o r t a l i t y rates i n months 9, 14 and 23 which s i g n i f i c a n t l y a f f e c t the c a l c u l a t e d means. In g e n e r a l , the m o r t a l i t y rate tends to increase i n the f a l l and s p r i n g of both years of a 24 115 month p r o d u c t i o n c y c l e . T h i s seasonal l o s s i s l i k e l y due to BKD, and i s the e x p l a n a t i o n f o r the high m o r t a l i t i e s from the farm r e f e r r e d t o . The same set of data a l s o has a high m o r t a l i t y r a t e i n the summer p e r i o d , which i s a t t r i b u t e d to continued d i s e a s e problems and a l g a l blooms. From the data set on monthly chinook m o r t a l i t y rates ( l i s t e d i n Appendix D l ) , the mean valu e s are determined. Since the high m o r t a l i t y rates d i s c u s s e d above are reasonably e x p l a i n e d , the mean monthly m o r t a l i t y r a t e s f o r chinook are used f o r the base farm, as l i s t e d i n Table 4.4.2. In c o n t r a s t to the values assigned to the base farm, one farmer s t a t e d t h a t he experimented with one pen of f i s h , u t i l i z i n g p r e v e n t a t i v e medical p r a c t i c e s , which r e s u l t e d i n 90% s u r v i v a l of chinook. The monthly m o r t a l i t y data set f o r coho and the c a l c u l a t e d means are l i s t e d i n Appendix D2. The monthly m o r t a l i t y rate of coho from the data set ranges from 1.2% to 6.7% per month, most of which are between 1.8% and 3% per month. The coho m o r t a l i t y r a t e s do not va r y as much as those f o r chinook. However, t h i s c o u l d be a t t r i b u t e d to the fewer number of o b s e r v a t i o n s i n the data set f o r coho than f o r chinook. One farm s t a t e d that approximately 60% of the coho s u r v i v e d to h a r v e s t , while another s t a t e d that about 70% of both coho and chinook s u r v i v e d to be 27 h a r v e s t . The coho m o r t a l i t y rates are not used f o r the base 27 On the u n f o r t u n a t e s i d e , these same farmers reported that other farms they knew of had s e r i o u s problems with smolt q u a l i t y , or t r a n s p o r t s t r e s s which l e a d to 40% t o t a l s u r v i v a l . 116 farm. TABLE 4 .4.2 Mean Values f o r Monthly Chinook M o r t a l i t y Rates and the Cumulative M o r t a l i t y Rates. Monthly Cumulative Month M o r t a l i t y M o r t a l i t y Month Number Rate Rate (%) (%) June 1 2.23 2.23 J u l y 2 2.50 4 .67 August 3 1.60 6 .20 September 4 2.82 8.84 October 5 1. 33 10.06 Novembe r 6 0.46 10.47 December 7 0.41 10.84 January 8 0.47 11 .26 February 9 5. 36 16.01 March 10 1.11 16.95 A p r i l 11 2.73 19.21 May 12 2.48 21.22 June 13 4.06 24 .42 J u l y 14 8.37 30.74 August 15 4.46 33.83 Septembe r 16 2.86 35.72 October 17 4.36 38.53 November 18 1.20 39.26 December 19 1.09 39.93 January 20 0.91 40.47 February 21 1.06 41.10 March 22 2.43 42.53 A p r i l 23 3.63 44.62 May 24 2.16 45.82 These farms and the r e s p e c t i v e i n f o r m a t i o n were not recorded s i n c e i t was not documented. 117 4.4.3 Feed Conversion Ratio Data f o r monthly fe e d c o n v e r s i o n r a t i o s (FCR) was not o b t a i n e d from most o f the p a r t i c i p a t i n g farms s i n c e they were not r e c o r d e d on a monthly b a s i s . The range of monthly FCRs s t a t e d by the farmers i s from 1:1 t o 8:1. However, c a l c u l a t i o n s from one s e t o f d a t a s t a t e s the monthly range t o be from .8:1 t o 17.9:1. The t o t a l f e e d t o t o t a l f i s h w e i g h t r a t i o (TFFR) f o r t h i s one sample i s 4.1:1, however, t h i s was the f i r s t y e a r f o r the farm t o g a i n some e x p e r i e n c e a t salmon f a r m i n g . For the second g e n e r a t i o n o f f i s h , the monthly FCR ranged from 1.0:1 t o 3.2:1, w i t h a TFFR a f t e r 15 months of 1.9:1. Another farm s t a t e s a TFFR of 1.9:1 f o r the second g e n e r a t i o n of f i s h , and an u n c o r r e c t e d FCR of 1.4 (the a c t u a l e f f i c i e n c y of the s u r v i v i n g f i s h ) . The TFFR f o r an e n t i r e g e n e r a t i o n o f f i s h s t a t e d by another farmer ranged between 1.4:1 to 1.8:1. There i s a p o s s i b i l i t y of c o n f u s i n g the monthly FCR w i t h the TFFR. The d i f f e r e n t i a t i o n between the two i s o f the utmost importance as i s the method a model uses t o c a l c u l a t e the consumption of f e e d . C r i t i c s o f t e n q u e s t i o n the statements of TFFR around 2.0:1, b e l i e v i n g the TFFR t o be c l o s e r t o 4.0:1, and t h a t the TFFR i s not as e f f i c i e n t as o p e r a t o r s may b e l i e v e . The base farm uses a monthly FCR of 2.0:1, w i t h a c u m u l a t i v e m o r t a l i t y r a t e of 46%, r e s u l t i n g i n a TFFR of 2.7:1. 4.4.4 Stocking Density The maximum o p e r a t i n g s t o c k i n g d e n s i t y u t i l i z e d by the sample farms ranged from 4 t o 10 kg/m 3. Cases of h i g h e r 118 m o r t a l i t y i n one pen compared to another have been c o r r e l a t e d to a higher s t o c k i n g d e n s i t y at one farm. Some farms b e l i e v e the opt i m a l s t o c k i n g d e n s i t y i s not gr e a t e r than 5 kg/m3, and have i m p l i e d changing to lower s t o c k i n g d e n s i t i e s from those used i n the p a s t . However, to do so w i l l l i k e l y l e a d to an i n c r e a s e i n the number of pens r e q u i r e d . 4.4.5 Smolt and Annual P r o d u c t i o n A m a j o r i t y of the sample farms s t a t e d a d e s i r e to u l t i m a t e l y reach an annual p r o d u c t i o n ranging from 100 to 200 tonnes. A m i n o r i t y of the sample hoped to a n n u a l l y produce g r e a t e r than 250 tonnes. Of those farms p l a n n i n g to produce 100 to 200 tonnes a n n u a l l y , the time p e r i o d to achieve t h i s ranged from three to f i v e y e a r s . The number of smolts purchased a n n u a l l y reaches a maximum i n the f o u r t h year and t h i s l e v e l i s purchased each year to the twent i e t h year. The reason f o r a t t a i n i n g the maximum smolt purchase i n the f o u r t h year i s to achieve c o n s i s t e n t o p e r a t i n g c o s t s i n the f i f t h year. The model assumes the o p e r a t i n g c o s t a f t e r the f i f t h year remain s t a b l e p e r m i t t i n g an e s t i m a t i o n of the cash flow, net present value and i n t e r n a l rate of r e t u r n . The smolt purchases f o r the base farm w i l l be as shown i n Table 4.4.3. The base farm reaches an o b j e c t i v e p r o d u c t i o n l e v e l of approximately 130 tonnes of salmon i n the f i f t h year, and continues at t h i s l e v e l . 119 TABLE 4 . 4 . 3 Base Farm Annual Smolt Purchases Years 1 to 20. Year 1 2 3 4 5 to 20 smolts 37,000 55,000 80,000 120,000 120,000 4.5 ECONOMIC VARIABLES 4.5.1 Product P r i c e The product p r i c e r e c e i v e d by the salmon farmers v a r i e s throughout the year, depending on the month of s a l e and the weight of the f i s h . The data set f o r product p r i c e s i s l i s t e d i n Appendix E. The mean product p r i c e f o r each month and weight group i s used f o r the base farm, as l i s t e d i n Table 4.5.1. 120 TABLE 4.5.1 Mean F i s h P r i c e s Assigned to the Base Farm. F i s h Weight Group Month <0.91 kg <1.82 kg <2.73 kg >2.73 kg ( $ / k g ) January 3.85 6.93 8.78 10 .78 February 3.85 6.93 8.78 10 .78 March 3.85 7.44 9.90 11 .09 Apr i 1 3.85 8.76 10.34 13 .09 May 3.85 9.64 11.66 13 .97 June 3.85 not a v a i l a b l e J u l y 3.85 not a v a i l a b l e August 3.85 5.85 8.47 9 .90 September 3.85 7.26 9.42 11 .00 Octobe r 3.85 7.65 9.68 11 .66 Novembe r 3.85 8.47 11.57 13 .75 Decembe r 3.85 9.32 11.84 14 .17 4.5.2 Marketing Rate F i s h are s o l d predominantly i n the winter, from October through December, and i n the s p r i n g , from March through May. One farm s t a t e d t h a t p r i c e s were q u i t e high d u r i n g 1987, and with h i s f i s h growing very w e l l , he would begin h a r v e s t i n g f i s h i n September. The base farm w i l l h a rvest f i s h a c c o r d i n g to high p r i c e s , d u r i n g November, December, A p r i l and May. The r e s p e c t i v e percent of i n v e n t o r y s o l d i n these months are 15%, 20%, 65% and 100%. The base farm i s summarized i n Table 4.5.2 TABLE 4.5.2 Summary of the Base Farm P h y s i c a l C h a r a c t e r i s t i c s S i z e : 130 tonnes of annual p r o d u c t i o n . L o c a t i o n : Vancouver I s l a n d or Sunshine Coast. Species of F i s h : Chinook. Values of Main B i o l o g i c a l V a r i a b l e s Growth: 2.6 kg a f t e r 24 months, see Table 4.4.1. Feed Conversion R a t i o (FCR): 2.0:1 monthly, at a 46% cumulative m o r t a l i t y r a t e , t o t a l feed to f i s h weight r a t i o i s 2.7:1. S t o c k i n g Density: 6 kg/m 3. Cumulative M o r t a l i t y Rate: A f t e r 24 months, 46%, see Table 4.4.2. Values of Main Economic V a r i a b l e s Operating I n t e r e s t Rate: 0% Product P r i c e : See Table 4.5.1 Marketing S t r a t e g y : i n % of i n v e n t o r y ; November (15%), December (20%), A p r i l (65%), May (100%). Feed Cost: $1.20/kg, $.09/kg d e l i v e r y charge. Smolt Cost: $0.75 each. Labour: H i r e d - $9.00/hour, Contract - $6.50/hour. C a p i t a l Equipment - $500,000 122 4.6 FINANCIAL RESULTS 4.6.1 Cumulative Cash Flow The cumulative cash flows f o r months 1 to 120 are graphed i n F i g u r e 4.6.1. The cumulative cash flows i n the f i r s t year decrease as the i n i t i a l o p e r a t i n g c o s t s are p a i d (e.g. smolt, feed, machinery). In the second year the graph begins to take on the shape of a W f o r each 12 month p e r i o d , with the peaks o c c u r r i n g due to f i s h s a l e s i n the winter and l a t e s p r i n g . From years two through f i v e the amplitude of the W i n c r e a s e s due to expansion i n annual p r o d u c t i o n and revenues. Since the p r o d u c t i o n l e v e l has s t a b i l i z e d by the f i f t h year, the W's from years f i v e to ten maintain the same amplitude. The i n c r e a s i n g o p e r a t i n g c o s t s from years two through f i v e a l s o r e s u l t i n the downward s h i f t i n the W's, reaching a minimum p o i n t i n the 58th month. T h i s minimum p o i n t i n d i c a t e s $1,235 m i l l i o n i s the cash requirement f o r the s u r v i v a l of the base farm. The base farm covers a p e r i o d of 20 y e a r s , of which Figure 4.6.1 d e p i c t s o n l y ten years. The shape and amplitude of the W's i s r e p l i c a t e d from year f i v e f o r years 11 through 20. The end of year cumulative cash flows begin i n c r e a s i n g i n the f i f t h y e a r . T h i s i n c r e a s i n g cumulative cash flow continues f o r the remaining years of the farm. Beginning i n year twelve, v a r i a t i o n s i n the cumulative cash flows are a l l p o s i t i v e (the e n t i r e W i s above the $0 l i n e ) . FIGURE 4,6.1i T n e Cumulative Cash Flows f o r the Base Farm, Months 1 to 120. 124 The end of year cumulative cash flows are l i s t e d i n Table 4.6.1. In the t a b l e , the cumulative cash flows decrease d u r i n g the f i r s t four years, become l e s s negative i n years f i v e through e i g h t , and become p o s i t i v e i n year nine. The end of year cumulative cash flows correspond to peaks on the r i g h t s i d e of the W s i n Figure 4.6.1 f o r years two through ten. TABLE 4.6.1 Net and Cumulative Cash Flows by Year of the Base Farm, Years 1 to 20. Net Cumulative Net Cumulative Year Cash Flow Cash Flow Year Cash Flow Cash Flow ( '000 $) ('000 $) ( ' 000 $) ( '000 $) 1 -349 -349 11 150 339 2 -153 -502 12 150 487 3 -119 -621 13 150 634 4 -165 -786 14 150 781 5 167 -619 15 150 929 6 171 -452 16 150 1,076 7 171 -285 17 150 1,224 8 171 -117 18 150 1,371 9 162 44 19 150 1,519 10 150 192 20 150 1,666 4.6.2 Net Farm Income The a f t e r tax net farm income (NFI) i s -$235,000 f o r year one. The NFI i n c r e a s e s i n each s u c c e s s i v e year, becoming p o s i t i v e i n the f i f t h year at $86,000. The NFI i n years f i v e through seven become s i m i l a r , at $86,000, due to a constant l e v e l of p r o d u c t i o n . D i f f e r e n c e s among these NFIs are a r e s u l t 125 of the a b i l i t y t o c a r r y forward n e g a t i v e net income f o r up t o seven y e a r s b e f o r e c a l c u l a t i n g income t a x . In the e i g h t h y e a r , the c a r r y i n g f o r w a r d of net incomes from the seven p r e v i o u s y e a r s no l o n g e r d e c r e a s e s the taxes p a y a b l e . The t a x r a t e f o r the n i n t h y e a r and beyond i s 23% s i n c e the net income i s l e s s t han $200,000, r e s u l t i n g i n a NFI of $66,000. From y e a r s 9 to 20, t h i s NFI i s c o n s t a n t because of the c o n s i s t e n t p r o d u c t i o n l e v e l , and the assumptions of the same growth and m o r t a l i t y r a t e s , and f e e d c o n v e r s i o n r a t i o f o r a l l g e n e r a t i o n s of f i s h . The c a l c u l a t e d NFI i s the r e t u r n t o management, and owner's l a b o u r and e q u i t y . Table 4.6.2 l i s t s t h e s e r e s u l t s . TABLE 4.6.2 Net Farm Income of the Base Farm, Year 1 t o 20. Net Farm Year Income ('000 $) 1 -235 2 -125 3 -82 4 -112 5 86 6 86 7 86 8 80 9 66 10-20 66 4.6.3 Breakdown of T o t a l Cost of P r o d u c t i o n The major c o n t r i b u t o r s to farmed salmon p r o d u c t i o n c o s t s a r e f e e d , s m o l t s , d e p r e c i a t i o n , h i r e d l a b o u r , m o r t a l i t y 126 insurance and overhead. Feed, as expected, i s the dominant i n p u t , i n i t i a l l y r e p r e s e n t i n g 27% of c o s t s , and i n c r e a s i n g to 58%. Smolts are the next most s i g n i f i c a n t c o s t , r e p r e s e n t i n g 16% of t o t a l c ost i n year one, but d e c r e a s i n g to 11% by year f i v e . The d e p r e c i a t i o n cost i s s t a b l e at approximately 9% over f i v e y e a r s . The h i r e d labour c o s t at 23% i n the f i r s t year, decreases to 12% i n the second year. T h i s i s due to the f i x e d h i r e d labour c o s t over the l i f e of the farm, thus i n year two the labour cost i s d i s t r i b u t e d over a g r e a t e r mass of f i s h than i n year one. H i r e d labour r e p r e s e n t s 5% of t o t a l c o s t s once p r o d u c t i o n has s t a b i l i z e d . The m o r t a l i t y insurance c o n t i n u a l l y i n c r e a s e s as the expected harvest value of f i s h i n c r e a s e s , r e a c h i n g a maximum of 8%. Table 4.6.3 summarizes the changes over time of the percentage breakdown of t o t a l f i s h c o s t . 127 TABLE 4.6.3 Percentage Breakdown of T o t a l Cost of P r o d u c t i o n by Input, Years 1 to 5. Year 1 2 3 4 5 Input Percent of T o t a l F i s h Cost Feed 27 49 52 55 58 Smolt 16 12 12 13 11 D e p r e c i a t i o n 9 10 10 11 10 M o r t a l i t y insurance 3 6 7 7 8 H i r e d labour 23 12 9 6 5 Overhead 16 8 6 4 3 Equipment o p e r a t i n g 5 3 3 2 2 C o n t r a c t labour 0 0 0 1 2 V e t e r i n a r y / m e d i c a l 1 1 1 1 1 4.6.4 Average Cost of Production In c a l c u l a t i n g the average cost of p r o d u c t i o n , each g e n e r a t i o n of f i s h i s assessed a share of the i n d i r e c t c o s t s . T h i s i s based on the p r o p o r t i o n of t o t a l biomass re p r e s e n t e d by the r e s p e c t i v e g e n e r a t i o n of f i s h . The d i r e c t c o s t s are the same f o r each g e n e r a t i o n f o l l o w i n g the assumptions of the same growth and m o r t a l i t y r a t e s , and feed c o n v e r s i o n r a t i o f o r each g e n e r a t i o n . T h i s average c o s t does not i n c l u d e the c o s t of op e r a t o r labour or the o p p o r t u n i t y cost of owner e q u i t y . The average c o s t of p r o d u c t i o n , per kilo g r a m of f i s h , f o r the f i r s t g e n e r a t i o n begins at $57.17/kg i n the f i r s t month. A l l f i x e d c o s t s are a p p l i e d to the t o t a l biomass of f i s h at the end of t h i s p e r i o d . As the p r o d u c t i o n c y c l e c o n t i n u e s , the 128 t o t a l biomass i n c r e a s e s , d i s t r i b u t i n g the f i x e d c o s t s ( i n d i r e c t c o s t s ) over a g r e a t e r mass, thus d e c r e a s i n g the c o s t per k i l o g r a m . The average c o s t of f i s h i n the f i r s t g e n e r a t i o n i s $8.52/kg. F i g u r e 4.6.2 d e p i c t s the average c o s t per k i l o g r a m of f i s h f o r each g e n e r a t i o n of f i s h over the r e s p e c t i v e p r o d u c t i o n c y c l e . The average c o s t c u r v e s are a l l s i m i l a r i n shape, w i t h the f i r s t g e n e r a t i o n ' s curve above the those f o r the f o l l o w i n g f o u r g e n e r a t i o n s . The average c o s t c u r v e s f o r the second t h r o u g h f i f t h g e n e r a t i o n s a l m o s t o v e r l a p each o t h e r . The c u r v e s f o r the second t h r o u g h f i f t h g e n e r a t i o n s have s h i f t e d down because the t o t a l p r o d u c t i o n c o s t s , b e g i n n i n g w i t h the second g e n e r a t i o n , are d i s t r i b u t e d over a g r e a t e r mass. The average c o s t s of the second t h r o u g h f i f t h g e n e r a t i o n s of f i s h a r e $6.60/kg, $6.09/kg, $5.86/kg, and $5.69/kg r e s p e c t i v e l y . The reason f o r these c o s t s d e c l i n i n g w i t h subsequent g e n e r a t i o n s i s s i m i l a r t o the downward s h i f t i n g o f the average c o s t c u r v e s f o r the second t h r o u g h f i f t h g e n e r a t i o n s . The t o t a l mass c a r r i e d by the base farm c o n t i n u a l l y i n c r e a s e s u n t i l the f i f t h y e a r i s reached. The average c o s t f o r the f i f t h g e n e r a t i o n of f i s h r e p r e s e n t s the average c o s t of p r o d u c t i o n f o r the base farm, o p e r a t i n g at the o b j e c t i v e p r o d u c t i o n l e v e l of 130 tonnes per y e a r . The average c o s t i s a l s o the break-even p r i c e f o r the farm. 60 0 -j 1 i 1 1 1 r i 1 1 i 1 1 1 1 1 1 1 i i r 4 8 12 16 20 M O N T H S FIGURE 4.6.2 A v e r a g e C o s t Of P r o d u c t i o n Over 24 Months F o r The F i r s t F i v e G e n e r a t i o n s Of F i s h F o r The Base Farm. 130 4.6-5 Comparing The Model Entech Environmental Consultants published results from a cash flow model constructed for their own purposes. A common measurement between Entech's model and the one for this study i s the average cost of production. Entech presents average costs per year, whereas this study presents costs per generation. The f i f t h year Entech costs should be comparable to the fourth generation costs from this study. In Table 4.6.4 the Entech costs for year 5 at $5.06/kg are less than those from the base farm (generation 4), at $5.86/kg. Entech's example used costs for smolt, feed, and processing of $.70/kg, $.875/kg, and $1.25/kg respectively. Following the adjustment of some assumptions of this study's model by setting them equivalent to those for Entech's example, the average cost of salmon works out to be $4.79/kg, s l i g h t l y less than the Entech cost of $5.06/kg. The Entech model also considers the cost of financing, which this study does not for this case. The Entech example does not calculate depreciation using the s t r a i g h t - l i n e method. Another difference i s found in the growth schedules, where Entech assumes that after 24 months f i s h are in the range of 3.2 kg. These reasons could result in a greater difference in average costs between the two models. Table 4.6.4 summarizes the average production costs. 131 Table 4.6.4 Comparison of Average Cost of P r o d u c t i o n Between Entech Environmental Consultants Model R e s u l t s and R e s u l t s from the Model Used i n t h i s Study. Average Cost of Production This Study Generation Base With Entech Assumptions Year Entech R e s u l t s 1 2 3 4 $8.52/kg $6.60/kg $6.09/kg $5.86/kg $7.45/kg $5.53/kg $5.03/kg $4.79/kg 1 2 3 4 5 $10.39 $7.03 $5.77 $5.14 $5.06 To compare the r e s u l t s with those from the Envirocon study, a number of v a r i a b l e inputs are a d j u s t e d . The feed p r i c e i s set to $.30/kg, the FCR to 1.5, and p r o c e s s i n g cost to $1.25/kg. The Envirocon study assumed a t o t a l c a p i t a l equipment cost of approximately $200,000. To accommodate t h i s , the c a p i t a l c o sts for the base farm are decreased by 50%. The p r i c e r e c e i v e d f o r f i s h i s $6.93/kg, f o r f i s h s o l d i n the 1.45 kg s i z e , and cumulative m o r t a l i t y i s set at 30% by the 1.5 kg s i z e (the f i n a l harvest p e r i o d ) . The r e s u l t i n g IRR i s 25% with an NPV (4%) of $1.5 m i l l i o n . The Envirocon study r e s u l t e d i n an IRR of 28%. A number of other v a r i a b l e s are not p u b l i s h e d i n the Envirocon study and are c e r t a i n to d i f f e r . These v a r i a b l e s i n c l u d e the o f f a l l o s s , the p r i c e of smolts and the true length of the 132 p r o d u c t i o n c y c l e . The model f o r t h i s study estimates returns l e s s than those from Envirocon's. However, as s t a t e d i n Chapter 1, one of the problems with some models i s that they overestimate the r e t u r n s to salmon farming. T h i s comparison suggests that the model co n s t r u c t e d f o r t h i s study i s not s i g n i f i c a n t l y d i f f e r e n t from the Entech or Envirocon models. 4.7 INVESTMENT RESULTS The payback p e r i o d f o r t h i s study's base farm, i . e . the time r e q u i r e d f o r the cumulative cash flows to reach $0, i s nine years. During the 1987-88 p e r i o d the bank rate f o r term d e p o s i t s was approximately 9%, while the i n f l a t i o n rate i n B.C. was about 4%, and the small business tax rate was 23%. In determining the d i s c o u n t rate f o r the net present value (NPV) analyses, the r e a l rate i s used to be c o n s i s t e n t with the use of r e a l p r i c e s i n the model. The r e a l rate of i n t e r e s t i s the nominal i n t e r e s t r a t e l e s s i n f l a t i o n , or 5% ( d e r i v e d from 9%-4%). To take account of taxes (Kay), the r e a l rate i s adjusted, taken net of the income tax rate of 23%. The r e s u l t i n g r e a l rate f o r the study i s 4% ( d e r i v e d from 5% x (1-.23) and rounded up). A r i s k premium of 3% i s a l s o c o nsidered i n the investment a n a l y s i s , thus u s i n g a 7% discount r a t e . The NPV at a 4% d i s c o u n t rate i s $639,000, and with a 3% r i s k premium, (7% d i s c o u n t rate) i t i s $191,000. The i n t e r n a l r a t e of r e t u r n (IRR) i s 8.8%, thus at a d i s c o u n t rate of 8.8%, 133 the NPV w i l l be zero. A summary of the IRR and NPV r e s u l t s i s shown i n Table 4.7.1. TABLE 4.7.1 I n t e r n a l Rate of Return (IRR) and Net Present Values (NPV) For the Base Farm. NPV ('000 $) IRR Year (%) Discount Rate . 4% 7% 20 8.8 639 191 4.8 SENSITIVITY ANALYSIS To accomplish the s e n s i t i v i t y a n a l y s i s , an i n d i v i d u a l v a r i a b l e i s a l t e r e d , and the computer model i s then rerun. The b i o l o g i c a l v a r i a b l e s to be examined i n c l u d e the m o r t a l i t y r a t e , the feed conversion r a t i o (FCR), and the growth r a t e . The economic v a r i a b l e s chosen f o r s e n s i t i v i t y a n a l y s i s are based on the breakdown of t o t a l c o s t s . The inputs which make up the m a j o r i t y of t o t a l p r o d u c t i o n cost are feed and smolt, labour, m o r t a l i t y insurance, and overhead. A d d i t i o n a l v a r i a b l e s to be considered are the p r o c e s s i n g cost, the product p r i c e , and the percent of o f f a l l o s s . Each input v a r i a b l e i s v a r i e d by + and -10%, 20%, and f o r some, 30% and 50%. The investment c r i t e r i a used f o r the s e n s i t i v i t y a n a l y s i s are the net present value (NPV) at a 4% and 7% d i s c o u n t rate, the net farm income (NFI), and the i n t e r n a l r a t e of r e t u r n (IRR). 134 4 . 8 . 1 B i o l o g i c a l V a r i a b l e s a ) M o r t a l i t y The m o r t a l i t y rate i s t r e a t e d by reducing the base farm monthly m o r t a l i t y r a t e s by 10% f o r each month. T h i s r e s u l t s i n a cumulative m o r t a l i t y rate of 42%, (a 8% change i n t o t a l m o r t a l i t y ) . The decrease i n m o r t a l i t y rates improves the NPV (4%) by 50% to $959,000, and the NPV (7%) i n c r e a s e s by 124% to $428,000. The annual NFI i n c r e a s e s by 41% to $121,000, and the IRR i n c r e a s e s by 2.4% to 10.9%. The monthly m o r t a l i t y r a t e s were a l s o adjusted by +10%, -20%, -30%, -40%, and -50%. Figure 4.8.1 graphs the percentage changes i n the NPV (4%) and NFI with respect to v a r i o u s l e v e l s of changes to the m o r t a l i t y r a t e . The graph shows a r e l a t i o n s h i p between d e c r e a s i n g l e v e l s of m o r t a l i t y and the investment measures that i s s l i g h t l y n o n - l i n e a r , with a m a r g i n a l l y i n c r e a s i n g slope. 135 « FIGURE 4.8.1. The Net Present Value (NPV 4%) and Net Farm Income (NFI), R e s u l t i n g from a +10% to -30% Change i n Base Farm M o r t a l i t y Values. Random adjustments to a s i n g l e month's m o r t a l i t y rate were examined. The m o r t a l i t y rate f o r the r e s p e c t i v e month i s decreased by 10%. The r e s u l t i n g cumulative m o r t a l i t y rates ranged from 46% to 45%, compared to the base farm m o r t a l i t y rate of 46%. The most s i g n i f i c a n t e f f e c t occurs i f the present (or expected) m o r t a l i t y rate i s greater than 2%, or when the decrease i n m o r t a l i t y occurs i n the l a t t e r stages of the production c y c l e . A 10% improvement i n one months m o r t a l i t y , when the expected rate i s l e s s than 1%, has a n e g l i g i b l e impact on the investment measures. 136 b)Feed Conversion Ratio A 10% decrease in the feed conversion ratio (FCR), to 1.8:1 (an increase in feed efficiency) resulted in a 75% increase in the NPV (4%) to $1,121 m i l l i o n , and a 193% increase in the NPV (7%) to $560,000. The NFI increases by 57% to $135,000, and the IRR increases by 39% to 12.2%. Other levels of changes in the FCR were also run through the computer model at +10%, -20%, and -30% of the base farm l e v e l s . Results in other cases were linearly proportional to those of the 10% decrease in FCR, as shown in Figure 4.8.2. 09 Percentage Change in Base Farm Feed Conversion Ratio 0 NPV (4X) + NFI O IRR A CCF FIGURE 4.8.2. The Net Present Value (NPV), Net Farm Income (NFI), and Internal Rate of Return (IRR), Resulting from a +10% to -30% Change in the Base Farm Feed Conversion Ratio. The change in investment measures for a ten percent decrease in mortality and FCR are reported in Table 4 . 8 . 1 . The f i n a l b i o l o g i c a l variable to be changed i s the growth rate, c)Growth Rate The growth rate of f i s h i s considered an i n t r i n s i c variable, one that farm operators have l i t t l e or no control over. However, i t i s examined to determine the impact on the investment measures i f a breed of f i s h in the future i s able to grow faster, i f a s i t e i s located such that environmental factors permit growth faster than that of the base farm, or i f combined factors lead to an increased growth rate (e.g. feed management, grading, density management). A l l end of period average f i s h weights are increased by 10%. The adjusted weight of chinook after 12 months i s .66 kg, 2 8 and after 24 months i t i s 2 . 6 2 kg A faster growth rate s i g n i f i c a n t l y affects the investment c r i t e r i a . Compared to the base farm, the NPV (4%) increases by 172% to $ 1 , 7 4 1 m i l l i o n , and the NPV (7%) increases by 442% to $ 1 , 0 3 6 m i l l i o n . The NFI increases by 202% to $ 2 6 0 , 0 0 0 , while the IRR by 84% to 16 .5%. A 10% improvement in any of the three b i o l o g i c a l variables would make the base farm viable with a 6.9% risk premium (10.9% discount rate). The growth rate has the greatest impact on a l l Entech Environmental Consultants used estimates of .74 to .8 kg after 12 months, and 3 . 2 kg after 24 months; MacGregor used .9 kg and 2 . 7 kg, and Combs used .6 kg and 3 . 2 kg, for 12 and 24 months respectively. 138 d i s c o u n t r a t e ) . The growth r a t e has the g r e a t e s t impact on a l l of the inve s t m e n t measures among the b i o l o g i c a l v a r i a b l e s , f o l l o w e d by the FCR, then the m o r t a l i t y r a t e . T able 4.8.1 summarizes the v a l u e s f o r 10% changes i n monthly m o r t a l i t y , FCR, and growth r a t e compared t o the base farm. TABLE 4.8.1 Change i n Investment Measures Caused by a 10% Change i n the Base Farm V a l u e s f o r the Monthly M o r t a l i t y R a t e s , Feed C o n v e r s i o n R a t i o (FCR), and Growth Rate. Investment M o r t a l i t y FCR Growth Measure Base -10% -10% +10% ('000 $'s) Net P r e s e n t Value ( 4 % ) 639 Net P r e s e n t Value (7%) 191 Net Farm Income (yea r 6) 86 I n t e r n a l Rate of R e t u r n 8.8% 959 1,121 1,741 428 560 1,036 121 135 260 10.9% 12.2% 16.5% 4.8.2 Economic V a r i a b l e s a ) P r o d u c t P r i c e The e f f e c t of a 10% i n c r e a s e i n the p r o d u c t p r i c e i s q u i t e s i g n i f i c a n t . The NPV (4%) i n c r e a s e s by 118% to $1,395 m i l l i o n , and the NPV (7%) i n c r e a s e s by 308% to $780,000. The annual NFI i n c r e a s e s by 140% t o $206,000, and the IRR i n c r e a s e s by 64% to 14.4%. A decrease i n the p r o d u c t p r i c e s has s l i g h t l y g r e a t e r e f f e c t s , i n percentage terms. The NPV (4%) d e c r e a s e s by 190%, the NPV (7%) d e c r e a s e s by 475%, the NFI d e c r e a s e s by 140%, and the IRR d e c r e a s e s by 100% when the p r o d u c t p r i c e i s decrea s e d by 139 b) Feed P r i c e Changes i n the p r i c e of feed has s i g n i f i c a n t e f f e c t s on farm v i a b i l i t y . A 10% i n c r e a s e i n the p r i c e and d e l i v e r y charge of f i s h feed decreases the NPV (at 4%) by 77% to $145,000, and the NPV (7%) decreases by 197% to -$186,000. The NFI decreases by 57% to $37,000, and the IRR decreases by 42% to 5.1%. The investment measures show p r o p o r t i o n a t e changes when the feed p r i c e i s v a r i e d over a range of -30% to +10% of the base farm feed p r i c e . c) Smolt P r i c e An i n c r e a s e i n the p r i c e of smolts by 10% has minor impacts on the investment c r i t e r i a . The NPV (4%) decreases by 15% to $542,000, and the NPV (7%) decreases by 40% to $115,000. The NFI decreases by 10% to $77,000, and the IRR decreases by 8% to 8.1%. A 10% decrease i n the p r i c e of smolts r e s u l t s i n symmetric changes i n the investment c r i t e r i a . The NPVs, NFl s , and IRRs are summarized f o r the base farm values, and f o r 10% changes i n the f i s h , feed, and smolt p r i c e s i n Table 4.8.2. 140 TABLE 4.8.2 Changes i n Investment Measures Caused by a 10% Change i n the Base Farm Values f o r F i s h , Feed, and Smolt P r i c e s . Product Feed Smolt Investment P r i c e P r i c e P r i c e Measure Base +10% +10% +10% ('000 $'s) Net Present Value (4%) 639 1,395 145 542 Net Present Value (7%) 191 780 -186 115 Net Farm Income (year 6) 86 206 37 77 I n t e r n a l Rate or Return 8.8% 14.4% 5.1% 8.1% The product p r i c e has a g r e a t e r impact on farm v i a b i l i t y than e i t h e r the p r i c e of feed or smolts. At the r i s k f r e e 4% l e v e l , the base farm i s no longer v i a b l e (NPV 4% <0) i f a l l product p r i c e s decrease by 5.3%. At the 7% l e v e l , the t h r e s h o l d i s a 2.1% decrease i n the product p r i c e s . The base farm becomes i n v i a b l e when the feed p r i c e i n c r e a s e s by 12.9% at the 4% discount r a t e , and 5.1% at the 7% d i s c o u n t r a t e . The base farm i s not as s e n s i t i v e to changes i n the smolt p r i c e , remaining v i a b l e at a 4% d i s c o u n t rate u n t i l the smolt p r i c e i n c r e a s e s by 65.9%. Graphs of v a r i o u s percentage changes i n the product, smolt, and feed p r i c e r e s u l t e d i n l i n e a r r e l a t i o n s h i p s , s i m i l a r to Figure 4.8.2, with the slopes d i f f e r i n g f o r each r e s p e c t i v e v a r i a b l e . d ) P r o c e s s i n g Cost An i n c r e a s e i n the p r o c e s s i n g c o s t by 10% r e s u l t s i n a 141 decrease i n the NPV (4%) by 48% to $332,000, and a decrease i n the NPV (7%) by 121% to -$40,000. The change causes the NFI to decrease by 37% to $54,000, and the IRR to decrease by 25% to 6.6%. e) O f f a l Loss A decrease i n the o f f a l l o s s i n p r o c e s s i n g , from 15% to 13.5%, r e s u l t s i n the NPV (4%) i n c r e a s i n g by 31% to $837,000, and the NPV (7%) i n c r e a s i n g by 77% to $$339,000. The change causes the NFI to i n c r e a s e by 26% to $108,000, and the IRR to increase by 16% to 10.2%. f ) Labour Wage A 10% i n c r e a s e i n the labour wage rate r e s u l t s i n a 9% decrease i n the NPV (4%) to $580,000, and a 24% decrease i n the NPV (7%) to $145,000. The change leads the NFI d e c r e a s i n g by 6% to $81,000, and the IRR de c r e a s i n g to by 6% to 8.3%. The p r o c e s s i n g cost has a f a i r l y s i g n i f i c a n t impact on the investment measures. I f the p r o c e s s i n g c o s t s were to i n c r e a s e more than 21%, the base farm w i l l no longer be v i a b l e at a 4% discount r a t e . The o f f a l l o s s and labour wage have minor impacts on the investment measures. For the base farm to no longer be v i a b l e would r e q u i r e a 32% i n c r e a s e i n o f f a l l o s s , or a 108% i n c r e a s e i n labour wages. Table 4.8.3 summarizes the investment measures f o r the base farm r e s u l t i n g from a 10% change i n the p r o c e s s i n g c o s t , o f f a l l o s s during p r o c e s s i n g , and labour wage r a t e . The graphing of var i o u s percentage changes i n the p r o c e s s i n g c o s t , labour wage 142 r a t e , and o f f a l l o s s r e s u l t e d i n l i n e a r r e l a t i o n s h i p s , resembling Figure 4.8.2. TABLE 4.8.3 Change i n Investment Measures Caused by a 10% Change i n the Base Farm Values f o r the P r o c e s s i n g Cost, O f f a l Loss, and Labour Wage. Pr o c e s s i n g O f f a l Labour Investment Cost Loss Wage Measure Base +10% - 1 0 % +10% ( '000 $'s) Net Present Value ( 4 % ) 639 332 837 580 Net Present Value ( 7 % ) 191 -40 339 145 Net Farm Income (year 6) 86 54 108 81 I n t e r n a l Rate of Return 8.8% 6.6% 10.2 8.3% g) M o r t a l i t y Insurance Rate The m o r t a l i t y insurance rate when decreased by 10%, i n c r e a s e s the NPV ( 4 % ) by 10% to $ 7 0 1 , 0 0 0 , and i n c r e a s e s the NPV ( 7 % ) by 25% to $ 2 3 8 , 0 0 0 . The change i n c r e a s e s the NFI by 8% to $93,000 and the IRR by 5% to 9.2%. h) C a p i t a l Costs A 10% decrease i n c a p i t a l c osts i n c r e a s e s NPV ( 4 % ) by 9% to $579,000, and i n c r e a s e s NPV ( 7 % ) by 30% to $ 1 3 4 , 0 0 0 . The change i n c a p i t a l c o s t s i n c r e a s e s NFI by 13% to $ 7 5 , 0 0 0 , while the IRR inc r e a s e s by 7% to 8.2%. A l l a d m i n i s t r a t i o n costs are a l s o v a r i e d , producing the sma l l e s t impact of a l l v a r i a b l e s examined. A 10% i n c r e a s e i n a d m i n i s t r a t i v e c o s t s leads to a decrease i n NPV ( 4 % ) of 5%, and 143 decreases NPV (7%) by 13% to $166,000. The NFI decreases by 3% to $83,000, and IRR decreases by 2% to 8.6%. The values and e l a s t i c i t i e s for changes in mortality insurance rate, c a p i t a l costs and administration are not summarized in a table since they result in small changes in the investment c r i t e r i a . 4.8.3 E l a s t i c i t i e s and Ranking of C r i t i c a l Variables A l l of the b i o l o g i c a l and economic variables examined in the s e n s i t i v i t y analysis were changed by 10%. To allow for a comparison between the variables, the e l a s t i c i t y w i l l be u t i l i z e d . The e l a s t i c i t y i s defined as the percentage change in the investment c r i t e r i o n resulting from a one percent change in the respective variable. For example, an e l a s t i c i t y of 5 means that a 1% change in the variable results i n a 5% change in the respective investment measure. The examined variables are ranked for each investment measure, from the most sensitive to the least sensitive, based on the e l a s t i c i t i e s . The growth rate i s the most s i g n i f i c a n t variable a f f e c t i n g NPV's. At the 4% l e v e l , the e l a s t i c i t y of growth i s 17.2, about 40% greater than the next most sensitive variable, the product price, with an e l a s t i c i t y of 11.8. Following the product price are the feed price and feed conversion r a t i o (FCR) with e l a s t i c i t i e s of 7.7 and 7.5 respectively. The next most sensitive variables are the mortality rate and the processing cost with e l a s t i c i t i e s of 5.0 and 4.8 respectively. The o f f a l loss has an e l a s t i c i t y of 3.1, followed by the smolt cost at 144 1.5. The labour, mortality insurance, c a p i t a l costs and administration costs have e l a s t i c i t i e s of 1 or les s , at .9, 1.0, .9, and .5 respectively. Based on the NPV ( 7 % ) , the order of the f i r s t six most sensitive variables from the NPV (4%) i s the same, for growth, product price, feed price, FCR, mortality rate, and processing cost. The e l a s t i c i t y for o f f a l loss i s 7.7, and 4.0 for the smolt cost. For the mortality insurance rate, labour wage, capita l costs, and administration cost the e l a s t i c i t i e s are approximately 3 or le s s . The growth rate has the highest e l a s t i c i t y with respect to NFI, at 20.2. The product price i s again the next most sensitive variable a f f e c t i n g NFI, with an e l a s t i c i t y of 14;0. This i s followed by the feed price and FCR with the same e l a s t i c i t i e s of 5.7. The mortality rate and processing cost are the next most sensitive variables with e l a s t i c i t i e s of 4.1 and 3.7 respectively. The o f f a l loss has a minor impact on the NFI, with an e l a s t i c i t y of 2.6. The smolt price, c a p i t a l costs, labour wage, mortality insurance, and administration cost a l l have e l a s t i c i t i e s of approximately 1 or l e s s . The IRR responds the least to changes in the c r i t i c a l variables, since i t varies much less than the other investment measures. For thi s c r i t e r i o n the growth rate i s the most sensitive with an e l a s t i c i t y of 8.4, followed by the product price at 6.4. The feed price has an e l a s t i c i t y of 4.2, again close in s e n s i t i v i t y to the FCR at 3.9. Then the processing 145 cost and m o r t a l i t y rate f o l l o w , with e l a s t i c i t i e s of 2.5 and 2.4 r e s p e c t i v e l y . The remaining v a r i a b l e s continue to have small e l a s t i c i t i e s of approximately 1 or l e s s . Table 4.8.4 i s a summary of the e l a s t i c i t i e s and a ranking of the c r i t i c a l b i o l o g i c a l and economic v a r i a b l e s d i s c u s s e d with respect to s e n s i t i v i t y . The s e n s i t i v i t y rank i s based on the e l a s t i c i t i e s of the c r i t i c a l v a r i a b l e s . O v e r a l l , the growth rate stands out as the most s e n s i t i v e v a r i a b l e . The product p r i c e i s a l s o a s e n s i t i v e v a r i a b l e , with high e l a s t i c i t i e s from 6.4 to 30.8. The feed p r i c e and the FCR are the t h i r d and f o u r t h most s e n s i t i v e v a r i a b l e s , yet almost e q u i v a l e n t i n terms of e l a s t i c i t i e s . The m o r t a l i t y rate and the p r o c e s s i n g cost a l s o have s i m i l a r e l a s t i c i t i e s , but rank as the f i f t h and s i x t h most s e n s i t i v e v a r i a b l e s o v e r a l l . The m o r t a l i t y rate i s examined based on percentage changes to each and every monthly m o r t a l i t y r a t e . I f the e l a s t i c i t i e s are measured with respect to the cumulative m o r t a l i t y , the e l a s t i c i t i e s f o r NPV ( 4 % ) , NPV ( 7 % ) , NFI, and IRR are 6.9, 15.4, 5.5, and 3.5 r e s p e c t i v e l y . T h i s would rank the m o r t a l i t y f i f t h o v e r a l l , and a f f e c t the investment measures to a s i m i l a r degree as the feed p r i c e and FCR. The o f f a l l o s s i s the seventh most s e n s i t i v e v a r i a b l e , but i s l i k e l y a v a r i a b l e that may be c o n t r o l l e d by the p r o c e s s i n g p l a n t manager, and not the farm operator. The remaining v a r i a b l e s have e l a s t i c i t i e s of approximately 1 or l e s s , and are r e l a t i v e l y i n s i g n i f i c a n t . 146 TABLE 4.8.4 Ranking of V a r i a b l e s By E l a s t i c i t y f o r the Investment Measures and the V a r i a b l e E l a s t i c i t i e s . Net Net Net I n t e r n a l Present Present Farm Rate of Value (4%) Value (7%) Income Return Growth 1 1 1 2 Rate (17.2) (44.2) (20.2) (8.4) Product 2 2 2 1 P r i c e (11.8) (30.8) (14.0) (6.4) Feed 3 3 3 3 P r i c e (7.7) (19.7) (5.7) (4.2) Feed 4 4 4 4 Conversion (7.5) (19.3) (5.7) (3.9) Ratio M o r t a l i t y 5 6 5 6 Rate (5.0) (12.4) (4.1) (2.4) P r o c e s s i n g 5 5 5 5 Cost (4.8) (12.1) (3.7) (2.5) O f f a l 6 7 7 7 LOSS (3.1) (7.7) (2.6) (1.6) Smolt 7 8 8 8 P r i c e (1.5) (4.0) (1.0) (0.8) M o r t a l i t y 8 9 9 10 Insurance (1.0) (2.5) (0.8) (0.5) C a p i t a l 9 10 9 9 Equipment (0.9) (3.0) (1.3) (0.7) Labour 8 10 10 9 Wage (0.9) (2.4) (0.6) (0.6) A d m i n i s t r a t i o n 10 11 11 11 Cost (0.5) (1.3) (0.3) (0.2) E l a s t i c i t i e s i n parentheses Ranking: 1 = most s e n s i t i v e , 11 = l e a s t s e n s i t i v e . 147 4.8.4 Management Considerations Additional runs on the computer model were done to determine the effects of other possible scenarios. These scenarios include an extension of the production cycle, and combinations of mortality, FCR and a 10% decrease in product price that result in a viable farm. a) Alternate Marketing Schedules Alternate marketing schedules are run through the model. These plans include s e l l i n g a l l f i s h between the 21st and 24th month, and s e l l i n g gradually from the 18th month (October) to the 24th month. The harvesting and s e l l i n g of f i s h over a greater period, from 17th month to the 24th month, decreases a l l of the investment measures compared to the base farm. : Concentrating sales towards the 24th month, with no sales during the winter, increases the IRR by 38%. The f i s h price i s the major cause of these results. The move up one weight class in conjunction with higher spring prices results in a $2/kg increase in the price received for the f i s h . b) 30 Month Production Cycle To consider an extension of the production cycle to 30 months, the mortality and maturity rates, and weights are assumed to be as l i s t e d in Table 4.8.5. This scenario assumes the monthly weight, mortality and maturity schedules for the f i r s t 24 months are the same as the base farms. 148 TABLE 4.8.5 Weight and Marketing Rates of Chinook to Supplement the Base Farm, Months 25 to 30. Marketing Month Month Weight Rate Number (kg) (%) November 18 1.68 15 December 19 1.91 20 A p r i l 23 2.49 40 May 24 2.60 80 June 25 2.75 0 J u l y 26 2.90 0 August 27 3.20 0 September 28 3.50 0 October 29 3.60 20 November 30 3.70 100 To have an NPV (4%) gre a t e r than the base farm, along with the schedules i n Table 4.8.5, a minimum monthly l o s s of 2% per month i s r e q u i r e d f o r months 25 through 30. The NPV i n c r e a s e s when the percentage of i n v e n t o r y s o l d i n months 18, 19 or 23 are decreased. Reducing s a l e s i n the 24th month w i l l b e n e f i t the base farm only i f monthly l o s s e s from the 25th to 30th months i s l e s s than .5%. The p r i c e p a i d f o r 1.83 kg f i s h i n May i s e q u i v a l e n t to the p r i c e of 2.73 kg f i s h i n October, thus s i g n i f i c a n t l y a f f e c t i n g the d e c i s i o n of when to s e l l and what q u a n t i t y to s e l l . c)200 Tonne Annual P r o d u c t i o n The case of a 200 tonnes annual p r o d u c t i o n farm was run through the model, assuming the a d d i t i o n a l r e q u i r e d pens and nets are purchased, the a d d i t i o n a l labour accommodated, and 149 management capable of dealing with the greater capacity. The returns are s i g n i f i c a n t l y greater. The NPV (4%) increases by 124% to $1.43 m i l l i o n , NFI increases by 79% to $154,000, and the IRR increases by 32% to 11.6%. d) Farm Growth Rate Two alternative farm growth rates are examined. The f i r s t has annual smolt purchases of 60,000, 90,000, and 120,000 for years one, two, and three to twenty respectively. At this rate, the NPV (4%) increases by 44% to $917,000, the NFI decreases by 24% to $107,000, and the IRR increases by 22% to 10.7%. The second rate has annual smolt purchases of 80,000 and 120,000 for the f i r s t year and each following year, respectively. For this growth pattern, the NPV (4%) increases by 60% to $1.02 m i l l i o n , the NFI increases by 21% to $107,000, and the IRR increases by 27% to 11.2. e) Interest Rate The impact of operating interest i s minor. With a 13% operating interest rate, the NFI decreases by 11%, the NPV (4%) decreases by 86%, and the IRR decreases to 3.1%. E a r l i e r runs with an operating interest cost, Aquaculture Incentive Program loan, and term loans showed the interest accounting for less than 1% of t o t a l production costs. f ) Exchange Rate Another factor which makes the product price an important variable i s the impact of changes in the exchange rate with the U.S. d o l l a r . This i s because the U.S. market i s the major buyer 150 of B.C. farmed salmon. A 10% change i n the f i s h p r i c e i s e q u a l t o a change from the 1987 l e v e l of $1 Canadian = $.76 U.S. t o $1 Canadian =• $.85 U.S. ($1 Cdn = $.81 U.S. i n May 1988). 151 CHAPTER 5 SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS Thi s chapter i s composed of three s e c t i o n s . The f i r s t i s a summary of the study i t s e l f . The second s e c t i o n d i s c u s s e s the conclusions, from the study r e s u l t s , and the c o n d i t i o n s f o r the co n c l u s i o n s to h o l d . The t h i r d s e c t i o n i s a d i s c u s s i o n of recommendations f o r f u r t h e r s t u d i e s , and of the data gaps i n t h i s study. 5.1 SUMMARY The main o b j e c t i v e s of t h i s study were: 1. To determine the c r i t i c a l v a r i a b l e s i n grow-out salmon farming i n B.C.; and 2. To assess the v i a b i l i t y of grow-out salmon farming i n B.C. To do so r e q u i r e d the i d e n t i f i c a t i o n of problems i n e x i s t i n g salmon farming cash flow models, the a v a i l a b l e data, and the i n f o r m a t i o n requirements of the i n d u s t r y . This was achieved through meetings with s t a f f of the B.C. M i n i s t r y of A g r i c u l t u r e and F i s h e r i e s (BCMAF), B.C. Research s t a f f , d i r e c t o r s at the B.C. Salmon Farmers' A s s o c i a t i o n , and the F a c u l t y of A g r i c u l t u r a l Sciences, UBC. Some of the problem areas were a number of b i o l o g i c a l and economic f a c t o r s t hat 152 a f f e c t grow-out salmon farms. The s p e c i e s o f f i s h i s an i m p o r t a n t b i o l o g i c a l f a c t o r t h a t can a f f e c t the growth r a t e of salmon. Other major b i o l o g i c a l f a c t o r s i n c l u d e the f e e d c o n v e r s i o n r a t i o and the m o r t a l i t y r a t e . The causes o f m o r t a l i t y i n farmed salmon are a major concern. D i s e a s e s are the dominant cause o f a c c o u n t a b l e l o s s e s i n the i n d u s t r y . However, u n a c c o u n t a b l e l o s s e s can a l s o be s i g n i f i c a n t and are presumably due t o p r e d a t o r s , s a m p l i n g t e c h n i q u e , and h o l e s i n n e t s . Economic f a c t o r s a f f e c t i n g grow-out salmon farmers i n c l u d e the p r i c e s o f f i s h , f e e d , and s m o l t s , and the c o s t s of p r o c e s s i n g the f i s h , l a b o u r , and equipment. The p r i c e of f i s h a l s o i n v o l v e s the exchange r a t e between the Canadian and U.S. d o l l a r s i n c e much o f B.C.'s farmed salmon i s s o l d i n the U.S. market p l a c e . The p r o d u c t i o n c y c l e of the grow-out salmon farmer b e g i n s w i t h the purchase o f s m o l t s , and e n t a i l s the f e e d i n g and management o f the f i s h u n t i l h a r v e s t . T h i s p r o d u c t i o n c y c l e ranges from 17 t o 30 months. Based on i n f o r m a t i o n from the i n d u s t r y groups mentioned above, a microcomputer based spreadsheet cash f l o w model was c o n s t r u c t e d t o model the monthly c o s t s and r e t u r n s of salmon f a r m i n g . The model i s d e s c r i b e d i n terms of how i t e s t i m a t e s the monthly o p e r a t i n g c o s t s , the monthly biomass, and the r e s u l t i n g r e t u r n s i n Chapter 3. To o b t a i n d a t a on the i m p o r t a n t v a r i a b l e s i n salmon 153 farming, a number of salmon farms were v i s i t e d and/or int e r v i e w e d . The s e l e c t i o n of farms was through the help of the B.C. Salmon Farmers' A s s o c i a t i o n . From the data set the input requirements are d i s c u s s e d i n terms of the means and range of costs of each item. Based on t h i s data set, a c o s t f o r each item i s used to d e f i n e the c o s t s and composition of a base farm. The assigned values d e f i n i n g the base farm are then run through the computer model to assess the v i a b i l i t y of salmon farming i n B.C. The d e t e r m i n a t i o n of c r i t i c a l v a r i a b l e s of salmon farming i s achieved v i a use of a s e n s i t i v i t y a n a l y s i s on a number of the b i o l o g i c a l and economic v a r i a b l e s . The b i o l o g i c a l v a r i a b l e s i n c l u d e the m o r t a l i t y rate and the feed conversion r a t i o . The choice of economic v a r i a b l e s i s based upon the breakdown of input c o s t s . Those inputs that represent a s i g n i f i c a n t p r o p o r t i o n of the t o t a l p r o d u c t i o n cost are analyzed f o r s e n s i t i v i t y . These v a r i a b l e s i n c l u d e the costs of feed, smolt, p r o c e s s i n g , labour, c a p i t a l , the product p r i c e , and the o f f a l l o s s d u r i n g p r o c e s s i n g . 5.2 CONCLUSIONS 5.2.1 Base Farm R e s u l t s The base farm, as d e f i n e d i n Table 4.5.2, f o l l o w i n g a growth p e r i o d of four years, produces 130 tonnes of salmon ann u a l l y , and i s l o c a t e d i n the S e c h e l t / s o u t h Vancouver I s l a n d region of B r i t i s h Columbia. The l o c a t i o n i s moderately 154 i s o l a t e d , t h a t i s , reasonably c l o s e to road access. I t i s assumed to have a feed conversion r a t i o of 2:1 monthly, a cumulative m o r t a l i t y rate of 46%, and a r e s u l t i n g t o t a l feed to t o t a l f i s h weight r a t i o (TFFR) of 2.7:1. The s t o c k i n g d e n s i t y i s a maximum of 6 kg/m^, and the weight of chinook i s 2.6 kilograms a f t e r 24 months, by which time a l l f i s h are s o l d . Smolts cost $.75 each, feed $1.29/kg ( i n c l u d i n g d e l i v e r y ) , h i r e d ( f u l l - t i m e ) labour $9/hr, and c o n t r a c t (part-time) labour $6.50/hr. Based on a net present value (NPV) a n a l y s i s , with a r e a l d iscount rate of 4% (net of a 23% tax r a t e ) , the base farm i s a v i a b l e o p e r a t i o n over a 20 year l i f e with a value of $639,000. This r e s u l t holds i f the f i s h weight and m o r t a l i t y rate are as given f o r the base farm i n Tables 4.4.1 and 4.4.2 r e s p e c t i v e l y , and i f the feed c o n v e r s i o n r a t i o i s 2.0:1. A d d i t i o n a l c o n d i t i o n s are that the product p r i c e s f o r the base farm hold as i n Table 4.5.2, and that c a p i t a l equipment c o s t s are approximately $500,000 i n the f i r s t 5 years, and $210,000 over the next 15 y e a r s . C o n s i d e r i n g a r i s k premium of 3%, hence a r e a l d i s c o u n t rate of 7%, t h i s base farm remains v i a b l e with a value of $191,000. The i n t e r n a l rate of re t u r n f o r t h i s o p e r a t i o n i s 8.8%. G r a p h i c a l l y , the monthly cash flows f o r the base farm assume the shape of a W over the course of a year. This i s because the base farm s e l l s f i s h i n the l a t e f a l l and l a t e s p r i n g , with each s a l e s p e r i o d r e s u l t i n g i n the middle and r i g h t 155 hand peak of the W respectively. As the farm expands, reaching the goal production l e v e l in the f i f t h year, the maximum cash flow requirement of $1.3 m i l l i o n i s reached. The payback period, when the year end (May 31) cumulative cash flows become positive, i s nine years. The variation in cumulative cash flows remain positive ( i . e . positive throughout a production year) beginning in the 15th year. The net farm income (NFI) for the base farm i s negative for the f i r s t four years. The NFI then peaks at $86,000 in the sixth year, and decreases to $66,000 in the ninth year. This i s due to the loss of the a b i l i t y to carry over prior negative net incomes. The average cost of producing salmon for the base farm is • $5.69/kg. The main inputs for the production of farmed salmon, and the percent of production cost are: Feed - 58% Smolt - 11% Depreciation - 10% Mortality Insurance - 8% Hired Labour - 5% Overhead - 3% Equipment Operating Costs - 2% Contract Labour - 2% Veterinary and Medical Costs - 1% The feed cost i s by far the most s i g n i f i c a n t cost in raising farmed salmon. Smolts represent the next largest proportion of the production cost. However, the smolt cost i s not a very s i g n i f i c a n t variable (in terms of s e n s i t i v i t y , discussed below) in the grow-out of salmon, and nor are the other input costs. 156 In considering these above results a number of points must be noted. F i r s t , the data set i s not a representative sample of the industry. The farms were selected based on farm record a v a i l a b i l i t y for the b i o l o g i c a l and economic variables. This implies that the p a r t i c i p a t i n g farms may be among the better managed farms in the industry. Since no attempt was made to define a base case farm which was representative of the B.C. salmon farming industry, the base farm results cannot be generally applied to the industry. Second, the mortality rate for chinook (Table 4.4.1) has a tota l mortality of 46% over 24 months, and i s used in a l l production years. The data set from which the mortality rates were derived consists of information during the f i r s t two or three years of operation for most of the p a r t i c i p a t i n g farms. A trend of decreasing mortality from the f i r s t to second, and second to t h i r d generation, has been noted by the farmers. This has been attributed to improved managerial a b i l i t y gained through experience. The FCR has also been noted to decrease as managerial a b i l i t y improves. Third, most purchased smolts covered in the data set were from wild stock eggs and many of the farms are presently raising their own broodstock. The smolts from the broodstock have the potential for better s u r v i v a b i l i t y , and growth. Fourth, the feed conversion ratio (FCR) i s constant for a l l months and a l l generations at 2.0:1. Good feed management could 157 result in a better FCR, thus decreasing the t o t a l feed cost for each generation. F i f t h , the results are based on the ra i s i n g of chinook only. The cost of r a i s i n g coho may produce d i f f e r e n t results. These points, although not s t a t i s t i c a l l y confirmed, suggest that the base farm may underestimate the v i a b i l i t y of salmon farming. 5.2.2 V a r i a b l e S e n s i t i v i t i e s The most sensitive variable turned out to be the growth rate, with an NPV (4%) e l a s t i c i t y of 17.2. If the growth rate could be increased by one percent, the NPV (4%) would increase by 17.2%. It is not a variable which a farm manager i s able to d i r e c t l y control. However, the farm manager can i n d i r e c t l y influence the growth rate through such variables as feed management, the stocking density, s i t e selection, and the selection of f i s h species or broodstock. The next most sensitive variable i s the product price, having an NPV (4%) e l a s t i c i t y of 11.8. A 5.3% decrease in the product price i s enough to make the farm an unprofitable investment. The price of f i s h feed i s the th i r d most sensitive variable, with an NPV (4%) e l a s t i c i t y of 7.7. The feed price i s another variable which the farm operator has l i t t l e control over, but must monitor. The base farm i s no longer viable at a 4% discount rate i f the price of feed increases more than 12.9%. The feed conversion r a t i o (FCR) i s the fourth most 158 s e n s i t i v e v a r i a b l e , a n d o n e w h i c h t h e f a r m o p e r a t o r h a s s o m e c o n t r o l o v e r . T h e F C R h a s a n N P V (4%) e l a s t i c i t y o f 7 . 5 . T h u s , a 10% d e c r e a s e i n t h e F C R ( a t 1.8:1) w i l l i n c r e a s e t h e N P V (4%) b y 75%. T h e f i f t h a n d s i x t h m o s t s e n s i t i v e v a r i a b l e s a r e t h e m o r t a l i t y r a t e a n d t h e p r o c e s s i n g c o s t , w i t h a n e l a s t i c i t i e s o f 5.0 a n d 4.8. T h e m o r t a l i t y r a t e w o u l d r a n k h i g h e r t h a n t h e p r o c e s s i n g c o s t i f m e a s u r e d w i t h r e s p e c t t o c u m u l a t i v e m o r t a l i t y , a n d w o u l d h a v e e l a s t i c i t i e s s i m i l a r t o t h e F C R . B o t h o f t h e s e v a r i a b l e s c a n h a v e a s i g n i f i c a n t i m p a c t o n t h e v i a b i l i t y o f t h e g r o w - o u t s a l m o n f a r m , h o w e v e r , m o r t a l i t y s h o u l d r a n k h i g h e r s i n c e a f a r m e r c a n m a n a g e i t t o s o m e d e g r e e , u n l i k e t h e p r o c e s s i n g c o s t . T h e o f f a l l o s s i s t h e s e v e n t h m o s t s e n s i t i v e v a r i a b l e w i t h a n N P V (4%) e l a s t i c i t y o f 3.1, h o w e v e r , i t i s n o t u n d e r t h e c o n t r o l o f t h e g r o w - o u t f a r m e r . W i t h m i n o r i m p a c t s o n s e n s i t i v i t y , i m p r o v e d t e c h n o l o g y c o u l d i n c r e a s e t h e v i a b i l i t y o f g r o w - o u t f a r m i n g . T h e e i g h t h m o s t s e n s i t i v e v a r i a b l e i s t h e s m o l t c o s t , w i t h a n N P V (4%) e l a s t i c i t y o f 1.5, w h i c h i s r e l a t i v e l y m i n o r . A l t h o u g h t h e s m o l t c o s t i s n o t s e n s i t i v e w i t h r e s p e c t t o i m p a c t s o n t h e i n v e s t m e n t m e a s u r e s , t h e q u a l i t y o f s m o l t s p l a y s a p a r t i n t h e f i s h l o s s e s t h r o u g h n o n - s m o l t i f i c a t i o n , t h u s i n d i r e c t l y a f f e c t i n g t h e m o r t a l i t y r a t e . T h e r e m a i n i n g v a r i a b l e s , l a b o u r w a g e , m o r t a l i t y i n s u r a n c e , c a p i t a l a n d a d m i n i s t r a t i o n c o s t , a l l a f f e c t t h e v i a b i l i t y o f 159 grow-out salmon farming minutely. However, the cost of financing the i n i t i a l set up of a farm with high c a p i t a l costs, as compared to low ca p i t a l costs, w i l l a f f e c t the payback period and the NFI. The variables examined in the study are l i s t e d in order of s e n s i t i v i t y to net present value (4%): (with e l a s t i c i t i e s in parenthesis) Type of Variable 1: The growth rate. (17.2) B i o l o g i c a l 2: The price received for f i s h . (11.8) Economi c 3: The price of f i s h feed. (7.7) Economic 4: The feed conversion r a t i o . (7.5) Bi o l o g i c a l 5: The mortality rate. (5.0) B i o l o g i c a l 6: The cost of processing. (4.8) Economi c 7: The o f f a l loss. (3.1) Bi o l o g i c a l 8: The smolt pr i c e . (1.5) Economic 9: The mortality insurance. (1.0) Economi c 10. The cost of capi t a l equipment. (0.9) Economi c 11: The labour wage. (0.9) Economic 12. The administration cost. (0.5) Economi c 5.2.3 Salmon Farm V i a b i l i t y The base farm, with i t s given input costs, growth schedule, monthly mortality rates, FCR and other variables for a l l generations i s viable. Any farm that meets these input levels w i l l be viable, assuming that the necessary funding of $1,235 160 m i l l i o n can be supplied by the farm operator. ( I f loans are u t i l i z e d , the cost of interest must be added). T h i s conclusion of v i a b i l i t y can be greatly affected by a number of variables. T h e s e include the growth rate of f i s h , feed management (thus TFFR), product price, feed price, mortality rate, and a v a i l a b i l i t y of required funds. An unprofitable operation can result from any of the following changes in the base farm input variables: - a 5.3% decrease in a l l of the product prices - a 12.9% increase in the feed price ($1.46/kg) - a 20% increase in a l l monthly mortality rates (approximately 55% cumulative mortality) - a 13% increase in monthly feed conversion ratios ( F C R = 2.26) I t should also be considered that salmon farming can be quite a viable investment. A 10% increase in the growth rate yields an IRR of 16.4%. A monthly FCR of 1.6 for a l l generations, with a l l other variables held a t base farm l e v e l s , results i n a n IRR of 15.4%, and a n NPV (4%) of $1.6 m i l l i o n . There i s a p o s s i b i l i t y of a 20% return from investing i n a salmon farm. I f the base farm i s assumed to improve monthly mortality rates by 10% for the second, t h i r d , and fourth generations (57%, 61%, and 65% cumulative survival respectively), and the F C R improves to 1.8 for the fourth through 19th generations, the resulting I R R i s 22%. T h u s , despite the r i s k s , there i s potential for s i g n i f i c a n t benefits 161 from salmon farming in B.C. 5.3 RECOMMENDATIONS FOR FURTHER STUDY This study involves economic and b i o l o g i c a l relationships. Considering t h i s , the following recommendations take two general directions, one in terms of b i o l o g i c a l research, and the other in terms of economic research. 5.3.1 B i o l o g i c a l Research From the conclusions, the growth rate of salmon i s the most sensitive variable. This suggests that research into improving the growth potential of salmon should be a high p r i o r i t y in the industry. The FCR and the mortality rate are other sensitive b i o l o g i c a l variables,- in which improvements would benefit the industry. Additionally, the determination of a growth and/or mortality function of pen-reared salmon would be valuable for bi o l o g i c a l research, and could be u t i l i z e d in economic studies. 5.3.2 Economic Research a)Data and related Extensions Obtaining data for this study was a major task, producing results based on actual data, unlike most other models or studies. Although the data should not be considered representative of the industry, the compilation and use of the data i s valuable because of the lack of data to date for such studies. Despite the value of the data, the significance of the results can be improved with the use of an improved data set. 162 This study lacked numerous obser v a t i o n s p e r t a i n i n g to the b i o l o g i c a l v a r i a b l e s , the growth r a t e , FCR, and m o r t a l i t y r a t e . The sought a f t e r data would be a record of monthly f i s h weights, FCR, and m o r t a l i t y f o r e n t i r e generations of salmon. The p r i c e of f i s h i s a l s o a very important v a r i a b l e , of which a g r e a t e r data base should improve the e s t i m a t i o n of expected p r i c e s re c e i v e d f o r harvested f i s h . The ranking of v a r i a b l e s f o r t h i s study was based on the e l a s t i c i t i e s with respect to the investment measures. Another method of ranking the v a r i a b l e s could be to u t i l i z e a p r o b a b i l i t y d i s t r i b u t i o n (from a g r e a t e r data base) i n c o n j u n c t i o n with the s e n s i t i v i t i e s to determine which v a r i a b l e s are most important, as compared to most s e n s i t i v e . That i s , which v a r i a b l e s are most l i k e l y to change, to what degree are they expected to change, and how w i l l t h i s a f f e c t the v i a b i l i t y or p r o f i t a b i l i t y of the salmon farm. This would i n v o l v e an e s t i m a t i o n of the l i k e l i h o o d of each v a r i a b l e changing by say 10,20 or 30 percent. V a r i a b l e s to be considered are the i n c i d e n c e of b a c t e r i a l kidney disease and a l g a l blooms, the product p r i c e , the exchange rate ( i n U.S. d o l l a r s ) , the p r i c e of f i s h feed, and the weight of harvested f i s h . b )Further S t u d i e s Since the product p r i c e and feed p r i c e are the most s e n s i t i v e economic v a r i a b l e s , p r e d i c t i v e models f o r these v a r i a b l e s could help to guide the i n d u s t r y and p o l i c y 163 development. This could be very important considering the expected increase in the production of farmed salmon worldwide. c)Model Extension A l i m i t a t i o n of the model i s the lack of available computer memory. Operating on a microcomputer with 1 megabyte of random access memory, the model leaves only 3,000 bytes available. To extend the model w i l l require additional memory, or a reduction of the model i t s e l f , i)Management Purposes A management oriented extension could take one of two directions. One could be to emphasize the f i n a n c i a l statements of the model. Few changes would be necessary to deal with t h i s . To make the model easier to use, a set of equations dealing with allowable loan l i m i t s in each year could be added. This w i l l l i k e l y require the reduction of part of the model. The existing f i n a n c i a l statements and ratios should allow for a good fi n a n c i a l analysis. The use of borrowed funds was hardly dealt with for the base farm, and i s worthwhile information for the industry. The second d i r e c t i o n would be for farm manager use. This should probably involve the b i o l o g i c a l functions. It has been suggested that a good farm management model should follow the development of f i s h by pens, instead of by generation. This type of use should also enable the use of a shorter time period. ii)Research Purposes Extensions of the model for research purposes has numerous 164 p o s s i b i l i t i e s . The model could accommodate a growth and/or mortality function which should improve i t s estimating a b i l i t i e s of costs and returns. The variance in the growth of f i s h could be investigated to enhance the returns side. Presently, when harvesting occurs, a proportion of the f i s h may be one weight group above or below the majority of the harvest. To accommodate such situations w i l l require a pro b a b i l i t y d i s t r i b u t i o n of the weight of salmon for each time period. The prob a b i l i t y d i s t r i b u t i o n would be used to generate estimations of the number of f i s h at the mean weight, and greater than and less than the mean weight. This information would then be used to determine i f the three weight groups (less than mean, mean, and greater than mean) of f i s h f a l l into the same processing weight group. If they f a l l into d i f f e r e n t groups, the returns w i l l then d i f f e r , a si t u a t i o n that many salmon farmers have encountered. The information may be useful in determining the optimal harvesting period and size. The processing i s somewhat s i g n i f i c a n t with respect to s e n s i t i v i t y . An investigation into the relationship between the grow-out farmer and the processor could reveal some interesting relationships, with respect to the i n d u s t r i a l structure. An extension of this study could then be to examine the absence or presence of imperfect competition between the producers and processors. F i n a l l y , the smolt variable was found not to be s i g n i f i c a n t in terms of cost, but may be s i g n i f i c a n t in terms of mortality. 165 At l e a s t one smolt s u p p l i e r guarantees a l l smolt s a l e s . I f any smolt s u p p l i e r produces a b e t t e r product, one that minimizes the n o n - s m o l t i f i c a t i o n problem (a l o s s or m o r t a l i t y problem), at what c o s t w i l l i t be b e n e f i c i a l to the grow-out salmon farmer? Such a p r o j e c t would enable the use of the model used i n t h i s study, and r e q u i r e good hatchery i n f o r m a t i o n . The model f o r t h i s study i n c o n j u n c t i o n with a custom l i n e a r program or n o n - l i n e a r program could be used to optimize the salmon p r o d u c t i o n l e v e l , given v a r i o u s b i o l o g i c a l or economic c o n s t r a i n t s . Huntley u t i l i z e d a s i m i l a r approach with Rainbow t r o u t . 166 REFERENCES Allen, P. Geoffrey, et a l . Bioeconomics of Aquaculture. Developments in Aquaculture and Fisheries Science, Volume 13. Amsterdam. 1984. Elsevier Science Publishers B.V. Anderson, Jock R. "Simulation:Methodology and Application in Agri c u l t u r a l Economics". Review of Marketing and  Agr i c u l t u r a l Economics. March 1974. 42:1(3-37). Archibald, A l l a n . B r i t i s h Columbia Salmon Farmers' Association. Personal communication and telephone conversation. November 30,1987 to March 21, 1988. Bentley, Ernest and C. Richard Shumway. "Adaptive Planning Over the the Cattle Price Cycle". Southern Journal of  Agr i c u l t u r a l Economics. July 1981. 13:1(139-148). Bentley, Ernest, James R. Waters and C. Richard Shumway. "Determining Optimal Replacement Age of Beef Cows in the Presence of Stochastic Elements." Southern Journal of  Agr i c u l t u r a l Economics. December 1976. Bj<|>rndal, Trond. Industrial Structure and Cost of Production in  the Norwegian Aquaculture Industry. No. 31. Bergen-Sandviken. Institute of Fisheries Economics, Norwegian School of Economics and Business Administration. 1987. Bj4>rndal, Trond and Richard Schwindt. Norwegian Direct Investment in the B r i t i s h Columbia Salmon Aquaculture  Industry:A Case Study. No. 1. Bergen. Institute of Fisheries Economics. Norwegian School of Economics and Business Administration. 1987. Boehlje, Michael D., and Vernon R. Eidman. Farm Management. Toronto. John Wiley and Sons, Inc. 1984. Borgen, Wayne and Mike Smith. Canadian Imperial Bank of Commerce, Vancouver. Personal communication, September 21,1987. B r i t i s h Columbia Ministry of Agriculture and Fisheries. The B r i t i s h Columbia Aquaculture Newsletter. Volume 6, Number 4.1986. B r i t i s h Columbia Ministry of Agriculture and Food. Financing  and Incentives for Aquaculture Production in B r i t i s h  Columbia. Province of B r i t i s h Columbia Ministry of Agriculture and Food. March 1986. 167 B r i t i s h Columbia Ministry of Agriculture and Food. Aquaculture  in B.C.- Getting Started. 1986. B r i t i s h Columbia Ministry of Economic Development. Salmon  Farming - A P r o f i l e . 1986. Canada. Revenue Canada. Telephone conversation March 1988. Canadian Aquaculture. F a l l 1986. Volume 2(4) :13. Canadian Aquaculture. Advertisement. Spring, 1987. Volume 3(2) :59. Couture, Marcel J. Farm Business Management. MacDonald College of McGill University. Ste.-Anne-de-Bellevue, Quebec. 1980. Combs, S. B r i t i s h Columbia Ministry of Agriculture and Fisheries. Cash flow model for salmon farming. 1986. Deegan, Rick. B r i t i s h Columbia Ministry of Agriculture and Fisheries. Telephone conversation and personal communication, November 24,1987 and February 3, 1988. Entech Environmental Consultants. Vancouver, B.C. 1986. Envirocon Limited. Potential For Viable Aquaculture Endeavors  in B r i t i s h Columbia. March 1984. Gordon, Michael R. The Development of Salmon Farming in Norway:  A Growing Export Industry Made Up of Small Community-based  Businesses. Industry Information Report No. 10. B.C. Research, Fisheries Technology Division. 1984. Hagensborg Food Corporation. Nanaimo, B.C. Huntley, R.V. A System For The Economic Planning and Management  of Rainbow Trout Farms in Ontario. M.Sc. thesis, University of Guelph. 1982. Industry Task Force on Aquaculture. Science Council of Canada. Aquaculture: A Development Plan For Canada. August 1984. Kay, Ronald D. Farm Management - Planning, Control, and  Implementation. New York. McGraw-Hill. 1981. Kennedy, W.A. "A Handbook on Rearing Pan-Size P a c i f i c Salmon Using Floating Seapens". Fisheries and Marine Service  Industry Report No. 107. Department of Fisheries and The Environment, P a c i f i c B i o l o g i c a l Station, Fisheries and Marine Service, Resource Branch, Nanaimo, B.C. A p r i l 1978. 168 Kennedy, W.A., W. G r i f f i o e n and A. Solmie. "The 1977 Crop of Salmon Reared on The P a c i f i c B i o l o g i c a l Station Experimental Fishfarm". Fisheries and Marine Service  Technical Report No. 845. November 1978. Kennedy, W.A., W. G r i f f i o e n and A. Solmie. "The 1976 Crop of Salmon Reared on The P a c i f i c B i o l o g i c a l Station Experimental Fishfarm". Fisheries and Marine Service  Technical Report No. 726. June 1977. Lee, Mei L i . The Market for Farmed Salmon: An Overview. Marketing Branch, B.C. Ministry of Agriculture and Food. June 1986. L i t t l e , Monty. Syndel Laboratories. Telephone conversation March 22, 1988. Lusztig, Peter and Bernhard Schwab. Managerial Finance in a Canadian Setting. Second Edition. Toronto. Butterworths. 1977. MacDougall, N. and M.R. Gordon. Survey of The Current Status  and Problems of the B.C. Salmon Farming Industry. B.C. Research, Vancouver, B.C. 1987. MacGregor, R.J. B r i t i s h Columbia Ministry of Agriculture and Fisheries. Cash flow model for salmon farming. 1986. March, B.E. and M.G. Walsh. Salmonid Culture-Fundamentals and  Practice for B r i t i s h Columbia. A Home Study Course. Faculty of A g r i c u l t u r a l Sciences, University of B r i t i s h Columbia. 1987. Murphy, Mary. "Herring Decline Spells Trouble for Future of Fish Feed Supplies." Canadian Aquaculture, October 1986. Vol. 2:4(13). P f e i f f e r , W.C. and H. J o r j a n i . "Analysis of Commercial Aquaculture in Central Canada". Canadian Industry Report  of Fisheries and Aquatic Sciences. Number 160. Pierce, Brad. Aquaculture in Alaska. House Research Agency Report 87-B. House Research Agency, Alaska State Legislature. 1987. Powell River Net Loft. Powell River, B.C. 1987. Pynn, Larry. Salmon Thrive as Hope Grows. Vancouver Sun, October 31, 1986. Page H7. Vancouver. P a c i f i c Press. 1986. 169 Reid, Alexander and S.F. Sverre. F i s h Farming '86. Entech Environmental Consultants L i m i t e d . Vancouver, B.C. 1986. Rogish, E i l e e n . Sedgewick Tomensen Insurance. Telephone c o n v e r s a t i o n October 11, 1987. Sakalauskas, A.J. A Computerized Farm Management Information System For Commercial Beef Ranch Operators. M.Sc. t h e s i s , 1977. UBC. Salm, Roland. The Economics of Salmon Farming on the North  Coast of B r i t i s h Columbia. B.Sc. t h e s i s , unpublished. F a c u l t y of A g r i c u l t u r e , U n i v e r s i t y of B r i t i s h Columbia. 1987. Scantech Resources L i m i t e d . Seminar handout, May 5, 1987. Smith, Mike. Canadian Imperial Bank of Commerce. Telephone c o n v e r s a t i o n October 26, 1987. T o b o l s k i , J e f f r e y Joseph. An E v a l u a t i o n of P r i v a t e Salmon Aquaculture Companies i n the States of A l a s k a , Oregon and  Washington. MS. t h e s i s , U n i v e r s i t y of Washington. 1977. van Blo k l a n d , P.J. Notes from a seminar on December 15, 1986, from G. Kennedy. 170 APPENDIX A A l MODEL DESCRIPTION AND BACKGROUND INFORMATION IN ITS USE The f i r s t p a r t of the appendix d e s c r i b e s the model procedures to estimate the costs and re t u r n s of a given s i z e of salmon farm, with d e f a u l t values f o r the input v a r i a b l e s p rovided. The d e f a u l t values are taken from the base farm d e f i n e d i n t h i s study. In the second p a r t , the i n s t r u c t i o n s f o r use of the model are given. The t h i r d p a r t s t a t e s the equations not p r e v i o u s l y d i s c u s s e d i n Chapter 3. The d e f a u l t v a l u e s are from a base farm that produces 130 tonnes of f i s h a n n u a l l y , u t i l i z i n g 20 12m x 12m seapens, at a moderately i s o l a t e d s i t e . Table 4.5.2 d e f i n e s t h i s base farm. The i n i t i a l stages i n the use of the salmon farming model permit the user to choose a number of c h a r a c t e r i s t i c s i n the growth of a grow-out salmon farm. The f i r s t o p t i o n permits the choice of v a r i o u s farm growth p r o f i l e s i n terms of number of smolts purchased each year. The growth p r o f i l e covers 5 years, with i n c r e a s i n g q u a n t i t i e s of smolts i n su c c e s s i v e years u n t i l the f i f t h year, upon which smolt q u a n t i t i e s remain at the f i f t h year l e v e l . The f i r s t four p r o f i l e s are l i s t e d i n Table A l , as they appear i n the model. The f i f t h p r o f i l e i s l i s t e d as "Other" f o r the user to enter an a l t e r n a t i v e growth p r o f i l e i f he wishes. 171 TABLE A l D e s c r i p t i o n of Farm Growth P r o f i l e s . Number of Smolts Purchased Year 1 2 3 4 Other 1 37,000 60,000 80,000 60,000 2 55,000 90,000 120,000 100,000 3 80,000 120,000 120,000 150,000 4 120,000 120,000 120,000 180.,000 5 120,000 120,000 120,000 180,000 The second o p t i o n permits the choice as to how long the sal e of pan-sized f i s h w i l l take p l a c e , from a minimum of zero to a maximum of three y e a r s . Upon s e l e c t i n g a farm growth p r o f i l e , the model user then enters a d d i t i o n a l i n f o r m a t i o n i n t o the input s e c t i o n of the model. This s e c t i o n r e q u i r e s the user to enter a l l v a r i a b l e c o s t s r e l a t e d to p r o d u c t i o n , loan requirements and r e s p e c t i v e i n t e r e s t r a t e s , and o p p o r t u n i t y i n t e r e s t r a t e s . Table A2 l i s t s the v a r i a b l e input cost s e c t i o n with the d e f a u l t v a l u e s . Any of the d e f a u l t values can be adjus t e d by the model user. The g a s o l i n e cost i s $ . 4 2 / l i t r e , the cost of smolts i s $.75 each, the labour wage i s $9/hour ($1,800/month), and the feed cost i s $1.2/kg (extruded f e e d ) , with a $.09/kg d e l i v e r y charge f o r feed. The p r o c e s s i n g cost t o t a l s $2.3/kg, broken down i n t o c l e a n i n g , packaging, t r a n s p o r t and marketing. ( I f the t o t a l p r o c e s s i n g cost i s a l l that matters, one of the four could be set at the t o t a l c ost with the other p r o c e s s i n g 172 c o s t s set at z e r o ) . The scuba tank cost i s $5/tank. The v e t e r i n a r y / m e d i c a l c o s t s are c a l c u l a t e d i n terms of a cost per weight of harvested f i s h , at $.08/kg. TABLE A2 De f a u l t Values f o r the V a r i a b l e Input Costs. C o s t / u n i t ITEM Unit or cost Gasoline l i t r e 0. 42 Smolt Cost smolt 0. 75 Hired labour wage hour 9. 00 Contract labour wage hour 6. 50 Add'1 labour c o s t s (eg.WCB) hour 0. 08 Owner's labour hour F i s h Feed Kg 1. 20 Feed D e l i v e r y Charge Kg 0. 09 Processing c o s t : Marketing Kg 0. 75 Cleaning Kg 0 . 75 Packaging Kg 0. 35 Transport Kg 0 . 45 Scuba tank f i l l (80 c u . f t . ) tank 5. 00 Vet/medical c o s t s Kg 0 . 08 The v a r i a b l e i n p u t l e v e l s are next to be entered or adjust e d i n the model. The number of h i r e d employees ( f u l l -time) i s 2. The base values for employee fee d i n g and h a r v e s t i n g r a t e s are 250 and 185 kg/hr per person r e s p e c t i v e l y . These value s are based on the use of automatic feeders, and having to handle and bleed f i s h when h a r v e s t i n g . The a d d i t i o n a l labour cost i s 8.1% of the wage rate to cover CPP, UIC, and WCB premiums. The pen volume f o r smolt pens i s 648 m"* (6 x 12 x 173 9 d ) , and f o r standard pens i t i s 1,584 m3 (12 x 12 x l i d ) . The d i v i n g frequency i s 10 times per month (1 out of every 3 days), and i t i s assumed that each 80 f t 3 scuba tank i s adequate to dive i n t o 10 pens. The o f f a l l o s s i n p r o c e s s i n g i s 15% of gross f i s h weight. The base m o r t a l i t y insurance rate i s 5% over the d u r a t i o n of the farm ope r a t i o n . Table A3 summarizes the v a r i a b l e input l e v e l s . TABLE A3 D e f a u l t Values for the V a r i a b l e Input L e v e l s . Rate or u n i t Quantity Number of h i r e d employees 2 Feeding rate kg/hr 250 Harvesting rate kg/hr 185 Pen volume-smolt cu. m. 648 Pen volume-large cu. m. 1584 Dive frequency /month 10 .00 Pens dived per tank No. 10 .00 Machinery d e p r e c i a t i o n r a t e 30 .00% Equipment d e p r e c i a t i o n r a t e 20 .00% O f f a l l o s s e s 15% The f i x e d input c o s t s , or a d m i n i s t r a t i o n c o s t s are f o r insurance ( v e h i c u l a r , f i r e ) , l e a s e s , u t i l i t i e s (power, communications), and l e g a l and accounting c o s t s . These c o s t s are d e a l t with a n n u a l l y , having c o s t s of $5,00, $8,000, $10,000, and $5,000 r e s p e c t i v e l y . The i n t e r e s t rates are entered at the top of each year's input c o s t s e c t i o n . The term loans i n the model can handle 174 payments annually, semi-annually, or quarterly, with the respective number 1, 2, or 4 entered into the c e l l for number of payments per year. There i s a f i s h price table with approximate values for each month and each weight group. The values given with the model are the average values from the farm and processor data from the study, as shown in Table A4. These can be altered by the user i f desired. TABLE A4 Mean Fish Prices Assigned to the Base Farm. Fish Weight Group Month <0.91 kg <1.82 kg <2.73 kg >2.73 kg ($/kg) January 3.85 6.93 8.78 10 .78 February 3 .85 6.93 8.78 10 .78 March 3.85 7.44 9.90 11 .09 A p r i l 3.85 8.76 10.34 13 .09 May 3.85 9.64 11.66 13 .97 June 3.85 not available July 3.85 not available August 3.85 5.85 8.47 9 .90 September 3.85 7.26 9.42 11 .00 Octobe r 3.85 7.65 9.68 11 .66 Novembe r 3.85 8 .47 11.57 13 .75 Decembe r 3.85 9 .32 11.84 14 . 17 Once the above information has been entered into the spreadsheet, the model user manually recalculates the model. The input section of the model w i l l calculate the number of pens 175 required in each of five years, for smolt sized and f u l l sized or standard sized pens. Considering the required number of pens in each year, the user proceeds to complete the building, equipment, and machinery tables. The required information includes the number of each item, the price per item, h i s t o r i c a l or expected fuel consumption per hour for machinery, expected salvage values, and repair codes (annual repair costs as a percentage of i n i t i a l cost). Table A5 l i s t s the values of machinery used for the defined base farm. The repair and fuel codes are derived from data where possible. The expected l i f e spans of equipment and salvage values are based on owner estimates. The truck i s assumed to be a f u l l size 3/4 ton pick-up truck, purchased second hand (but near new), having a cost of $11,600. A generator producing 6,500 watts costs approximately $2,800. The outboard motor i s assumed to be rated at 70 horsepower (hp). The boat i s assumed to be 14-16', new, and constructed of aluminum. The s k i f f i s approximately 20' (6m), with no accessories. A p a l l e t jack i s expected to cost $900. The miscellaneous tools include hand tools, power tools such as a d r i l l , and dip nets. The diving gear includes one dry s u i t , two regulators and gauges, three tanks, two buoyancy compensators, and two sets of masks and f i n s , summing to $4,200 (included with machinery due to the lack of space). 176 TABLE A5 D e f a u l t Machinery C o s t s , Expected L i f e , Salvage V a l u e s , Hours of Use Per Year, F u e l Codes and R e p a i r R a t e s . MACHINERY LIST ITCH NO. OF COST PER LIFE SALVAGE HRS. USE FUEL REPAIR UNITS UNIT($) IN YRS. VALUE PER YR. CODE CODE(I) Truck (3/4) 1 11 BOO 6 2000 200 18.90 7.51 Generator 1 2800 10 500 1100 3.10 1.0Z Outbd i o t o r ( ) 2 5 ) 2 3000 6 850 800 7.11 14.0! Outbd •otor«25) 0 0 6 0 0 0.00 O.OZ Boat 1 4200 10 500 500 0.00 o.ox S k i f f 1 8000 10 1500 800 0.00 0.01 P a l l e t jack 1 900 10 200 0 0.00 1.01 d i s c , t o o l s 1 5000 10 200 0 0.00 O.OX Water puip 1 1500 3 0 130 0.30 10.oz Diving gear 1 4200 7 400 1 0.00 5.001 Table A6 l i s t s the v a l u e s of equipment used f o r the base farm as a guide f o r the model u s e r . The barge i s assumed t o be l a r g e enough t o s u p p o r t the o f f i c e b u i l d i n g , and p r i m a r y s t o r a g e f a c i l i t i e s , h a v i n g a c o s t of $18,000. The c o s t of a b u i l d i n g a t $23,000 i n c l u d e s a gas s t o v e , s h e l v i n g , o f f i c e f u r n i t u r e , and temporary accommodation f o r employees. A f l o a t i n g work shed w i t h approximate dimensions of 8' x 8' c o s t s $2,200. A l l net pens are metal a l l o y , w i t h dimensions of 12m x 12m (40' x 4 0 ' ) , i n c l u d i n g f l o t a t i o n and a share of a second hand salmon s e i n e n e t s ( p r e d a t o r n e t ) , c o s t $13,410. Each a u t o m a t i c f e e d e r i n c l u d e s a share of the c o n t r o l l i n g computer and w i r i n g , a t $1,400. Smolt n e t s are 12m x 6m x 6m deep (lm above the w a t e r ) , 177 with a 13mm mesh, having a c o s t of $1,700 each. The standard nets are 12m x 12m x 12m deep (lm above the water), with net meshes ranging from 25mm to 51mm, and an average cost of $2,400. Laboratory equipment i n c l u d e s a microscope, d i s s o l v e d oxygen meter, secchi d i s c , thermometers, and a d i s s e c t i n g k i t , summing to a cost of $5,000. The anchoring cost i n the f i r s t year i s $4,000 f o r the main b u i l d i n g , feed shed, and 2 pens. A d d i t i o n a l equipment i n the f o l l o w i n g 3 years i n c l u d e s pens, nets, and anchoring ( a c c o r d i n g to the requirements, t o t a l 20 pens, f o r the base farm), a second feed shed, a t h i r d outboard motor and a second water pump. In the f i f t h year, 21 standard nets, and 1 smolt net i s purchased, along with $300 of misc e l l a n e o u s equipment. These purchases are assumed to occur for a l l f o l l o w i n g y ears. TABLE A6 D e f a u l t Values f o r Equipment Costs, Expected L i f e , Salvage Values and Repair Rates. BUILDINGS, EQUIPMENT ITEM NO. OF UNITS COST PER UNIT LIFE SALVAGE YEARS VALUE REPAIR RATE(%) Barge B u l l d l n g ( s ) Work shed & f l o a t Net pens-Smolt Net pens-Standard Feeders Nets-smolt Nets-standard Lab equipment Anchor ing 1 1 1 0 4 4 2 6 1 1 13410 1400 1700 2400 5000 4000 18000 23000 3000 0 15 15 7 0 15 8 3 7 10 8 1500 200 0 400 500 0 0 0 0 0 2.00% 2 .00% 1.00% 0.00% 0.50% 0 . 50% 1.00% 5.00% 0.00% 0.00% 178 This information allows the model to calculate the operating costs, opportunity costs, and depreciation costs for the respective equipment. At this point the spreadsheet must be recalculated. The user then reviews the t o t a l cash requirements for each year for machinery and, buildings and equipment. Review of the cash requirements for c a p i t a l equipment should give the user an estimate of term loan requirements for each of five years. The base farm does not consider term loans. However, base farm costs suggest loan requirements of a $90,000 Aquaculture Incentive Program loan, a $45,000 loan in year 2, a $44,000 loan in year 3, and a $60,000 loan in year 4. These loan requirements are based on the a b i l i t y to obtain loans up to one half of the cost of c a p i t a l purchases in each respective year, excluding nets. These loan requirements are then placed into their respective c e l l s for each year. Upon recalculation, the model calculates the interest and p r i n c i p a l payments for each month. Located below the loans tables are the b i o l o g i c a l parameters and marketing schedule. The example parameters given with the model are based on average values from the study data set, as shown in Table A 7 . The s p e c i f i c user may a l t e r these schedules, using the schedules that his farm has h i s t o r i c a l l y experienced or expects for f i s h growth, f i s h mortality, feed conversion rat i o , f i s h maturation, and stocking density on a monthly basis. 179 TABLE A7 D e f a u l t V a l u e s F o r t h e B i o l o g i c a l P a r a m e t e r s F o r t h e F i r s t 1 0 M o n t h s . BIOLOGICAL PARAMETER PI P2 P3 P4 P5 P6 P7 P8 P9 P10 June July Aug Sept Oct Nov Dec Jan Feb Mar Hater Teiperature U t . / f i s h EOP 0.018 0.053 0.076 0.L19 0.167 0.206 0.240 0.284 0.327 0.380 Maturation Rate 0.00Z 0.001 0.001 0.001 0.001 o.ooz 0.001 0.001 O.OOZ O.OOZ Surv i v a l Rate 97.77X 37.50)! 98.40Z 97.18% 98.67X 93.542 99.591 99.531 94.641 98.89Z C u i u l a t i v e S u r v i v a l v.m 95.331 93.801 91.161 89.94X 89.53X 89.161 88.741 83.991 83.05Z Feed Conversion 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Stocking Density 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 T h e m a r k e t i n g s c h e d u l e i s s e t b y t h e m o d e l u s e r b a s e d o n p a s t h a r v e s t i n g c o n t r a c t s , o r o n e x p e c t e d f u t u r e c o n t r a c t s . T h e m a r k e t i n g r a t e s a r e g i v e n e i t h e r f o r c h i n o o k o r c o h o . T h e s c h e d u l e i s s e t t o a c c e p t p e r c e n t a g e v a l u e s s u c h t h a t t h e s a l e o f f i s h i s c a l c u l a t e d a s a p e r c e n t a g e o f t h e s t o c k a t t h e b e g i n n i n g o f t h e m o n t h . T w o m a r k e t i n g s c h e d u l e s a r e s u p p l i e d i n t h e m o d e l . T h e f i r s t i s f o r a s t a r t u p f a r m w h i c h m a y r e q u i r e t h e s a l e o f p a n - s i z e d f i s h w i t h i n t h e f i r s t y e a r s b e c a u s e o f a n e e d f o r r e v e n u e s . T h e m o d e l a u t o m a t i c a l l y s e l l s f i s h a c c o r d i n g t o t h e " e s t a b l i s h e d " m a r k e t i n g s c h e d u l e i n t h e y e a r c h o s e n b y t h e u s e r i n c e l l F4. T h e m o d e l u s e r w h o d o e s n o t r e q u i r e t h e s a l e o f p a n s i z e f i s h , p r e s u m a b l y a n e s t a b l i s h e d f a r m , w i l l t h e n s e t c e l l F4 t o 1. T h e g r o w t h , m o r t a l i t y , a n d m a r k e t i n g t a b l e c o m p l e t e s t h e i n p u t s e c t i o n . F r o m t h e g i v e n b i o l o g i c a l p a r a m e t e r s , t h i s t a b l e 180 w i l l calculate the number of mo r t a l i t i e s , feed consumption, number of f i s h sold, and to t a l biomass of each species of f i s h for every month of the production cycle. This table u t i l i z e s the information on expected weight and number of f i s h sold in each month from the growth, mortality and marketing schedule, to calculate the t o t a l mass of f i s h sold each month. The price that corresponds to the month and weight of the f i s h i s multiplied by the mass of f i s h sold in the month to calculate the monthly revenues less processing costs. Estimated labour requirements are determined from the estimated mass of f i s h at the end of each month, the mass of f i s h sold each month, and the respective feeding and harvesting rates given. The inventory quantities and market values are determined from the beginning and end of year numbers of chinook or coho, the estimated average weights of the f i s h , and the respective prices. The overhead costs are taken d i r e c t l y from the input section unless a monthly value i s i n i t i a l l y given, in such cases the value w i l l be multiplied by twelve. A number of input costs that w i l l be u t i l i z e d later in the model are carried through from the input section. The cost and returns summaries calculate the cash and economic costs of f i s h production. Where a number of costs are for the farm in general, such as the use of a truck, the proportion of each species of f i s h i s used to calculate the 181 amount of the cost of the truck attributed to each species of f i s h . Non cash costs included in these summaries are depreciation, and the opportunity costs of investing into machinery, land, and f i s h . These summaries permit the user to see the economic costs that accrue to the production of salmon. The cash flow calculations sum the individual costs from the cost and return summaries on a monthly basis and include a l l cash transactions such as interest on term loans and c a p i t a l purchases. A2 MODEL INSTRUCTIONS AND TECHNICAL INFORMATION The model operates off the Lotus 1-2-3 software on IBM or IBM compatible microcomputers. The model comprises one 3.5 inch floppy disk, or two 5.25 floppy disks, consisting of seven hundred kilobytes (Kb). A minimum of 1 Megabyte of Random Access Memory (RAM) i s required to operate the model. STEP 1: Be sure to make backups of the model d i s k ( s ) ! STEP 2: Load the Lotus 1-2-3 program from the A drive of the computer. Remove the Lotus program di s c . If using the 3.5 inch floppy disk, insert the model disc, DISK #1, into drive A, and retrieve the f i l e e n t i t l e d "SALMON.WRK". If using 5.25 inch floppy disks, insert the f i r s t disk, "SALMON MODEL #1", into drive A. Retrieve the f i l e e n t i t l e d "SALMONl.WRK". Once the spreadsheet appears on the screen, move to the bottom l e f t corner of the 182 spreadsheet, (Cell A200), named "HERE". Then replace the f i r s t disk with the second floppy disk, "SALMON MODEL #2". Use the F i l e , Combine, Copy, Entire commands to combine the second f i l e , "SALMON2.WRK", with the f i r s t f i l e . STEP 3: Select a farm growth scenario, and enter the number into c e l l F4. See TABLE A l for examples. If none of the scenarios are applicable, enter the number 5 into c e l l F4. Now go to c e l l CC5, and enter the number of Chinook or coho smolt that w i l l be purchased i n each of five years with the l e v e l of smolt purchases to s t a b i l i z e in year five ( i . e . remain the same after year f i v e ) . STEP 4: Select the year in which pan-size f i s h w i l l no longer be sold by entering the number in to c e l l F6. I f no pan-size f i s h are to be sold, enter 1 into c e l l F6. STEP 5: Recalculate the spreadsheet by pressing the function key F9. When the spreadsheet has completed i t s recalculations, proceed to enter a l l variable input information. The l i s t i s found on the l e f t side of the spreadsheet from c e l l E12 to L42. STEP 6: F i l l in the required equipment and machinery tables for each of the fiv e years for which space has been made available in the input section. The Machinery tables are found in c e l l s P14 to V23, Y21 to AG26, AJ23 to AR28, AU24 to BC28, and BF24 to BN28. Before f i l l i n g in the Equipment tables, look to the lines just above the tables where the model automatically calculates the number of smolt and 183 standard sized pens required for the upcoming year. The Equipment tables are found in ranges P31 to T40, AA35 to AE42, AJ36 to AP42, AW37 to BA42, and BF37 to BL42. Once this has been completed, recalculate the spreadsheet again by pressing the function key F9. When thi s i s complete, the user may wish to review a l l of the information entered to ensure a l l i s satisfactory. A3 EQUATION DESCRIPTION A3.1 I n f l a t i o n F a c t o r s The model can be used in a nominal format. To accommodate th i s , two i n f l a t i o n factors are included in the model. The f i r s t one applies to input costs such as smolt, feed, labour, f u e l , etcetera. The second i n f l a t i o n factor applies to a l l administration costs, including u t i l i t i e s , accounting and legal fees, insurance, and manager's salary. If an i n f l a t i o n rate of 3% i s desired, go to c e l l E41, then enter .03. Beginning in the second year, the input costs w i l l increase by 3%, and 3% for each successive year. A3.2 Loan Schedule The period payment for term loans i s calculated using equation A . l . 184 R * K Payment = P * -N/K ( A . l ) 1-(1 + R) where: P = Pr i n c i p a l R = Annual interest rate K = Number of payments per year N = Number of years for loan The interest for each period i s calculated according to equation A.2. A3.3 Inventory The opening number of f i s h for each year i s the beginning of period number of f i s h in June for the respective year class of f i s h . The table l i s t s only the f i r s t , second, and t h i r d year class, thus the fourth year class w i l l be l i s t e d in the f i r s t year class row, and the f i f t h year class in the second year class row. The value per weight of f i s h i s the price from the price table corresponding to the average weight of f i s h at the beginning of the year. For smolts, the value i s the cost of smolts. The closing number of f i s h for each year i s the end of period number of f i s h for May of the respective year class of f i s h . PI = P * (R/K) (A.2) where: PI = Period Interest P = Pr i n c i p a l R = Annual interest rate K = Number of payments per year APPENDIX Bl 185 PARK MEAN COST DATA FOR CAPITAL EQUIPMENT AND MACHINERY ITEM DOLLARS Barge 1500 (000 18000 9000 9000 Feed Shed 2000 3000 1000 2000 1600 Feed Shed - large 5700 B a i l d i n g 12000 4)00 23000 15000 Anchors 5000 Pens - s i o l t 3333 3500 Pens - standard d e t a i l 155000 203000 Nuaber= 12 16 Pens - standard (wood) 3575 3750 3800 3950 6713b Nuiber= 4 4 4 4 16 Nets - S i o l t (• lit 4000 6300 Nuaber- 4 5 Nets - Saolt ( a 1 Ut 5200 8500 6300 10400 3(00 Huaber= 4 5 5 8 3 l e t s - standard 14400 14400 89600 12000 4500 Nuaber= ( 8 28 8 3 l e t s - predator 2500 Feeders 17520 4095 10860 33(00 Buaber^ 16 7 12 24 Boat 2000 4200 1400 1800 Boat - large 19000 13140 S k i f f 3000 8000 Dip nets 100 35 100 100 Diving Eqnipaent 3400 2800 4000 500 3093 Laboratory eqnipaent 2260 1620 2000 16000 P a l l e t nover 500 550 908 Tools - a i s c e l l a n e o a s 2000 1000 5000 3800 Generator 2500 1500 1400 2800 850 Outboard notor >=35 horsepower 2700 3500 1500 2500 5000 <35 horsepower 1300 1400 l a t e r poip 650 400 900 1500 Track 1700 9(00 10500 1750 1700 Track 2200 2300 2200 2 22400 1( (000 3200 2250 11(00 Noiber of c o n t r i b u t i n g f a n s = 8. l o t a l l c o n t r i b u t i n g f a n s were able to provide data for a l l i t e a s . Each observation i s f r o i one f a n , i n soie cases, e.g. t r a c k s , soae f a n s provided aore than one observation. The order of data i s not c o r r e l a t e d to f a n s , to protect the i d e n t i t y of p a r t i c i p a n t s . 186 A P P E N D I X B2 S A M P L E M E A N C O S T , S T A N D A R D D E V I A T I O N A N D R A N G E F O R E Q U I P M E N T A N D M A C H I N E R Y S t a n d a r d RANGE  I t e m M e a n D e v i a t i o n M i n i m u m M a x i m u m B a r g e 9417 3983 .47 6000 18000 F e e d S h e d 1920 652 .38 1000 3000 F e e d S h e d - l a r g e 700 0 .00 5700 5700 B u i l d i n g 13725 6490 .52 4900 23000 A n c h o r s 5000 0 .00 5000 5000 P e n s - s m o l t 3417 83 .50 3333 3500 P e n s - s t a n d a r d ( m e t a l ) 12786 P e n s - s t a n d a r d ( w o o d ) 2569 N e t s - S m o l t 6m x6m 1144 N e t s - S m o l t 6m x 12m 1360 N e t s - s t a n d a r d 2246 N e t s - p r e d a t o r 2500 0 .00 2500 2500 F e e d e r s 1120 B o a t 2350 1089 .72 1400 4200 B o a t - l a r g e 16070 2930 .00 13140 19000 S k i f f 5500 2500 .00 3000 8000 D i p n e t s 84 28 .15 35 100 D i v i n g e q u i p m e n t 3299 1629 .05 500 6000 L a b e q u i p m e n t 5470 6083 .76 1620 16000 P a l l e t m o v e r 653 181 .70 500 908 T o o l s - m i s c e l l a n e o u s 2950 1551 .61 1000 5000 G e n e r a t o r 5121 5816 .96 850 18000 O u t b o a r d m o t o r > = 35 3040 1168 .93 1500 5000 <35 1350 50 .00 1300 1400 W a t e r P u m p 863 408 .31 400 1500 T r u c k 4680 3901 . 55 1700 11600 N u m b e r o f c o n t r i b u t i n g f a r m s = 8. 187 APPENDIX CI DATA ON END OF MONTH CHINOOK WEIGHT k i l o g r a i s CROP Month 1 2 3 4 5 6 7 8 9 10 11 Nay 0.006 0.01 0.0058 0.008 0.0085 0.007 June 0.032 0.02 0.015 0.012 0.02 0.01 0.016 July 0.138 0.047 0.025 0.0405 0.03 0.095 0.05 August 0.072 0.056 0.08 0.059 0.064 0.06 0.162 0.085 Septeiber 0.094 0.1 0.12 0.0827 0.188 0.13 October 0.12 0.122 0.175 0.230 0.19 Noveiber 0.15 0.15 0.22 0.290 0.22 Deceiber 0.195 0.2 0.183 0.25 0.198 0.3 0.331 0.26 January 0.24 0.2 0.3 0.380 0.3 February 0.29 0.225 0.35 0.420 0.35 March 0.35 0.252 0.6 0.470 0.41 A p r i l 0.4 0.25 0.3 0.540 0.49 Nay 0.47 0.392 0.453 1 0.680 0.6 June 0.58 0.625 0.717 0.820 0.76 July 0.76 0.8 1.100 0.94 August 0.95 1 1.51 1.300 1.1 Septeiber 1.13 1.28 2.27 1.600 1.3 October 1.32 1.3 1.850 1.5 Noveiber 1.5 1.4 1.814 2.000 1.7 Deceiber 1.65 2 2.100 1.9 January 1.76 2.200 2.1 February 2.300 2.3 March 2.400 2.5 Ap r i l 3 1.71 2.500 2.75 May 4.082 2.700 June 2.900 July 3.200 August 3.500 Septeiber 3.700 October 6.084 3.900 4.100 4.200 Nuiber of c o n t r i b u t i n g f a n s = 6. Soie f a n s provided data for •ore than one crop/generation. Not a l l c o n t r i b u t i n g f a n s vere able to provide data for a l l l o n t h s . Crops 2,4,10, and 11 are graphed i n Appendix C3. 188 APPENDIX C2 MEAN AND STANDARD DEVIATION OF END OF MONTH CHINOOK WEIGHT Mean Weight Standard Month (kg) D e v i a t i o n May 0.008 0.0015 June 0.018 0.0067 J u l y 0.061 0.0407 August 0.080 0.0348 September 0.119 0.0375 October 0.167 0.0452 November 0.206 0.0580 December 0.240 0.0542 January 0.284 0.0678 February 0.327 0.0721 March 0.416 0.1304 A p r i l 0.396 0.1108 May 0.599 0.2228 June 0.700 0.0920 J u l y 0.900 0.1517 August 1.172 0.2281 September 1.516 0.4383 October 1.493 0.2547 November 1.683 0.2404 Decembe r 1.913 0.1929 January 2.020 0.2200 February 2.300 n/a March 2.450 0.0000 A p r i l 2.490 0.5311 May 3.391 0.6910 June 2.900 0.0000 J u l y 3.200 0.0000 August 3.500 0.0000 September 3.700 n/a October 3.900 n/a Number of c o n t r i b u t i n g farms = 6. T 6 8 9 T r - i 1 1 r 10 11 12 13 14 15 16 17 18 19 20 MONTHS + Crop 4 0 Crop 10 A Crop 11 • Crop 2 APPENDIX C3. AVERAGE MONTHLY WEIGHT FOR FOUR CHINOOK CROPS 190 APPENDIX C4 DATA, MEAN AND STANDARD DEVIATION OF END OF MONTH COHO WEIGHT kilograms CROP Mean Standard Month 1 2 3 Weight D e v i a t i o n June 0.014 0.012 0.015 0. .014 0. .014 J u l y 0.0368 0. 04 0.036 0, .038 0, .038 August 0.0733 0. 12 0.113 0. .102 0. .102 September 0.1144 0 .2 0.171 0, .162 0. .162 Octobe r 0.212 0. 29 0.213 0. .238 0. .238 November 0.251 0. 37 0.231 0. .284 0. .284 December 0.301 0. 45 0.249 0. .333 0. .333 January 0.35 0. 53 0.3 0, .393 0, .393 February 0.375 0. 63 0.36 0, .455 0, .455 March 0.44 0. 75 0.45 0. .547 0. . 547 A p r i l 0 .9 0.56 0. .730 0 . 730 May 1 .1 0.7 0. .900 0 , .900 June 1. 35 0.82 1, .085 1, .085 J u l y 1 .7 1.1 1. .400 1. .400 August 2 .1 1.3 1, .700 1. .700 September 2 .5 1.5 2. .000 2. .000 October 3 .1 1.7 2. .400 2. .400 November 3 .3 1.83 2. .565 2. .565 December 3 .4 1.95 2. .675 2. .675 January 3 .4 2.075 2. .738 2. .738 February 3 .4 2.2 2. .800 2. .800 March 3 .4 2.325 2, .863 2. .863 A p r i l 2.44 2, .440 2. .440 May 2.55 2, .550 2. .550 June 2.7 2, .700 2. .700 J u l y 2.8 2. .800 2 . 800 August 2.8 2. .800 2. .800 Number of c o n t r i b u t i n g farms = 3. Not a l l c o n t r i b u t i n g farms were able to provide data f o r a l l months. A l l crops are graphed i n Appendix C5. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MONTHS • Crop 1 + Crop 2 O Crop 3 APPENDIX C5. AVERAGE MONTHLY WEIGHT FOR THREE COHO CROPS. APPENDIX Dl DATA, HEAN AND STANDARD DEVIATION OF MONTHLY CHINOOK MORTALITY CROP Mean - Monthly Standard Month 1 2 3 4 5 6 7 M o r t a l i t y Deviation June 2.207. 0.061 1.001 2.001 5.911 2.231 0.0199 Jul y 3.301 0.061 0.101 1.501 2.001 0.561 10.001 2.501 0.0324 August 5.40% 0.441 1.701 1.501 1.501 0.111 0.551 1.601 0.0165 Septeaber 2.501 0.961 11.001 0.501 1.501 0.451 2.821 0.0372 October 0.801 0.121 5.601 0.501 0.501 0.451 1.331 0.0192 Noveaber 0.201 0.091 1.001 0.401 0.501 0.561 0.461 0.0029 Decesber 0.201 0.401 0.501 0.401 0.501 0.461 0.411 0.0010 January 0.301 0.331 0.701 0.401 0.501 0.571 0.471 0.0014 February 1.201 0.141 23.001 0.501 1.951 5.361 0.0884 March 1.201 0.661 1.201 0.501 1.981 I . t i l 0.0052 A p r i l 2.501 0.621 7.201 5.001 0.001 1.071 2.731 0.0258 May 2.001 3.511 3.401 - 5.001 0.001 0.971 2.481 0.0168 June 1.801 13.051 3.501 5.001 0.021 0.971 4.061 0.0434 July 1.801 18.091 24.201 5.001 0.161 0.981 8.371 0.0932 August 2.001 14.281 3.601 4.801 0.101 1.991 4.461 0.0463 Septeaber 2.301 1.481 5.001 2.661 2.861 0.0131 October 2.001 13.531 0.201 1.691 4.361 0.0534 Noveaber 1.801 1.681 0.401 0.931 1.201 0.0057 Deceaber 1.601 1.671 0.301 0.791 1.091 0.0057 January 1.301 1.181 0.201 0.951 0.911 0.0043 February 1.701 1.511 0.201 0.811 1.061 0.0059 March 1.801 4.931 0.551 2.431 0.0184 A p r i l 1.501 9.241 0.141 3.631 0.0401 Hay 1.201 3.121 2.161 0.0096 June 1.101 1.101 0.0000 Jul y 1.001 1.001 0.0000 August 1.401 1.401 0.0000 Septeaber 1.101 1.101 0.0000 October 1.101 1.101 0.0000 Noveaber 1.001 1.001 0.0000 Deceaber 1.001 1.001 0.0000 Nuaber of p a r t i c i p a t i n g faras = 6. Soae c o n t r i b u t i n g faras provided data for aore than one crop. Not a l l c o n t r i b u t i n g faras were able to provide data for a l l aonths. 193 APPENDIX D2 DATA AND MEAN OF MONTHLY COHO MORTALITY CROP Mean Monthly Month 1 2 M o r t a l i t y June 0.80% 5.00% 2.90% J u l y 1.50% 4.00% 2.75% August 4.50% 1.53% 3.02% September 3.10% 0.56% 1.83% October 2.20% 0.45% 1.33% November 1.90% 0.45% 1.18% Decembe r 2.20% 0.56% 1.38% January 2.50% 1.94% 2.22% February 3.90% 2.08% 2.99% March 3.30% 0.95% 2.13% A p r i l 2.50% ' 1.07% 1.79% May 2.20% 1.94% 2.07% June 1.80% 2.95% 2.38% J u l y 1.80% 2.41% 2.11% August 4.00% 2.86% 3.43% Septembe r 4.50% 8.98% 6.74% Octobe r 3.60% 3.60% November 2.50% 2.50% Decembe r 1.60% 1.60% January 1.30% 1.30% February 1.70% 1.70% March 1.80% 1.80% Ap r i 1 1.50% 1.50% May 1.20% 1.20% June 1.10% 1.10% J u l y 1.00% 1. 00% August 1.40% 1. 40% September 1.10% 1.10% October 1.10% 1.10% Number of c o n t r i b u t i n g farms = 2. Not a l l farms were able to provide data f o r a l l months. 194 APPENDIX K PRICKS PAID FOR F i S H BJ PROCESSORS i n $ 1 s / l b and $'s/kg (2 l b s . Average Price 2-4 l b s . Average P r i c e MONTH $/lb S/kq i 2 3 S/lb S/kg JAN 1.75 1.75 3.85 3.80 3.80 8.36 FEB 1.75 1.75 3.00 3.30 3.15 6.93 MAN 1.75 1.75 3.30 3.45 3.31 7.43 APR 1.75 1.75 3.65 4.30 3.98 8.75 HAY 1.75 1.75 4.00 4.75 4.38 9.63 JUNK 1.75 1.75 MA HA JUL! 1.75 1.75 NA NA AUG 1.75 1.75 2.66 2.66 5.85 SEPT 1.75 1.75 2.75 3.85 3.30 7.26 OCT 1.75 1.75 3.15 3.80 3.48 7.65 NOV 1.75 1.75 3.40 4.30 3.85 8.47 DEC 1.75 1.75 4.22 4.25 4.24 9.32 4-6 l b s . Average P r i c e >6 l b s . Average P r i c e Month 1 2 3 4 $/lb $/kq 1 2 $/lb $/kg JAN 4.5 4.50 9.90 5.00 5.00 11.00 FEB 3.65 4.32 3.99 8.77 4.90 4.90 10.78 MAR 3.75 4.8b 4.992 4.4 4.50 9.JU 5.12 4.95 5.04 11.08 APR 4.40 5 4.70 10.34 5.95 5.95 13.09 MAX 5.00 5.6 5.30 11.66 6.25 6.45 6.35 13.97 JUNK NA MA HA MA JULI NA NA NA NA AUG 3.85 3.85 8.47 4.50 4.50 9.90 SEPT 4.05 4.5 4.28 9.41 4.85 5.15 5.00 11.00 OCT 4.25 4.55 4.40 9.68 5.40 5.20 5.30 11.66 NOV 4.75 b. 02 5 5.26 11.56 6.40 6.10 6.25 13.75 DEC 5.00 5.50 5.65 5.38 11.85 6.53 6.35 6.44 14.17 PROCESSING COSTS $/lb Mean 1 2 3 4 5 $/lb 5/kg Marketing 0.32 0.45 0.36 0.38 0.83 Cleaning 0.33 0.15 0.45 0.35 0.50 0.36 0.78 Packaging 0.15 U.23 • Transport -to processor 0.06 0.15 0.15 0.12 0.10 0.12 0.26 -to buyer 0.25 * 0.15 0.13 0.29 Tot a l 1.11 0.98 1.11 'asssie aarketing cost includes transport Nuaber of coluans - Nuaber ot c o n t r i b u t o r s / p a r t i c i p a n t s 1 1.05 2.31 1 9 5 Ai'I'KNI) I X F FINFISH / AQUACULTURE PRICING ZONES n*f rsH/AQUAcuiru«c 10*1 ; O »C »M.uC { $ / » • ) 1 J / K . ) A . l u l l Licence 52 7 . 1 . « J M . (.(•tt UctaCI SI 0. c . S ! S « . l e n t MctACt « t J . 0 . 4I7S. Itttc 11CCMCC J J O . U S . t . O Z S . I t l t r 1. 1 C C « C » )<(. 1 2 « . VANCOUVER VICTORIA APPENDIX Gl SALMON FARM QUESTIONNAIRE (August 1987) 1. How l o n g has y o u r f a r m been i n o p e r a t i o n ? ( i . e . when was t h e f i r s t d e l i v e r y o f s m o l t s ? ) What o b j e c t i v e s , g o a l s o r reasons do you have f o r the e x i s t a n c e o f th e salmon farm? 2. What was t h e i n i t i a l c o s t f o r t h e f o l l o w i n g i t e m s : ITEM SIZE COST EXPECTED SALVAGE HRS FUEL LIFE VALUE USE/YR USED/YR Ge n e r a t o r (s) ^ Boats Outboard M o t o r ( s ) Truck C l e a n i n g equipment Feed m i x e r Water t e s t i n g and l a b equipment Dip n e t s D i v i n g equipment M i s c e l l a n e o u s t o o l s Barge B u i l d i n g s Housing needs (e.g. s t o v e , h e a t e r s , shower, e t c . ) Net pens F l o a t a s s e m b l i e s I n s t a l l a t i o n c o s t o f pens and f l o a t s Feed S t o r a g e f a c i l i t i e s E l e c t r i c i t y , t e l e p h o n e S i t e e v a l u a t i o n c o s t s Cost o f p e r m i t s , l i c e n s e s , l e a s e s 197 INPUTS 3. SMOLT What q u a n t i t i e s o f sm o l t d i d you r e c e i v e i n each y e a r ? What was t h e c o s t o f t h e s m o l t ? What was t h e a v e r a g e s m o l t s i z e and t h e range o f smolt s i z e ? YR 1 YR 2 YR 3 AVE. RANGE Qty C o s t / Qty C o s t / Qty C o s t / SIZE o f SPECIES r e c ' d Smolt r e c ' d Smolt r e c ' d Smolt (wt.) SIZE Chinook Coho Other ( s p e c i f y ) 3a. What time o f y e a r a r e t h e y d e l i v e r e d ? ordered? 3b. Do you f e e l t h a t t h e q u a n t i t y ordered" was the q u a n t i t y r e c e i v e d ? WATER CONDITIONS What a r e the f o l l o w i n g water c h a r a c t e r i s t i c s ? MEAN LEVEL RANGE TESTING FREQUENCY Temperature summer f a l l w i n t e r s p r i n g S a l i n i t y Oxygen (DO) C u r r e n t 4a. Where i s your f r e s h water source f o r employee use? 198 5. FEEDING What brands of f e e d do you use? How much do they c o s t ? I s t h e r e a d e l i v e r y charge? What i s t h e i r r e s p e c t i v e c o m p o s i t i o n ( f a t , p r o t e i n , d r y m a t t e r , e t c . ) ? When i s each f e e d type u t i l i z e d d u r i n g the p r o d u c t i o n c y c l e ? BRAND PRICE DELIVERY COMPOSITION WHEN FED FEEDINGS FEEDING CHARGE DURING PER DAY UNTIL PRODN CYCLE 5a. When r e c e i v i n g d e l i v e r y o f f e e d , how much l a b o u r time i s r e q u i r e d t o t r a n s f e r the lo a d ? 5b. What i s t h e t y p i c a l l o a d s i z e ? 5c. Do you r e c o r d t h e q u a n t i t y of fe e d a l l o t t e d t o each pen? 5d. How o f t e n do you purchase fe e d and what q u a n t i t y i s purchased? 6. LABOUR How many employees do you u t i l i z e t h r o u g h o u t the year? What wages do you pay them? Do th e y possess any s p e c i a l s k i l l s ? How much time i s r e q u i r e d p e r employee t o f e e d one pen? STATUS WAGE NO. OF SPECIAL SKILLS TIME TO EMPLOYEES (e.g. a g r i c . , aqua. ) FEED 1 PEN PART-TIME FULL-TIME FAMILY OTHER 199 7. FISH GROWTH What a r e t h e f o l l o w i n g growth c h a r a c t e r i s t i c s f o r your f i s h ? PREDICTED GROWTH FEED CONVERSION RATE RATIO(FOR) METHOD OF MONTH QUARTER CHINOOK COHO CHINOOK COHO DETERMINING FOR 1 2 3 1 4 5 6 2 7 8 9 3 10 11 12 4 13 14 15 5 16 17 18 6 . 19 20 21 7 22 23 24 8 8. NET PENS What a r e t h e dimensio n s o f your net pens? How many pens do you have? What q u a n t i t y o f f i s h do you s t o c k i n each pen? When do you move f i s h t o o t h e r pens? DIMENSION NO. OF AMOUNT WHEN ARE FISH OF PENS PENS FISH/PEN MOVED TO OTHER PENS 200 SAMPLING HOW QUANTITY PROCEDURE OFTEN SAMPLED USED 9A. What has been t he average monthly o r q u a r t e r l y weight o f the f i s h ? 10. HARVESTING To d a t e , how many f i s h have you h a r v e s t e d ? Whathas been t h e average weight o f the f i s h ? The weight range? YEAR 1 YEAR 2 SPECIES QTY AVE. WEIGHT QTY AVE. WEIGHT (Wt) WEIGHT RANGE (Wt) WEIGHT RANGE CHINOOK COHO OTHER YEAR 2 YEAR 4 SPECIES QTY AVE WEIGHT QTY AVE. WEIGHT (Wt) WEIGHT RANGE (Wt) WEIGHT RANGE CHINOOK COHO OTHER I D a . What i s t h e c o s t o f t r a n s p o r t i n g t h e h a r v e s t e d f i s h t o t h e p r o c e s s o r ? 10b. What i s t h e c o s t o f p r o c e s s i n g ? 10c. How do you handle the f i s h when h a r v e s t i n g ? lOd. How a r e t h e y t r a n s p o r t e d t o the p r o c e s s o r ? lOe. When do you h a r v e s t ? l O f . A re you a b l e t o a l t e r your h a r v e s t i n g time? 201 lOg. What p r i c e s have you r e c e i v e d f o r the v a r i o u s w e i g h t s of f i s h ? PRICES RECEIVED WEIGHT .5 1.0 1.5 2.0 2.5 YR 1 YR 2 YR 3 YR 4 11. MORTALITY 11a. How o f t e n do you check f o r m o r t a l i t i e s ? l i b . What procedures do you use t o measure m o r t a l i t i e s ? _ 11c. Does the r a t e o f m o r t a l i t y change d u r i n g t h e y e a r , a t what r a t e ? l i d . What a r e t h e cau s e s of m o r t a l i t y ? When do these problems occur? What q u a n t i t i e s o f f i s h were l o s t i n each o c c u r r e n c e ? * ( o t h e r c a u s e s : low oxygen l e v e l s , p r e d a t o r s ) YEAR 1 YEAR 2 SPECIES CAUSE MONTH OF QUANTITY MONTH OF QUANTITY OCCURRENCE LOSSED OCCURRENCE LOSSED CHINOOK COHO SPECIES BKD VIBRIO ALGAL OTHER BKD VIBRIO ALGAL OTHER CAUSE YEAR 3 MONTH OF QUANTITY OCCURRENCE LOSSED YEAR 4 MONTH OF QUANTITY OCCURRENCE LOSSED CHINOOK COHO BKD VIBRIO ALGAL OTHER BKD VIBRIO ALGAL OTHER 202 l i e . How do you t r e a t t h e f i s h f o r d i s e a s e o u t b r e a k s ? ( p r e v e n t a t i v e ? ) l l f . How much l a b o u r i s r e q u i r e d t o d e a l w i t h t r e a t m e n t s ? 12a. What pe r c e n t a g e o f j a c k s do you have each year? 12b. What becomes o f them? 12c. I f s o l d , what p r i c e do you r c e i v e f o r them? 13a. Who m o n i t o r s t h e p r o d u c t q u a l i t y , o p e r a t o r o r p r o c e s s o r ? 13b. What s t a n d a r d s a r e used? Ave. $/lb. Weight (lbs. ) Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. pan size 2-4 4-6 6-9 > 9 Approximate Processing Cost Per Pound: Transport Packaging Cleaning Marketing Comments: APPENDIX G. SALMON PROCESSING QUESTIONNAIRE. ho O 

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