Final Report for GS13-125
Project Information
An economic analysis of three commercial aquaponics production systems determined that each system was economically feasible, and that the revenue generated from the sales of food and agricultural products raised is substantial enough to sustain operations. An online survey determined that the majority of commercial aquaponics producers are operating in the United States (US), and that the majority of their sales revenue is generated from horticultural product sales. The survey and economic analyses also indicated that it is common for commercial aquaponics systems to take a couple of years to become profitable.
Introduction
Aquaponics has been defined as, “The combined culture of fish and plants in recirculating systems” (Rakocy, Bailey, Shultz, & Thoman, 2004). The main input into an aquaponics system is fish feed. Fish turn the feed into organic waste, which gets broken down in the system. Through the process of nitrification, this organic waste is ultimately transformed into nitrates, which are absorbed directly from the water by plants growing hydroponically. Therefore, the fish are feeding the plants, and the plants are keeping the water safe for the fish by acting as a biofilter. Some of the benefits of commercial aquaponics production systems compared to typical agricultural production include reduced water use, reduced land footprint, reduced energy use, increased yields, and improved traceability.
Aquaponics systems are also versatile, meaning that they can be tailored to meet a farmer’s specific climate and environment. For example, the heavily researched commercial aquaponics system developed at the University of the Virgin Islands (UVI) is built in an open field, and only requires bird netting to cover the aquaculture components of the system. However, someone living in a less tropical climate could build the UVI system under a greenhouse, or inside of some other building or structure. This would allow a farmer to use supplemental heating during colder months of the year, and to use climate control throughout the entire year of production if necessary. However, the economics of commercial aquaponics systems has not been heavily researched to this date. The general lack of economic information behind commercial aquaponics systems inspired this research project.
Project Background
The Researcher
The research and work conducted as part of this project was completed by Kevin Heidemann. During most of this project, Kevin was working as an Extension Associate for the University of Kentucky (UK), while completing his graduate degree in the UK Master of Business Administration (MBA) program. His education and employment at the time aligned perfectly for him to be eligible to apply for a Southern Sustainable Agriculture Research and Education (SARE) Graduate Student Grant to perform an Economic Analysis of Commercial Aquaponics Production Systems.
This project was inspired by Kevin’s personal research into the aquaponics industry. The first time he learned about aquaponics, he decided to do more research into the subject. This led him down the rabbit hole, spending weeks scouring the internet for articles, videos, publications, or any other bits of information available. This research into aquaponics led to a realization that there was very little information available about the economics behind commercial aquaponics systems, even though there seemed to be a huge surge in interest in building commercial systems.
Literature Review
The University of the Virgin Islands
When this project was still in the planning stages, the University of the Virgin Islands (UVI) was one of the few sources of reputable and free information available about the economics behind commercial aquaponics systems. UVI has produced a number of research documents that are still revered in the aquaponics industry today. The information from UVI was very legitimate, but it was a bit outdated and it was specific to the climate and economic environment of St. Croix. The climate and economic environments in the Virgin Islands are vastly different from what potential producers would face in Kevin’s home state of Kentucky.
For example, the island of St. Croix imports the majority of its food, which means the prices for fresh produce are much higher on the island of St. Croix than prices in the Continental United States. Furthermore, St. Croix has much higher costs for utilities, such as electricity and water, compared to many other places in the Continental US. In fact, the US Virgin Islands Territory Energy Profile by the US Energy Information Administration stated that electricity costs in the U.S. Virgin Islands are as much as, “five times the U.S. average” (USEIA, 2015). Finally, the climate in St. Croix only requires producers to cover their aquaculture components with bird netting. However, producers in less tropical climates might need to fully shelter their commercial systems with a structure such as a greenhouse. They might even be required to use climate control. These seemingly simple factors could have great effects on the economic viability of commercial aquaponics systems.
Commercial Aquaponics Producers
At the time this project began, there was also some economic information available for sale from various aquaponics entities, including numerous commercial aquaponics producers. However, the researcher found it conflicting that some commercial producers who were selling their information appeared to be somewhat subsidizing their farms through heavily marketing products and services other than food and agricultural products.
Some of the potential benefits of commercial aquaponics systems include increased yields, shorter plant growth cycles, improved consistency of product quality, improved traceability, season extension, resource conservation, and input reduction. Each one of these factors can provide a producer with a competitive advantage over typical agricultural producers. These factors can help a farmer to produce higher quality products, to operate more profitably, and to market their products more effectively to their customers. Therefore, aquaponics should give producers unique advantages, especially in regards to the production of local food and agricultural products for local markets.
However, some of the commercial aquaponics producers marketing information appeared to be producing low volumes of food, and making the majority of their money by selling other products and services such as aquaponics classes, information, tours, and equipment. Considering some of the touted benefits of commercial aquaponics, it seemed illogical for commercial aquaponics producers to need to put so much effort into generating revenue from sales of items other than food and agricultural products. Therefore, the researcher wanted to find a way to research the economic viability of commercial aquaponics systems solely based on the revenue they generated from the sales of food and agricultural products.
Feeling as though preliminary research birthed more questions than answers, the researcher was left wondering many things. In particular, the researcher wondered if commercial aquaponics was truly economically viable within the Continental United States, if there were commercial aquaponics systems different from the UVI system that were economically viable, if the revenue generated from selling food and agricultural products grown in a commercial aquaponics system could support a farmer and their family, and if aquaponics systems would still be economically viable if their structures or configurations were altered to perform better in different types of climates.
The ultimate goal of this project was to identify and analyze the economic viability of multiple commercial aquaponics systems that could generate profit solely by selling aquatic animals and horticultural products. After all, a true commercial aquaponics producer is really a farmer, in every sense of the word, and farms must enable their caretakers to make a living through what they can produce. The greatest value of aquaponics is that it enables farmers to produce a very large quantity of safe, healthy food on a very small area of land, while using fewer natural resources than conventional agricultural production. However, in order for producers to have truly commercially viable systems, they would have to know how to successfully market their products.
The Southern SARE Graduate Student grant presented a unique opportunity for the researcher to gather the information they believed could help the commercial aquaponics industry grow. Southern SARE graciously awarded nearly $10,000 for this project, which was titled as an Economic Analysis of Commercial Aquaponics Production Systems. The objectives listed for this project were to:
1) Identify and analyze three different commercial aquaponics production systems.
2) Collect data for capital budgeting analyses of these commercial aquaponics production systems.
3) Analyze the supply chain and marketing techniques employed by various commercial aquaponics producers by distributing an online survey.
Research
Objectives One & Two: Economic Analysis of Commercial Aquaponics Systems
Accomplishing the first two objectives required reaching out to many commercial aquaponics producers. It also required asking them to agree to release proprietary information to the general public for free, which proved to be a fairly difficult task. Two commercial aquaponics producers, located in Florida and Texas, ultimately agreed to open up their farms, businesses, and records to the researcher for the purpose of this research project. The designs of both of these commercial systems were based on the University of the Virgin Islands (UVI) commercial aquaponics system. Donald Bailey, the Research Specialist at the UVI Agricultural Experiment Station, also agreed to work with the researcher to perform an updated economic analysis of the UVI commercial aquaponics system. Donald Bailey helped author a case study with Kevin Heidemann on the UVI system for this project. Case studies on each system that was researched as part of this project were released before the conclusion of the project in order to make the information available to the public.
The methods used to collect data related to these two project objectives included on-site visits, hands-on work with each system, in person interviews, and remote interviews. The proprietors of each system were first contacted via phone and e-mail to gauge interest. Once an agreement to share information was made, travel plans were put in place, and then the on-site meeting and data collection processes began. After a few days of hands-on work with the aquaponics systems, and hours of interviews, the on-site visit and in-person interviews were completed. Any remaining pertinent information was then exchanged remotely. Once a draft of the preliminary case study was completed for each system, the information was sent to the proprietors for approval to be released for publication.
Objective Three: Survey of Commercial Aquaponics Producers
Accomplishing the final objective, which was to analyze the supply chain and marketing techniques used by various commercial aquaponics producers, required creating and distributing an online survey of commercial aquaponics producers. Many aquaponics groups, social media pages, trade associations, magazines, and enthusiasts were contacted to assist with survey distribution. The survey was anonymous, accessible by following a direct link to the survey, and open to the public for a total of 20 days.
The participation goal for this survey was to receive responses from at least 100 commercial aquaponics producers. However, only 39 data sets were ultimately collected. Prior to the release of this survey, multiple surveys had been distributed to the aquaponics community, which likely decreased interest in completing the survey for this project. One successful survey that was distributed just prior to the survey for this project was a survey of commercial producers by Dr. David Love of Johns Hopkins University. The results of this survey were released in January, 2014 in a document titled, Commercial aquaponics production and profitability: Findings from an international survey.
Current Aquaponics Production & Marketing Activities: A Survey of Commercial Aquaponics Producers
Summary of Findings from a Prior Commercial Aquaponics Producer Survey
The findings of a study on the global aquaponics industry, which was launched before the survey that was released as part of this project, were released in 2014 in a publication called Commercial aquaponics production and profitability: Findings from an international survey in the journal Aquaculture. The research presented in this document was performed by a team of researchers from Johns Hopkins University, University of Maryland Extension, and the West Virginia University Extension Service. This particular survey indicated there were 188 commercial aquaponics producers in the world, and that 81% of respondents were located within the United States (Love, Fry , Li , Hill, Genello, Semmens , Thompson, 2014). Facilities located outside of the colder USDA plant hardiness zones zero through six were found to be four times more likely to turn a profit (Love, Fry , Li , Hill, Genello, Semmens , Thompson, 2015). The most commonly raised fish was tilapia, and the most commonly raised produce included basil, salad greens, and non-basil herbs (Love et al., 2015). Furthermore, “The median quantity of fish harvested was 50 to 99 pounds per year and the median quantity of plants harvested was 100 to 499 pounds per year” (Love et al., 2015). Compared to typical small farms in the US, these producers also used more direct sales outlets to market their products to the public (Love et al., 2015).
Summary of Findings: Project Survey of Commercial Aquaponics Producers
The third objective of this research project was to analyze the supply chain and marketing techniques of commercial aquaponics producers. This required creating and distributing an online survey. The researcher hoped to survey at least 100 aquaponics producers. However, only 39 commercial aquaponics producers were ultimately surveyed through this project. Assuming the data from the research on commercial aquaponics producers that was mentioned above is accurate, the survey released as part of this project reached nearly 21% of the 188 commercial aquaponics producers worldwide.
Commercial Producer Info and Definition
The majority of respondents (82%) met the criteria for being a commercial producer. Commercial producers were defined as those who had been able to raise and sell fish and/or horticultural products from their aquaponics systems to commercial markets in the 12 months prior to taking the survey. The specific commercial markets provided as examples in the survey included farmers' markets, schools, restaurants, grocery stores, wholesalers, retailers, and institutions.
About 19% of producers had been selling products grown in their aquaponics systems to commercial markets for just one year, another 19% had been selling commercially for two years, and 44% had been selling commercially for three years. Only 6% had not sold products grown in their aquaponics systems. Only 12% of producers surveyed had been selling commercially for five or more years. When asked if their aquaponics systems generated over 10,000 US dollars in annual gross sales in the past 12 months solely from the sale of fish and/or produce, 57% indicated that they had.
On average, about 39% of these producers’ total annual household income could be attributed to their commercial aquaponics products and services. Over 23% of these producers said that their aquaponics products and services account for over 75% of their annual household income. Nearly 31% indicated that their aquaponics products and services account for over 50% of their annual household income. Therefore, the majority of these producers likely have additional sources of income.
Producer Demographics & Experience
Similar to the commercial aquaponics data collected in the other survey briefly mentioned above, the majority (nearly 71%) of respondents were from the US. Other individuals were from Australia, the Bahamas, Canada, India, and Mexico. The majority of producers (48%) had four to five years of experience with operating commercial aquaponics systems, which was followed by 36% having just two to three years of experience. However, 12% of producers indicated that they had 10 or more years of experience with operating commercial aquaponics systems. The mean years of experience for these producers was just over 5 years.
Producers were also asked to explain their past farming experience before they began commercial aquaponics. It was somewhat surprising that 46% of these respondents had no prior farming experience. This was followed by 31% of producers who listed they had other experience, which included experience in hydroponics, aquaculture, and sales. Only 23% of producers had some row crop or other non-horticultural crop production experience, 15% had livestock production experience, 15% had wholesale produce production experience, 8% had direct marketing experience, and 8% had experience with non-food crops such as ornamentals and nursery products.
Aquaponics System Research Methods
When asked where producers got their information to design and build their commercial aquaponics system, the majority of producers indicated that they used multiple sources. This is apparent in the fact that the following figures do not add up to 100%. About 44% said they used other sources than those that were listed. The options provided included trainings or workshops by for-profit organizations (25%), universities or extension services (19%), non-profit organizations (13%), online (25%), other producers (19%), and purchased system from an organization (13%).
Employment & Work Hours
It was also indicated by these producers that the average number of hours worked per week for full time employees amounted to just over 28 hours, with a standard deviation of about 20 hours, and was under 12 hours for part time employees, with a standard deviation of about 10 hours. However, full time employees were listed as working up to 58 hour per week, and part time employees worked a maximum of 25 hours per week. On average, the majority of these commercial aquaponics systems employ just one to two full time employees year-round, and only a few use seasonal full time employees. The majority of producers (47%) had two part time employees working year round, and nearly 77% had one to two part time employees working year round. Very few producers had seasonal part time help working on the farm.
Commercial Aquaponics System Types
Only one of the producers who took this survey was strictly using one aquaponics production method, which was deep water culture (DWC). Overall, nearly 81% of producers indicated they were using DWC to produce products for commercial markets. Another 69% used media beds, 44% used nutrient film technique (NFT), 38% used vertical towers, and 38% used other methods; which included wicking beds, a hybrid system using all methods listed, and a shallow gravel bed. The majority of producers use more than one aquaponics production method.
In order to gauge the contribution of each type of system to overall production, producers were asked to indicate what percentage of the horticultural products they sell to commercial markets are grown using each aquaponics production method. Respondents indicated that an average of nearly 68% of horticultural products are grown using DWC, over 30% are grown in media beds, 27% are grown using other methods, over 22% are grown using NFT, and over 11% of horticultural products are grown using vertical towers. Deep water culture is the most commonly used method of aquaponics production for growing horticultural products for commercial markets.
Commercial Aquaponics System Size
The aquaponics systems of the survey respondents contained an average of over 17,900 gallons, the largest system contained 80,000 gallons of water, and the smallest contained just 2,500 gallons of water. The average system footprint was also nearly 4,900 square feet, with the maximum footprint reaching over 10,000 square feet, and the minimum being just 210 square feet.
Commercial Aquaponics System Products & Services
Nearly 63% of producers indicated they sold farm tours, and 63% also sold aquaponics services, which included classes, trainings, consulting, and construction. About 44% also sold fingerlings, 38% sold aquaponics information, 31% sold aquaponics equipment and materials, and 25% sold feed. Therefore, commercial aquaponics producers typically take advantage of the ability to diversify their revenue streams.
The majority (40%) of those who sell farm tours indicated that they had 100 to 499 individuals tour their farms in the past 12 months. Only 20% of producers had 500 or more individuals tour their farms in the past year. Most people (60%) also had one to 50 individuals take classes or trainings on their farms, and another 20% had 50 to 99 individuals take classes or trainings.
Producers were also asked if they sold various products grown in their aquaponics system to commercial markets. The vast majority sold vegetables (88%) and fish (71%). However, 41% also indicated that they sold other horticultural products such as cut flowers, ornamental plants, herbs, and spices. Only 18% of these respondents sold fruits, and none sold other aquatic animals such as shrimp, prawn, and crayfish. Producers indicated they had been selling products grown in their aquaponics systems to commercial markets for an average of over four years.
Fish Production
By far, the most popular fish raised in these aquaponics systems in the past 12 months was tilapia. An overwhelming 80% of producers indicated they had raised tilapia, followed only by 27% who raised perch, 13% who raised catfish, and 13% who raised koi. A few producers raised other fish in their aquaponics systems, including bluegill, goldfish, barramundi, and trout.
The maximum number of pounds of fish harvested for sale in the past 12 months from one producer amounted to 13,000 pounds of tilapia. The average production of fish for sale over the past 12 months for these producers amounted to over 2,200 pounds of fish. Assuming year-round production and 1.75 pounds per fish, this would be equivalent to selling around 105 fish per month.
Horticultural Production
The top ten most popular types of produce that were grown and sold from these aquaponics system in the past 12 months included leaf lettuce (80%), herbs (67%), cucumbers (67%), kale (67%), tomatoes (67%), basil (67%), bibb lettuce (53%), chard (53%), head lettuce (47%), and bok choy (47%). All producers surveyed sold a diverse array of horticultural products.
The maximum number of pounds of produce harvested for sale from these systems in the past 12 months amounted to 60,000 pounds of produce. That particular producer grew a variety of different types of produce in their system. The average annual production of produce for sale over the past 12 months for these producers amounted to nearly 9,600 pounds of produce. This is equivalent to selling an average of 800 pounds of produce per month.
Marketing of Horticultural Products to Commercial Markets
Respondents were also asked to indicate what percentage of their annual sales from aquaponics-raised horticultural crops could be attributed to various commercial markets over the past 12 months. The commercial markets listed included on-site at farm or facility; restaurants; grocery, wholesale, and retail; farmers markets; community supported agriculture (CSA); roadside stand; institutions, including schools, universities, hospitals, and businesses; nurseries; garden centers and pond shops; and other. The average percentage of sales of aquaponics-raised horticultural crops to the various markets can be seen in Table 1.
The commercial aquaponics producers that were surveyed sold the majority of their horticultural products, an average of about 31%, on-site at their farm or facility. Restaurants were used to market an average of about 18% of horticultural products. Farmers markets tied for third place with grocery, wholesale, and retail markets at an average of over 16% of horticultural product sales. The producers surveyed sold an average of about 10% of products through CSA programs, just over 7% to institutions, and just over 1% to other markets. None of the producers surveyed sold their horticultural products nurseries, garden centers, pond shops, or roadside stands.
The high percentage of sales under on-site at farm or facility and farmers market also supports conclusions from the other commercial aquaponics research mentioned, which suggested that commercial aquaponics producers commonly sell horticultural products directly to their consumers. Selling food products directly to the consumer can provide advantages to aquaponics producers, such as the ability to command higher prices and earn higher margins on products, and the ability to carve out a unique niche in the market.
Many of today’s consumers are increasingly interested in buying locally grown foods. Consumers want to know how their food is grown, and if it is free of potentially harmful substances. They also increasingly want to buy directly from a farmer that they have established a relationship with, and who is willing to explain or demonstrate how they grow their food. These growing consumer demands can be uniquely met by commercial aquaponics producers, and these types of consumers are often willing to pay more for these attributes.
Marketing of Aquatic Animals to Commercial Markets
Respondents were also asked to indicate what percentage of their annual sales from aquaponics-raised aquatic animals could be attributed to various commercial markets over the past 12 months. The commercial markets listed for this question were the same as those listed in the above section about horticultural product sales to commercial markets. The average percentage of sales of aquaponics-raised aquatic animals to the various markets can be seen in Table 2.
The average commercial aquaponics producer surveyed indicated they marketed the majority of their aquatic animals, about 58%, on-site at their farm or facility. Restaurants were used to market an average of about 17% of aquatic animals. Grocery, wholesale, and retail markets accounted for an average of 15% of aquatic animal sales. The producers surveyed also sold an average of nearly 9% of aquatic animals to other markets, and just under 1% through CSA programs. None of these producers sold aquatic animals through farmers markets, roadside stands, institutions, nurseries, garden centers, or pond shops.
These producers seem to use some different market channels for selling their horticultural products compared to their aquatic animals. The big difference that sticks out is that these producers don’t market their aquatic animals through farmers markets or institutions, which collectively accounted for an average of nearly 24% of sales of horticultural products.
However, it makes perfect sense that farmers would be hesitant to market fish at a farmers market. Food safety could become a serious concern, especially in warm weather, and mobile cooling and storage units can be costly. It also makes sense that many producers are selling the majority of their fish directly from the farm, since there are many potential advantages. For instance, selling live fish right off the farm could decrease transportation, processing, and packaging costs for producers. It also offers customers an opportunity to see the farm, and to build a genuine connection to the farm and the producer.
Restaurants, grocery, wholesale, and retail markets are also very logical options for marketing locally raised fish and produce. The number one and two food trends listed in the National Restaurant Association’s What’s Hot in 2015 Chef Survey included locally sourced meats and seafood, and locally grown produce, respectively (National Restaurant Association, 2015). According to the National Grocers Association’s 2014 Consumer Survey Report, over 32% of consumers listed more locally grown foods as an improvement they would like in their primary food stores (Consumer Insights Group, 2014). The demand from consumers to have local produce and seafood options available at their favorite restaurants and food retailers is a great opportunity for commercial aquaponics producers.
Commercial Aquaponics System Profitability & Outlook
When asked if their commercial aquaponics business was profitable over the past 12 months, nearly 54% of respondents said no and 46% said yes. However, when asked if they expected their commercial aquaponics business to be profitable over the next 12 months, more than 69% said yes and less than 31% said no. Finally, when asked if they expected their commercial aquaponics business to be profitable over the next 36 months, nearly 77% said yes and 23% said no. Considering that 82% of producers have been selling products to commercial markets for less than three years, this profitability outlook is not surprising. The payback period of the three systems researched to complete project objectives one and two ranged from just under two years to just under three and a half years. Since the producers surveyed have only been selling products for a few years on average, many of them may still be recovering the cost of their investment, which is likely why they have not yet become profitable.
Commercial Aquaponics System Annual Gross Revenue: Past 12 Months
Producers were also asked to provide an estimate of the annual gross sales revenue, in US dollars, to be generated by their commercial aquaponics systems over the past 12 months, the next 12 months, and the next 36 months. For each question, they could select one of the following ranges of annual gross sales revenue: prefer not to answer; 1 to 9,999 US dollars; 10,000 to 49,999 US dollars; 50,000 to 99,999 US dollars; 100,000 to 199,999 US dollars; 200,000 to 299,999 US dollars; 300,000 to 399,999 US dollars; 400,000 to 499,999 US dollars; or 500,000 or more US dollars. They were also instructed that gross sales revenue may include revenue from the sale of fish, plants, classes, trainings, equipment, information, etc.
Over the past 12 months, about 23% of respondents earned $1 to $9,999 in annual gross sales revenue, about 38% of them earned $10,000 to $49,999 in annual gross sales revenue, about 15% of them earned $50,000 to $99,999 in annual gross sales revenue, about 8% of them earned $200,000 to $299,999 in annual gross sales revenue, about 8% of them earned $500,000 or more in annual gross sales revenue, and about 8% of them preferred not to answer. This means that over 61% of these producers estimated they earned less than $50,000 in annual gross sales revenue over the past 12 months, and only about 31% estimated they earned $50,000 or more in annual gross sales revenue.
Following this question, respondents were asked what percentage of their annual gross sales revenue over the past 12 months could be attributed to the sale of fish and horticultural products raised in their commercial aquaponics systems. The average respondent earned nearly 82% of their gross sales over the past 12 months from selling fish and horticultural products. Nearly 77% of these respondents earned over 75% of their gross sales revenue from the sale of fish and horticultural products. This means that the majority of these commercial aquaponics producers are in fact earning most of their revenue by selling products raised in their aquaponics systems, rather than earning most of their revenue from selling equipment, supplies, information, tours, and items besides fish and horticultural products.
Commercial Aquaponics System Annual Gross Revenue: Next 12 Months
Over the next 12 months, respondents indicated that about 31% of them would earn $1 to $9,999 in annual gross sales revenue, about 23% of them would earn $10,000 to $49,999 in annual gross sales revenue, about 15% of them would earn $50,000 to $99,999 in annual gross sales revenue, about 8% of them would earn $100,000 to $199,999 in annual gross sales revenue, about 8% of them would earn $200,000 to $299,999 in annual gross sales revenue, about 8% of them would earn 500,000 or more in annual gross sales revenue, and about 8% of them preferred not to answer. This means that nearly 54% of these producers estimated they would earn less than $50,000 in annual gross sales revenue over the next 12 months, and about 39% estimated they would earn $50,000 or more.
Following this question, respondents were asked to estimate what percentage of their annual gross sales revenue over the next 12 months would be attributed to the sale of fish and horticultural products raised in their commercial aquaponics systems. The average respondent estimated they would earn nearly 83% of their gross sales over the next 12 months from selling fish and horticultural products. Approximately 75% of these respondents will earn over 75% of their gross sales revenue from the sale of fish and horticultural products. This means that the majority of these commercial aquaponics producers will also earn most of their revenue over the next 12 months by selling products raised in their aquaponics systems.
Commercial Aquaponics System Annual Gross Revenue: Next 36 Months
Over the next 36 months, respondents indicated that about 8% of them would earn $1 to $9,999 in annual gross sales revenue, about 30% of them would earn $10,000 to $49,999 in annual gross sales revenue, about 8% of them would earn $50,000 to $99,999 in annual gross sales revenue, about 31% of them would earn $100,000 to $249,999 in annual gross sales revenue, about 15% of them would earn $500,000 or more in annual gross sales revenue, and about 8% of them preferred not to answer. This means that about 38% of these producers estimated they would earn less than $50,000 in annual gross sales revenue over the next 36 months, and about 54% estimated they would earn $50,000 or more in gross sales.
Following this question, respondents were asked to estimate what percentage of their annual gross sales revenue over the next 36 months would be attributed to the sale of fish and horticultural products raised in their commercial aquaponics systems. The average respondent estimated they would earn more than 77% of their gross sales over the next 36 months from selling fish and horticultural products. Approximately 67% of these respondents will earn over 75% of their gross sales revenue from the sale of fish and horticultural products. This means that the majority of these commercial aquaponics producers will also earn most of their revenue over the next 36 months by selling products raised in their aquaponics systems.
Conclusion
The data collected in this survey of commercial aquaponics producers is similar to the data that was collected through another project prior to the release of this survey in many ways. The majority of commercial aquaponics producers appear to be operating in the US. The majority of their sales revenue is generated from the sale of horticultural products, rather than by the sale of fish. It is also typical for commercial aquaponics systems to take at least a couple of years to become profitable.
The deep water culture method of aquaponics production appears to be the primary production method used to produce horticultural products for commercial markets. These systems contained an average of about 18,000 gallons of water, and have an average footprint of about 5,000 square feet. On average, these commercial producers have two full time employees and two part time employees year round. It is common for full time employees of commercial aquaponics systems to work around 30 hours per week, and for part time employees to work around 20 hours per week. Most producers have diversified revenue streams from selling products and services besides food and horticultural products. Tilapia, basil, lettuce, and herbs are also the most commonly raised products in these commercial systems. On average, producers are selling around 105 fish per month and about 800 pounds of produce per month.
The primary market channels for fish and horticultural products grown in commercial aquaponics systems include on-site sales at the farm or facility; restaurants; and grocery, wholesale, and retail markets. It is very uncommon for fish to be sold at farmers’ markets, but farmers’ markets are a very common market channel for horticultural products. Commercial Aquaponics systems are typically not profitable in the first couple years of production, but the majority of producers indicated they will likely be profitable within the next three years.
Educational & Outreach Activities
Participation Summary:
Commercial Aquaponics Case Studies: Economic Analyses of Three Aquaponics Systems
Three publications were produced from this research project, and include the information that formed the basis of this final report. The names of these case studies are Commercial Aquaponics Case Study #1: Economic Analysis of Lily Pad Farms, Commercial Aquaponics Case Study #2: Economic Analysis of Traders Hill Farms, and Commercial Aquaponics Case Study #3: Economic Analysis of the University of the Virgin Islands Commercial Aquaponics System. The information collected was released in this case study form in order to make it readily available to the public, and can be downloaded for free by following this link: http://www.uky.edu/Ag/AgEcon/extagbiz.php
Project Outcomes
Economic Analysis
Summary of Findings: Economic Analysis of Commercial Aquaponics Systems
This section of the report will introduce the commercial aquaponics systems that were studied as part of this project. This section will also analyze some of the key differences in the economics behind the three systems that were studied, and will perform some financial sensitivity analyses. Finally, this section will summarize all relevant findings related to the economic analyses of three commercial aquaponics production systems.
The information presented in this section of the final report is based on the data collected for the three case studies that were released as part of this project. This information can be used as a guide for potential aquaponics producers, and could be used to further determine the effects different system configurations and other factors could have on overall economic feasibility and financial performance of these commercial aquaponics systems. The purpose of releasing this information is to provide free, legitimate information to the public about the economics of commercial aquaponics production systems, in order to help the industry grow.
Commercial Aquaponics Systems
Three commercial aquaponics systems were studied as part of the first two objectives of this project. The systems studied include the world renowned commercial aquaponics system developed and still in operation at the University of the Virgin Islands in St. Croix; the commercial aquaponics systems developed and still in operation in San Marcos, Texas at Lily Pad Farm; and the commercial aquaponics system developed and still in operation in Hilliard, Florida at Traders Hill Farms. Case studies summarizing the operations and economics of each of these systems were released to the public prior to the completion of this final report in order to make the information available. The titles of those case studies were Commercial Aquaponics Case Study #1: Economic Analysis of Lily Pad Farms, Commercial Aquaponics Case Study #2: Economic Analysis of Traders Hill Farms, and Commercial Aquaponics Case Study #3: Economic Analysis of the University of the Virgin Islands Commercial Aquaponics System.
The University of the Virgin Islands
The Agricultural Experiment Station at the University of the Virgin Islands is still home to the original commercial aquaponics system developed at UVI. This aquaponics system sits in an open field with its hydroponic beds uncovered. Only the aquaculture components of the UVI system are covered by bird netting. The UVI system set the foundation for the other commercial aquaponics systems that were researched during this project. However, each system varies in multiple ways, including in regards to their system configurations, components, production figures, annual sales revenue, and much more. More specific information about each of these aquaponics systems, including configurations and components, can be found in the aforementioned case studies that were released as part of this project.
Lily Pad Farm
Lily Pad Farm (LPF) is a commercial aquaponics farm in Texas that consists of three independently built commercial aquaponics systems that are each housed in their own greenhouse. The owners, Adam and Susan Harwood, live and work on this small family farm of just over two acres in size. Each of the three commercial aquaponics systems on this farm are smaller scale, altered versions of the UVI system. They each have two shorter, wider hydroponic raceways and fewer, larger rearing tanks with higher stocking densities than the UVI system. These systems are also built inside of greenhouses that require supplemental heating during some months of the year. The proprietors have faced some of the hardships typical to traditional farmers in the past few years of their operations, such as a total fish kill and a total crop loss, but their systems have literally and figuratively weathered the storms.
Traders Hill Farms
Traders Hill Farms (THF) is a commercial aquaponics farm located on the over 100 acre property of the Blaudow family. Angela TenBroeck is the Manager of Operations at Traders Hill Farms, and is the inspiration behind the family farm’s pursuit of commercial aquaponics. This farm still has two former commercial hen houses located on it, and the original THF commercial aquaponics system is built inside of one of those old hen houses. This system is fairly similar to the UVI system, but it has slightly smaller fish rearing tanks and only three hydroponic raceways. This system is also configured a bit differently, and has been looped into other aquaponics production systems for the purposes of product testing and production system performance analysis. THF has also faced a fairly steep learning curve and some traditional farming hardships. However, they have recently been able to dramatically increase production, and are currently in the process of building a new commercial aquaponics system. Traders Hills Farms also runs a Center for Sustainable Agricultural Excellence & Conservation. The Center was developed to be an institute for education and outreach for individuals to learn about sustainable agriculture. The Center allows THF to provide assistance to local farmers, and to help them plan, build, and operate their own commercial aquaponics systems.
Versatility of Commercial Aquaponics Systems
Each one of the systems studied could be altered to perform well in different climates and environments. The UVI system is partially covered by bird netting, the LPF systems are fully covered by greenhouses, and the THF system is built inside of an old hen house. However, each system could likely perform well under any of these structures, and in very different climates and environments. For instance, the UVI system could be constructed under the cover of a greenhouse, indoors, or in a hen house to perform better in less tropical climates. The THF system could also be constructed partially under bird netting in a tropical climate, similar to the UVI system, or under a greenhouse in a more moderate climate. Finally, the Lily Pad Farm systems could be built indoors, outdoors, under bird netting, or in an old hen house. One great thing about commercial aquaponics systems is that they can be fairly easily altered to produce food efficiently in different climates and environments. However, these alterations can change cost structures, which directly impact the economic viability and financial performance of these systems.
Startup Cost
The updated figures on the UVI system that were gathered for this project indicate the total cost to purchase the materials to build the UVI commercial aquaponics system should amount to more than $40,500. This assumes that the proprietor would perform all system construction activities. However, this figure jumps to over $51,100 when the first year costs for fingerlings, feed, seedlings, chemicals, and equipment are added. Since it was built by researchers at the university, the UVI system is unique in that the costs for supplies and equipment made up the vast majority of all startup costs. The majority, about 78%, of the startup cost for this system comes from the purchase of tanks and grow beds. Table 3 and Table 4 show a breakdown of each of the above mentioned scenarios for startup costs. The $40,520 figure was used in the previously published case study summarizing this system, and will be used in the analysis in this report.
The only other startup costs listed by Lily Pad Farm and Traders Hill Farms, besides aquaculture tanks, hydroponic grow beds, and required supplies, included costs related to structures (greenhouses, chicken houses, etc.), site preparation and improvements, labor and construction, a cooperative membership fee, and miscellaneous expenses. As you will see below, the majority of startup costs for these commercial aquaponics systems relate to the purchase of the aquaponics systems’ components and structures.
The Traders Hill Farms commercial aquaponics system was estimated to cost over $104,000 to build. Since the hen house covering the aquaponics system was already on the property, and required no initial investment, it is assumed that there was no cost to acquire the hen house. However, the estimated startup costs do include expenses for all hen house improvements, and for all equipment, supplies, and materials required for building and stocking the system. The majority, about 81%, of the startup costs for this system can be attributed to the purchase of tanks and grow beds. Another 12% of startup costs can be attributed to the preparation of and improvements to the barn or henhouse. Only 7% of startup costs come from categories unrelated to system components, structure acquisition, and structure preparation. The breakdown of startup costs for the THF system can be viewed in Table 5.
The Lily Pad Farm commercial aquaponics system was estimated to cost just over $131,600 to build. This estimate is listed in Table 6, and includes figures for construction materials, equipment, contractors, and all the equipment and materials required to build and stock three of the LPF aquaponics systems and greenhouses. The first system was primarily built by the proprietors, but the other two systems were built later and required a lot of outside labor. Therefore, the individual startup costs for these three systems vary a bit. Since each of these three aquaponics systems are part of the production rotation for LPF, they are all considered to be one collective system for the purpose of this research.
The average startup cost per aquaponics system built at Lily Pad Farm amounts to $43,874. This is just over 8% more than the cost to construct the UVI commercial aquaponics system. However, it should be noted that the first system was actually built for just over $29,000. In fact, it cost about 39% more to build the UVI system than the first LPF system. This was possible because the proprietors performed most of the work required to build the first system, and were able to negotiate prices for much of the equipment and supplies they purchased. The other two structures were built for an average cost of nearly $51,300. These two systems were built primarily by contractors, which significantly increased costs.
The UVI system has the lowest startup cost of the systems researched. However, this may be at least partially due to the fact that it was built on university property by university employees for the purpose of research. Universities typically have some economic advantages over individual producers since they can more easily access grants and other funding sources for equipment and supplies, and they can often find good deals, receive donated materials, obtain buyer discounts, access free/voluntary labor, and so forth. Furthermore, the only costs related to structures included in the UVI figures are for bird netting to cover the aquaculture components. The other two commercial aquaponics systems’ startup costs include significant expenses related to structures such as greenhouses or a hen house.
The LPF system is estimated to cost 26% more to startup than the THF system. However, the LPF startup costs include figures for building three commercial aquaponics systems and greenhouses. In contrast, the THF startup costs only include figures for building one commercial aquaponics system, and for retrofitting a hen house that was already on the property. The total LPF system startup costs are nearly 225% more than those of the UVI system, but the UVI startup costs only include figures for building one commercial aquaponics system that is partially covered by bird netting. The additional costs associated with the extra equipment and supplies necessary to build all three of the greenhouses and aquaponics systems at Lily Pad Farm contribute significantly to the difference in startup costs between these three commercial aquaponics producers.
Land & Rent
Traders Hill Farms’ commercial aquaponics system has no land or rent expense. The owners of the land allow the business to operate on their property at no cost. Since the UVI system is located on university property, rent is minimal at just $300 per year. Since Adam and Susan of Lily Pad Farm own and live on the land that their commercial aquaponics farm is built on, their land and rent expense is much higher than the other systems that were researched. It was estimated that they pay over $7,700 in land and rent expenses per year. In this regard, the LPF system is fairly reflective of what a small family may experience if they were to live and work on their own commercial aquaponics farm.
Variable Costs
The total variable costs per year for each system are listed in Table 7, Table 8, and Table 9. Lily Pad Farm had the lowest annual variable cost in the first year of operations than the other two systems. Much of this is due to the fact that the owners performed most of the work required to build and operate the farm by themselves in the first year, and because they negotiated equipment and supply purchases. However, their low variable costs in year one are also due to their smaller scale of production. During the second year of production, the UVI system had the lowest annual variable cost and was followed by THF. This is because the variable costs for THF only slightly increased in the second year, except for fish variable costs, which tripled. However, in year three, all variable costs besides fish increased significantly for THF. Therefore, UVI will have the lowest variable costs from year three forward, followed by LPF, and then by THF.
These figures can be used to determine the variable cost ratio (VCR), which is calculated by dividing total variable costs by total sales. The average variable cost ratio over these five years of production was 59% for UVI, 58% for THF, and 50% for LPF. The high average variable cost ratio for the UVI system means that the UVI system has the highest percent of sales being used to cover variable costs on average. When variable costs per unit of revenue decrease, in spite of increased revenue and output, economies of scale are present. Therefore, a lower average variable cost ratio can be used as an indicator of economies of scale, especially if the actual VCR decreases over time while sales increase.
Over five years of production, it is estimated that LPF decreased their average variable cost ratio from 58% to 43%, which decrease of over 26%. This indicates that LPF likely experienced the greatest economies of scale compared to the other two systems. The VCR for UVI decreased just over 4% in five years, and the VCR for THF decreased 8%. Therefore, both of these systems also appear to have experienced some economies of scale, but just not to the same extent as LPF. This means that LPF has been most successful at maintaining variable costs relative to their increase in production and sales, which may indicate they experience the greatest economies of scale.
Feed Costs: Cost of Feed and Fingerlings per Pound of Fish Harvested
The variable costs were also used to determine the feed cost per pound of fish harvested for sale. This was done by adding up all variable costs associated with acquiring feed and fingerlings for each system, and then by dividing that cost by the total pounds of fish harvested. These annual feed costs per pound of fish harvested are listed in Table 10. The UVI system has the highest average feed cost, which is primarily due to the large shipping costs associated with importing fish feed to the Virgin Islands. The UVI system also harvests fewer pounds of fish for sale than the other two systems.
It should be noted that the feed cost of $.55 per pound of fish harvested for Traders Hill Farms is actually an assumption of the financial projections created for their system. This $.55 feed cost was assumed by THF Operations to be their feed cost per pound based on their personal analysis of their system. This figure formed the base assumption for some of the cost estimates in the financial figures they provided to the project researcher. The feed cost figures for the other two systems were calculated manually using all of the data provided by the respective aquaponics system operators.
Revenue
Production and Pricing
All of the systems researched practice rotational harvesting of plants and fish in their systems. The UVI system has four fish rearing tanks that are stocked with 600 fish, the THF system has four tanks stocked with 625 fish, and LPF has three separate systems with two tanks per system that are stocked with 1,450 fish per tank. All three systems have raised tilapia in their aquaponics systems. The owners of LPF had been involved in fish production and research projects for years prior to their ventures into aquaponics, and they are very comfortable with their ability to keep such a large number of fish healthy. This is why they have larger fish rearing tanks with higher fish stocking densities in their aquaponics systems.
The UVI system is capable of producing 592 cases of lettuce, 3,000 kg of basil, and 4,324 kg of tilapia annually after the first year of operation. The UVI system has also been able to harvest fish an average of 8.7 times per year. Due to the tropical climate in St. Croix, the UVI system is only able to harvest about 37 cases of lettuce per week for 16 weeks.
During other weeks of the year, when it is too hot to produce lettuce, basil is grown. In the past, the UVI system has been able to sell lettuce for $20 per case, basil for $26.46 per kg, and tilapia for $5.51 per kg. These prices are fairly high because food is much more expensive in the Virgin Islands than it typically is within the Continental US.
The Lily Pad Farm system is capable of producing more than 1,400 fish per month for harvest for all 12 months of the year, and up to 1,500 plants per month for 48 weeks of the year. However, this would require 100% yield, mild summers and winters, and no serious weather related issues; which has yet to be the actual experience of the owners. Once all systems were completely installed and fully operational, the LPF aquaponics system produced an average of about 1,300 plants per week for around 40 weeks of the year. The owners also harvested an average of about 1,000 tilapia per month for 11 months a year from this system.
For about four to 12 weeks out of the year, winter weather affects yields at Lily Pad Farm. There have also been some weeks during summer months where the heat was so intense it affected production. In the past, LPF received an average of $3.00 per plant, but now receives $3.50 per plant sold, and $6 per tilapia sold. They market two fillets from each tilapia together, or the whole fish, for $6 each since they have observed that one whole fish is typically the proper portion to serve one person. LPF is able to receive premium prices at their farmers markets, and from their wholesale and retail customers.
The Traders Hill Farms system is capable of producing up to 25,000 plants and 1,000 fish per month. For a few weeks during the summer, it can be too hot in Hilliard, Florida for some of the plants to experience optimal yields. During a few weeks of the winter months, weather and consumer demand also affect plant production and sales. Traders Hill Farms has received an average of $.90 per plant for some produce, $1.25 per plant for other types of produce, and $2.00 per pound of tilapia sold.
During these months of lower production or sales, THF performs preventative maintenance activities. This helps them ensure that the system will operate optimally during months of full production and consumer demand. Breakdowns and troubleshooting in a commercial aquaponics system during times of peak demand can be disastrous for aquaponics producers. Not only can this affect short term revenues and profits, but it can also affect long term sales and profits, especially if important customers are lost due to missed or untimely deliveries.
System Sales Revenue
All of the annual revenues for each system researched are listed in the table below. The overall average annual revenue and the sum of total annual revenues for each system over the first five years of production are also listed in Table 11.
The THF system is estimated to have earned the most revenue during each year compared to the other systems. Over the first five years of production, the UVI system is estimated to earn about 45% of the total revenues the THF system is estimated earn. The LPF system is estimated to earn nearly 79% of the total revenues that the THF is estimated to earn.
The average percent of sales generated by produce was 81%, and the average percent of sales generated from selling fish was 19% for these aquaponics systems. On average, 81% of the revenues generated by the UVI system each year were earned through the sale of produce, and only 19% of revenues were earned from fish. On average, 71% of the revenues generated by the LPF system each year were earned through the sale of produce, and the other 29% of revenues were earned from fish sales. On average, about 91% of the revenues generated by the THF system were earned through the sale of produce, and just fewer than 9% of revenues were earned from fish sales.
The clear trend emerging from this information is that produce generates the majority of revenues earned by these commercial aquaponics producers. Each system also generated less revenue in their first years of operation due to some months of production being lost to construction and system acclimation. Since LPF built two of the three commercial aquaponics systems in year two, they also had significantly lower revenue figures in year two than they did in year three. THF also had different revenue figures in year two because they were still facing a learning curve in their operations. Through increased knowledge and experience, and improvements in operational efficiency, THF indicated they were able to significantly increase revenues by about 86% in year three.
Profitability
Net Income, Internal Rate of Return, and Net Present Value
Table 12, Table 13, and Table 14 show the figures used to calculate the net present value (NPV) and internal rate of return (IRR) for each system over five years of production. This time frame was chosen because it is very common for financial feasibility studies and financial analyses to create financial statement projections for three to five years of a project’s lifetime. It should be noted that the investment for each system was assumed to take place up-front in year zero. However, the LPF system was treated differently due to the investment taking place over two years. For the LPF system, it was assumed the investments would occur in year zero and at the end of year one. A 30% tax rate was applied to all net income figures, and a discount rate of 8% was assumed.
NPV is the sum of the present values of cash flows experienced in a project over a period of time. IRR is the rate of return that makes the NPV of cash flows equal to zero (Richard Brealey & Stewart Myers, 1996). A conservative approach was taken towards estimating NPV and IRR for these operations. Typically, NPV is estimated over the lifetime of a project and includes figures for asset depreciation. However, NPV was estimated for just 5 years’ worth of system operations, and it was assumed that all assets would have no value at the end of the projects. The IRR and NPV of each commercial aquaponics system are listed in Table 15.
IRR and NPV are commonly used to judge the value and appeal of an investment. However, each method has the potential to indicate a different decision. A project with a lower IRR can sometimes have the highest NPV. Conversely, sometimes a smaller sized investment can have a greater IRR than a larger project that generates more money. This is apparent in the chart above when comparing the UVI system to the other systems. Even though the NPV for the UVI system is significantly lower that the NPV of the other two systems, the UVI system has the highest IRR.
The UVI system has the highest IRR because the initial investment is assumed to be made up-front and all at once, similar to the THF system, and because it requires a relatively small investment. Since the investment required to build the UVI system is able to be recovered more quickly, the IRR is much higher than the other systems.
Payback Period
The payback period for the UVI system was estimated to be 1.9 years, or just over 22 months. In contrast, the THF system’s payback period was estimated to be over 2.6 years (over 31 months), and the LPF system was estimated to be 3.4 years (about 41 months). Typically, a longer payback period will indicate a lower IRR.
This notion is reflected in the figures listed for Lily Pad Farm, which was estimated to have the lowest IRR and the second highest NPV. Both the timing and size of investments can affect the IRR of a project. The LPF system requires investments in years one and two, and the investment in year two is significantly higher than in year one. This partially explains why LPF has the lowest IRR of all three systems, even though it was estimated to have a much higher NPV than the UVI system.
Sensitivity Analyses
Realistic scenarios for each commercial aquaponics system studied are presented below. A scenario for each system is used to analyze the sensitivity of various measures of profitability to changes in specific variables. For the University of the Virgin Islands commercial aquaponics system, a scenario has been created to analyze how profitability would be affected if this system were to be built and run on a family farm in similar economic and geographic climates, rather than by a university. For the Traders Hill Farms commercial aquaponics system, a scenario has been created to analyze how profitability would be affected if this system were to be built inside of a greenhouse rather than a hen house. Finally, a scenario has been created for the Lily Pad Farm system to analyze how profitability would be affected if this system were to have been built completely by contractors, instead of partially by the proprietors.
University of the Virgin Islands System Alternative Scenario
The UVI system was built on university property by university researchers and employees. The UVI system is also able to operate on this property at a very minimal cost. If this system were to be built in similar economic and geographic climates by a farmer, or a farmer and their family, then costs related to system construction and land access would likely be higher. Therefore, this scenario will assume that construction costs would be $15,000 higher, and that the land cost would be equal to that of Lily Pad Farm. It was assumed that no other variables would change in this scenario.
The $15,000 increase for contractors and construction raised the startup cost of the system from $40,520 to $55,520. The land costs also increased from $300 to $7,742 annually, which is equivalent to the cost that Lily Pad Farm experiences. It was assumed that all other figures would remain the same.
Under this scenario, NPV dropped to $51,997, which is a decrease of nearly 41% in NPV. The IRR also dropped to about 38% from over 71%. However, it should be noted that a true commercial aquaponics producer would likely pursue more aggressive production and marketing goals. This could improve the economic outlook of this scenario. Actual farmers and producers typically pursue the most profitable marketing channels and techniques available to them.
Traders Hill Farms System Alternative Scenario
The Traders Hill Farms system was built inside of an old hen house that would otherwise have been left to waste, which is a common story in Nassau County, Florida. This community was once an economically vibrant community that had many farms riddled with fully operational chicken houses. However, that all changed in the past few decades. Today, there are still hundreds of chicken houses in the county, but the majority of them sit unused and without a purpose. The owners and operators of THF were interested in finding alternative uses for these chicken houses, and wanted to help their community get involved in economically and environmentally sustainable farming. THF researched the cost of retrofitting the hen house on their property, and decided it would likely be a cost effective for them and others to build the THF commercial aquaponics system inside of unused chicken houses. However, not everyone has an old chicken house lying around.
The head of Farm Operations at THF indicated that $80,000 would be the proper cost to associate with having their system built under a greenhouse meeting their standards and requirements. Therefore, the following scenario will assume that the original startup cost for the THF commercial aquaponics system will increase by $80,000 for the construction of a greenhouse around the system. Since there would no longer be a hen house, it is also assumed that the $13,000 cost associated with barn improvements would no longer be necessary under this scenario. Under this scenario, NPV dropped to $114,972, which is a decrease of nearly 37% in NPV. The IRR also dropped to about 27% from nearly 51%. Although these measures of profitability are less favorable in this scenario, the THF system would still be economically viable if built under an $80,000 greenhouse.
Lily Pad Farm System Alternative Scenario
The first of the three total aquaponics systems that collectively make up the LPF system was built primarily by the proprietors at a relatively lower cost than the other two systems. However, not everyone has all of the skills that the proprietors of LPF have, including skills like supply price negation, design, and construction. They were involved in every aspect of building the original system, and did so at an extremely low cost compared to the other two systems that they primarily had contractors build.
This scenario of the LPF system will assume that all three systems were built at the average cost of the second two systems ($51,268). It will still be assumed that the first system was built in year one, since the proprietors believe that commercial aquaponics producers need to start small and gain experience before going all in. It was assumed that no other variables would change in this scenario.
The over $22,000 increase in cost for contractors and construction raised the startup cost of the LPF system from $29,085 to $51,268. Under this scenario, NPV dropped to $105,889, which is a decrease of over 17% in NPV. The IRR also dropped to about 32% from over 42%.
Conclusion
Each one of the commercial aquaponics systems researched presents an economically viable option for potential commercial aquaponics producers. Even under the alternative scenarios mentioned above, each system would be an acceptable investment. Each one of these commercial aquaponics systems can be economically viable within the Continental United States. The revenue generated solely from selling food and agricultural products grown in these commercial aquaponics systems could support a farmer and their family. Each system already includes figures for labor, which could be paid to the farmer or their family members for their work. Each system also generates enough profit to pay the farmer and their family, and to reinvest funds back into the business. The structures and configurations of these aquaponics systems could also be altered to perform better in different types of climates.
The majority of the startup costs associated with these systems can be attributed to the equipment required to build them, such as fish rearing tanks, hydroponic beds, air blowers, and water pumps. Supplies are the other main contributor to startup costs. However, startup costs can be significantly higher if systems are purchased instead of built by commercial aquaponics producers. It can be very financially advantageous for a producer to be heavily involved in site preparation, construction, and negotiating purchases of equipment and supplies. This is apparent in the increased average cost to build the second two systems and greenhouses that make up the LPF commercial aquaponics system. This is also evident in the cost for the THF commercial aquaponics system. Startup costs can significantly affect the financial outcome for commercial aquaponics systems, especially in the first few years of production.
The cost of feed for the UVI system was heavily impacted by the extra shipping costs required to ship products to St. Croix. If a producer were to build and operate the UVI system within the Continental US, then their feed costs would likely be significantly lower. Utility costs could also be significantly lower, but prices could be lower as well. The payback period for these systems was found to be as low as under two years and as high as over three years. Finally, the majority of revenues generated by these commercial aquaponics systems came from the sale of horticultural products, which is also evident in the survey of commercial aquaponics producers that is summarized below.
All of the data collected on the economics behind these commercial aquaponics systems were collected by the researcher directly from the proprietors. This information has been collected to provide some guidance for the commercial aquaponics industry and potential producers. This information can be used as a road map to assist with designing a system or a business plan. However, actual experiences of producers replicating one of these systems could vary significantly. Aquaponics systems are still dependent upon the knowledge and experience of the operator, Mother Nature, economic environments, and much more. No aquaponics system is the same, and the economic viability of commercial aquaponics systems is dependent upon a myriad of variables. Commercial aquaponics producers need to do their own due diligence, and must take their specific situation into account.
Areas needing additional study
The researcher tried desperately to find an indoor commercial aquaponics producer, or a commercial aquaponics producer operating in a more moderate or arctic climate. Both of these types of producers may have to incur more significant costs associated with buildings and structures, artificial lighting, and climate control. However, the researcher was unable to find such a producer that was willing to share their economic information. Further research needs to be conducted to determine if there are such commercial aquaponics systems in operation that are economically viable.
This information would be of particular interest to potential commercial aquaponics producers residing in more moderate and arctic climates, or to potential producers in urban or metropolitan areas where agricultural land may be too high in price or too short in supply to access. The additional costs associated with purchasing or constructing a building or some other structure, artificial lighting equipment and supplies, and climate control equipment can quickly add up. Therefore, it is currently unclear if there is an economically viable model of commercial aquaponics production in these settings.
Research analyzing the most economically efficient methods of supplemental lighting and climate control would be particularly useful. Information about the effects on profitability from using different structures, system configurations, and energy sources would also be very beneficial. Finally, more research into profitable marketing techniques and product mixes would also be beneficial to the commercial aquaponics industry.