Economic Analysis of Commercial Aquaponic Production Systems

Project Overview

GS13-125
Project Type: Graduate Student
Funds awarded in 2013: $9,975.00
Projected End Date: 12/31/2015
Grant Recipient: University of Kentucky
Region: Southern
State: Kentucky
Graduate Student:
Major Professor:
Dr. Timothy Woods
University of Kentucky

Annual Reports

Commodities

  • Vegetables: greens (leafy)
  • Animals: fish

Practices

  • Animal Production: feed additives, feed rations
  • Crop Production: nutrient cycling
  • Education and Training: decision support system, extension, participatory research
  • Farm Business Management: agricultural finance, budgets/cost and returns, feasibility study, new enterprise development, whole farm planning
  • Production Systems: agroecosystems, holistic management
  • Sustainable Communities: urban agriculture

    Abstract:

    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.

    Project objectives:

    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.

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.