Where to?

I recently came across this article posted to me by a colleague in the industry.

https://thefishsite.com/articles/ras-may-not-be-the-tilapia-industrys-path-to-profit

I wrote this as a response to this article because I believe we share common concerns in it.

We have been there and done that. We built an intensive RAS for tilapia, proved the technology and did a great deal of learning. Of interest the things that we found the most surprising are a number of myths and fallacies that appear to permeate the industry as gospel truths.

I have to say we did not fall short in unexpected expenses. In this matter I am afraid I am sorry – that’s simply bad planning. If you encounter unexpected expenses or ‘hidden production costs’ you haven’t done your homework properly.

To reinforce this. As the author references farmers are interested in profits and this contextualises tilapia operations as farming businesses.

Let’s stack this up. Currently Chinese tilapia land at around R30/kg thanks to the supply chain debacle and the fact that the dollar price in China has gone up. This is the price with the 20% ice attached to the fish removed so we can compare equivalent whole weight (EWW) with whole weight.

You might be lucky and get R35/kg for your fish EWW because it is locally farmed and blah blah. 20 tons per annum is R700k turnover – not exactly stellar. But, as pointed out, what is your profit?

Feed costs are going to amount to around R420k in a pond environment. How many people do you need to feed daily, 7 days a week and then empty and drain the pond of 50,000 fish? One? Two? Wipe off another R60k if we’re generous.

Maybe you have no processing costs but I can assure you do. Ice = power. You’ll need some water and you’ll need someone to invoice and pay the utilities. Call it another R60k. R160k is your nett profit. But you need to buy fingerlings – another R50k. Now you’re down to R110k – 15% and that’s ASSUMING nothing goes wrong.

It’s iffy at best.

But scale this to 200 tons per annum. At this level you can drop your feed costs by around 10%, same with your fingerling costs. You can leverage labour more efficiently dropping this by as much as 20%. And your admin is not going to expand much.

Turnover of R7M. GP 1,69M – 25%. A bit more wiggle room. A reasonable one man show sized business.

But now you need 10 hectares.

If you want to get to 2,000 tons you need 100 hectares. That’s 5% of the surface area of Hartebeespoort dam.

If we are going to compare fish to chicken look at the big boys – the Rainbow chickens of this world. What investor is going to spend cash on building mini Hartebeespoort’s all over the country? Only a mad man.

However, long before we even get to the problems of just scaling a pond business let’s talk about climate. In South Africa the climate and tilapia don’t work. You might get 8 months growth in some parts of the country but of course government has been the use of the species in these regions completely (despite them having already invaded). If you choose to wait for that regulation to change you’ll be waiting a long time.

It renders pond farming problematic in terms of producing regularly. At scale regular production for sale into regular markets is essential to make sure your operating costs are leveraged efficiently. You cannot run a processing operation that sits idle 3 months of the year and expect to turn a profit when you’re looking at 25% returns.

There are thus two scenarios in South Africa.

The first is we never develop a tilapia industry at all and remain dependent on imports. Nothing wrong with that – import tilapia and sell it – the cost price is know the selling price is known and the margin is known and less risky than producing the fish to begin with.

The second is that we develop in fits and starts. Government policy is incoherent, leaderless and incomprehensible. Make no mistake if aquaculture succeeds in South Africa it will be despite government and not because of it. This leaves the private sector to unlock the recipes for success, of which the ingredients are how to drive the costs of production down to below that of an imported product.

There are two important mega trends that are underpinning the second. The first is that our region has population growth trends that are the highest in the world. The second is the general lack of fish and tilapia as a staple food is fast becoming scarce.

The keys to success are as they always have been. You cannot farm fish without knowing what you are doing. This is why we have persisted with our small scale production systems because they are cheap and offer the learning that can only be attained by doing. This is both within the production environment and without in the external procurement / sales environment.

Once we have skills the question becomes how to produce fish at lowest cost to maximise the resilience of the financial model. Pond farming is simply not feasible to build a scaled business of substance. ALL farming requires scale to make money and ALL farming requires capital to make it happen – so I disagree with the author’s observation that RAS is any different from any other type of farming. Planting lettuces in the ground and expecting that to make money disappeared as a model in the 1970’s.  throwing fish into a body of water and pulling them out when they are bigger lost viability around the same time, as we are rapidly discovering.

Intensive RAS for a low value species such as tilapia is not viable. The equipment and skills levels required are expensive and with current tilapia prices not achievable. Whilst we have proven the technology in our own pilot operation and generated a ton of useful information in the process the market is not supportive of the product at the prices required.

However, a case can be made for semi intensive RAS. As it happens