4. The tilapia business value chain

So now we know what we want to farm and how we want to farm it. The next step is to understand how much of it we want to farm and so we need to start to think about the impacts of size on our operation.

It is true of almost all agriculture that the bigger you are the lower the cost of production of the product you are farming and hence the greater your profitability. This is equally true in aquaculture.

In the first math exercise we considered 20 tons of production per annum. We assumed a cost of production of R35/kg and if we extended the analogy to doubling the production to 40 tons per annum could we assume a cost of production of say R30/kg? Because if we could, that adds an additional R200k to the bottom line over and above the R400k we would expect to make from 40 tons per annum, bringing our profits to R600k per annum for 40 tons vs R200k per annum for 20 tons.

Of course these are just wild guesses for now to make the point. But you can see the impact of what dropping the cost of production can have in conjunction with a larger operation. The old adage that it takes money to make money is unfortunately true when it comes to farming.

The burning question now on your mind should be “how do I work out my cost of production?”

It is the single most important question that you need to answer.

It is so important that we have to stress it. If you don’t know, accurately, your cost of production you do not have a business. What you have is a guess, and when you are guessing in the world of business the chances of guessing right are remote.

Hence we deal with it in some level of considerable detail in our business development plan that we sell. For five hundred bucks.

In order to understand what goes into the cost of production one has to look at the overall business. In Production there are several distinct steps that take place. The process of producing fish is pretty logical and straight forward. Firstly we start with small fish (which we call fingerlings), that we then grow into larger fish (we did say it was straight forward!).

Production of fingerlings in itself however comprises of a few steps. A hatchery is the operation in which parent stock are used to spawn eggs, that are then hatched into fry. A nursery is the operation that then grows fry into fingerlings.

Fingerlings are then put into the grow-out phase where they are grown to their target weight.

So this part of the process can be summarised as

 

growing tilapia fish

 

The graphic above shows the major inputs that are needed, namely that of feed, people, infrastructure, genetics etc. There are more of course such as power and water, but we’ll get into these in due course.

These are all links in what is known as a value chain. You need all of them to be in place for the overall process to work. Think about what happens if one of these links fails. Say something goes wrong and all your fry die. You now have nothing to turn into fingerlings to turn into fish to sell. This means there is a gap in your production and hence a gap in your income. But, all the while your fixed costs keep running – you still need to pay people and rent and electricity and all these good things. A loss of one crop of production can push your overall cost of production for the year to be higher than your income.

It is this that the BEBTA ignores. In any aquaculture failure, ultimately, the financial collapse comes down to a failure somewhere in the value chain. This is directly attributable to poor design and/or poor business planning. Someone wasn’t thinking in other words. Of course acts of God can account for events that would sink any business, but unless it said act was a once in a lifetime event, it should not be sufficiently surprising that it cannot be planned for and the appropriate risk mitigation taken. Such situations crop up more often in unproven species, precisely because they are unproven.

 

Taking a look at this part of the value chain it is the production/growout step that takes the longest, adds the most value and is thus the most important part of the chain. It is here that we think you need to start, and once you have mastered the art of producing fish, the other steps of the nursery and hatchery can be added into your business further on down the line. This can be done because in the tilapia world you can buy in fingerlings already “pre-made” for you. They are good to grow and they remain the cheapest way to get production up and running and for you to learn and master.

In fact, until you are at 200 TPA+ the numbers will tell you that it remains cheaper to buy in fingerlings than to own and operate your own hatchery. Hatcheries, from hard earned experience we can tell you, are a nightmare. You need experienced expensive staff, a massive customer base and a truly competent manager to keep things on the boil. However, when your tonnages are higher you can afford to put this all in.