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Economy of Scale – Commercial Aquaponics

During an interview last week I was asked, what was the biggest mistake people getting into commercial aquaponics make.  My first response jokingly was “getting into aquaponics”.  I reinforced that view with a number of skill sets a commercial grower needs and in most cases people do not have these and are building systems at a scale where they can not afford to employ people that do have the skills needed. That aside, my host suggested that many has said that going too big at the start seemed to be the biggest mistake.  I could not disagree more.  Most popular aquaponic systems are far too small to service a market, even urban local properly and have built in inefficiencies that will be very difficult for the operators cash flow to overcome, especially when they lose their competitive edge.  More about that later. This is not to say a small system can not be successful because they can.  However, when fronted with an opportunity to expand to meet a greater market demand, you may be trapped in a vicious cycle of poor cash flow and will need to borrow heavily to move to the next level of your business. Sure it is not unusual to borrow money for expansion in businesses, but if your plan is to replicate the same system you started with, it will end in pain you don’t need or want.  The simple reason for this is economies of scale want apply to replicating a small model or proof of concept model. Again, sure you can replicate and grow on that system and you might do well but farming, like any business is cut throat ruthless and you need every possible advantage over the other farmers selling into the same market.  This is where economies of scale come to play. Take for example our hypothetical system below: The fish systems here are identical in volume but the area in which they take up is very different.  The 6 smaller tanks take up 37.5% more space than the single tank.  They need 6 of everything (valves, sensors and the like) plus from the labor point of view everything is increase by a factor of 6.  It takes just as long to feed a 1000 liter fish tank as it does to feed a 6000 liter fish tank.  The same goes for testing, monitoring and fish sampling. So with that your cost of production will also increase.  Starting to lose the competitive edge. Not only does the bottom one take up more space and labor, it also costs much more to build because you are using up to 150% more materials.  This will increase the capital cost and if replicated that capital is replicated into every model you build.  Which may leave you over capitalized but that will depend on your market sales margins. The plant growing space is very similar in size but lacks access on the single bed.  If I were to replicate these systems to expand my operations the bottom one will take an additional 20% of space to achieve the same production.  That is a substantial difference and one worth considering when planing your system. When planning your system, think of the end game, what the market will handle.  Build the fish farm as big as it needs to be and run it at a lower density until you gain some market penetration.  The plant system will not have nutrient to support the entire grow out so you can build that in stages.  Unless of course you do the smart thing and arrange supply contracts before you build. Remember, you will not have the biomass in the fish when you start up.  Something to be considered when making promises on production for supply agreements… The take home message here is plan your system well and value engineer every part of it to meet your market demands, now and in the future….

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