Following on from our recent post on the hidden cost of aquaponics (Aquaponics for Profit), I want to take that same hypothetical aquaponic system and see how we might improve its chances of success. We are not taking into account markets and capacity for the farmer to sell their product. We will look as some of the basics of the system to see where improvements may be made.
Reduce Capital Investment Cost
The first and very prominent issue is the capital investment of such a small farm. In terms of scale, the economy of small systems makes them very susceptible to high capital cost in comparison to their capacity to produce. In other words, the square meter cost to production return or cost to benefit are quite high, so scale of economy negatively impacts the small farm business outcome. This high cost will be reflected in the increase of the break even sale price of the produce. Often the capital investment in small farms is not recovered over their life span, though it does give you some capacity to reduce your taxation exposure in the first 3 to 5 years
We all know cash is king, and when it comes to start up boutique hobby farms cash is very important. The high capital cost often means putting at risk substantial cash savings with the intention of generating a higher return than you might get in a long term investment cash account. For example you might have some cash squirrelled away for later in life and it is earning you an comfortable 6%pa with next to no risk. It will take some serious consideration before taking that money out and invest it in a very high risk venture like farming (aquaponics or otherwise). As with any investment the returns should reflect the level of risk, eg high risk you should expect high returns.
Perhaps, there is opportunity to partner with family or friends in the venture, however that can also be fraught with risk and sometimes does not end well. You also need to keep in mind that now you have to sustain more than one income and usually an income that is not directly reflected on the farms input (labor), so it can increase your risk substantially through cash flow reduction. This is not to say it is bad, but choose wisely with whom you might partner with and set the expectations well before any finances are exchange.
If those cash funds are not available to you, borrowing the money is the next option which incurs substantial interest rates which put your operational cash flow at serious risk. In AU obtaining 50K or 100K to get you going from a bank is going to be near impossible and as I mentioned earlier, the banks will charge a high interest rate appropriate to the risk, if you manage to convince them you are the right person to bet on.
Grow as You Go
Another option often used with success, if capital funds are not readily available is to build and expand as funds from other sources, such as your day job becoem available. Effectively it starts as a hobby with a larger plan to possibly replace your day job income with that of the hobby farm. This can be a stiff lifestyle choice but one that many opt for. Provided your system design allows you to easily and inexpensively increase your production as your market grows, you stand a fairly high chance of success.
This expansion process is very important because when you start out, chances are you will not have much in the way of market penetration, so it makes perfect sense to grow what you can afford to as you identify what your market wants from you and expand in line with demand. I can not stress enough that production must be driven by demand not the other way around. Grow as much as you can sell.
While I got a little side tracked, the point I make is a critical factor in determining your success as a farmer. Reducing capital cost does not mean butcher your design by using gear that it is not designed for and doing a lot of ad hoc modifications. Start with proven system designs and culture techniques, keeping in mind the cutting edge is the bleeding edge and as a small grower you can not afford to dally too much with experimental ideas. Invest in the right gear for the job and it will serve you well. The last thing you want to be doing is repairing or reconfiguring your set up.
How can we improve on the previous scenario?
We have talked about reducing capital investment is critical without compromising on the gear used. Another critical consideration is getting the most out of every square meter of the large capital costs plays a vital role in reducing your investment. That is what farming is about aquaculture or horticulture.
Take for example our 2200 plant holes in a 450m2 double poly tunnel. Click on the concept drawing at the top of this post to get a better look. That is a substantial modification to the original design. You now have 4500 plant holes and 22,000 litres of aquaculture in the same poly tunnel. This set up will take just as long to run and manage but it is much more productive and much lower capital, which answers two of the critical factors for success, lowering capital cost and increasing production.
Now we product 700 kg of fish and 54,000 plants. At the rates we used in the previous post, you might see a turnover like $10,500 for the fish and $81,000 for the plants with a potential turnover of $91,500 per year. You will work close to the same hours but we will add an extra full day because of the volume of plants. The fish will take the same time to care for.
Let’s take a quick look at how this has helped our bottom line.
- Poly tunnel – $15,000 (because we found a great deal on the poly tunnels)
- Fish shed – $0. We have removed the need for the shed saving $15,000
- Aquaculture system – $20,000. The cost has not changed but we have engaged people like us to design and supply it which reduces the cost – really…
- Hydroponic system – $15,000. The price has increased using commercial NFT and increase in production
- We have not included development applications and fees for construction.
- Total – $50,000
- Cost of fish production at $8/kg – $5,600pa
- Cost of plant production at $0.15/plant – $8100pa
- The big killer if you borrow over 10 years at farm interest rates – $7,920pa
- We have not included vehicle costs (fuel, insurance, rego etc)
- We will not include licensing, permits and audits or stock and equipment insurance (often 4% of capital or turnover) either
Now we have a cost which is almost exactly the same as the original design at $21,620. That leaves $69,880 in your hand. It is important to note we hav not included all of the other costs associated with a farm of this type. We will include those in a later post.
Now you are working 2 hours a day for 4 days and 12 hours a day for the other 3 at a bare minimum and if you are really efficient at time management. About 44 hours per week. We are not going to work out an hourly rate, because you will not be at maximum production until after the first 12 months and you will need that $22,000+ to see you through the next year.
What we will do is pay for those other hidden costs (35k) 50% and reinvest in the business the first year (35K) 50%, to be sure we can survive the second year. Unfortunately no pay for you today. At the end of the second year, once you have balanced the books and paid the ferryman, you will be able to assess how much income the business can provide you with and how much you are willing to survive on. This may mean a lifestyle change or as I said previously, maintain a second income (perhaps your partner) until you can stand on your own feet.
You can effectively cut the size of the farm in half and add on your expansion in the second year (double in size), which will give you some time to build your markets and increase your knowledge. Also relying on the fish waste to run the farm, the fish will not support (in terms of nutrient production) the entire farm. You are best to get the fish in to the end biomass you expect then add on more NFT tables as the nutrient increases. This will still require constant input of your own cash, so plan for that.
Your expectation of a hobby farm providing you with adequate income is a very important part of the decision making process. Keeping in mind, this is a risky and hard business to be in and it is 24/7/365. It is very difficult to summarise all of the details in a single page, so the prices and details are only an estimation or a guide.
While writing articles such as this one, may turn people away for getting into hobby farming with aquaponics, it is more important to my business success and the expansion of the industry (not to mention your success), those who are keen to get their hands wet, do so with their eyes open.
We will endeavour to write up more detailed information on the costs at a later day. Keep an eye out for that.