Carole R. Engle, Ph.D.
Engle-Stone Aquatic$ LLC
There are many reasons why some technologies are adopted widely while others are not. A full discussion of the very large literature of technology adoption in agriculture generally is beyond the scope of this column. Decisions to make the changes necessary to adopt a new technology reflect the fact that each farm is a unique business entity with a different financial position, work force, and different strengths and weaknesses. This column will address the decision by an individual farmer as to whether to adopt a new technology on his/her farm and will draw from studies on the economics of split ponds and intensively aerated ponds for catfish production.
For many farms, the most attractive new technologies are those that improve some aspect of productivity, with the underlying assumption that greater productivity will result in greater profits. In the case of split ponds and intensively aerated ponds, the substantial increases in yields improve the efficiency of use of land and pond resources, as more pounds of catfish are produced per acre.
However, are split ponds and intensively-aerated ponds profitable, given the increased capital investment? For profits to increase for a given sales price of catfish, either variable or fixed costs per pound of production will need to decrease. In the case of split ponds and intensively-aerated ponds, there is little difference in variable costs per pound of production primarily because feed conversion ratios are not generally different as compared to those in traditional open ponds. The effect is primarily that on fixed costs, as greater yields of catfish raised in split ponds and intensively-aerated ponds will spread fixed costs over a greater total volume of production. The question becomes whether the increased yields are high enough to result in sufficient additional revenue to more than offset the increased fixed costs that result from the additional capital investment.
Economic analyses of split-pond (Kumar et al. 2016) and intensively-aerated technologies (Kumar and Engle in press) developed from a survey of the catfish industry, showed that catfish production must be greater than 11,000 to 13,000 lb/acre in split ponds and greater than 11,000 lb/acre in intensively aerated ponds to be profitable. Their survey also showed that 83 % of the split ponds and 86 % of the intensively-aerated ponds observed in the study produced yields great enough to be profitable. Those that were not profitable had not stocked at a sufficiently high density to achieve the yields necessary for profitability.
The change in profitability is not the only consideration related to investing additional capital into an aquaculture business. A farm with cash flow problems would be ill-advised to initiate a transition to split ponds. To convert a traditional open pond to a split pond requires taking that pond out of production for an entire year. Thus, that year’s production will be lost which will reduce cash revenue. While split ponds may be more profitable, a farm with cash flow problems needs to improve cash flow first to prepare for the loss of revenue when ponds are taken out of production for conversion to split ponds.
If the farm business will need to borrow capital for the investment, then a farm with a weak or high-risk financial position will be better advised to strengthen financial position prior to incurring additional debt. The plan to adopt a new technology must include plans for it to be adequately capitalized, but with a reasonable level of financial risk, to increase the odds of a successful transition.
Such longer-term considerations were examined by Kumar and Engle (in press) in their analysis of optimal investment pathways for split-pond and intensively-aerated catfish pond technologies. Results showed that farms with limited availability of capital might be better off adding additional aeration first, to generate sufficient revenue and capital to slowly begin to convert traditional open ponds to split ponds over a period of years. Intensifying aeration requires less investment capital, but does require additional operating capital to stock and feed at higher rates and to pay increased utility bills. While less profitable than split ponds, intensive aeration can serve as an intermediate step to intensify the farm while strengthening financial position and possibly correcting cash flow problems until the farm is in a position to have adequate capital to convert to split ponds.
More intensive production systems such as split ponds and intensively-aerated ponds also increase production, financial, and possibly marketing risks. Thus, careful thought and analysis must go into decisions related to adopting new technologies, particularly those that require substantial capital investment. Such analysis should include a review of the farm’s business plan and developing answers to questions related to the effects on the farm’s cost of production, cash flow, financial position and solvency, marketing costs, farm-wide operating and management efficiencies, and risks. Key questions related to required personnel include whether the business has adequate numbers of employees and the right type of employees to successfully transition to the management requirements of a new technology.
Adopting new technologies that have been shown to improve productivity can result in improved profitability. However, careful thought and planning, particularly with regard to the timing of the investment as related to cash flow and financial position are needed to choose the most appropriate times and conditions to do so.
Carole Engle holds a B.A. degree in Biology/Rural Development from Friends World College and M.S. and Ph.D. degrees from Auburn University where she specialized in aquaculture economics. Dr. Engle is a past-President of the U.S. Aquaculture Society and the International Association of Aquaculture Economics and Management. She is currently a Principal in Engle-Stone Aquatic$ LLC, and can be reached at email@example.com
For additional information, see:
Kumar, G. and C.R. Engle. In press. Optimal investment pathways for split-pond and
intensively aerated catfish pond technologies. Aquaculture Economics & Management.
Kumar, G. and C.R. Engle. In press. Economics of intensively aerated catfish ponds. Journal of the World Aquaculture Society. doi: 10.1111/jwas.12385.
Kumar, G. and C.R. Engle. 2016. Technological advances that led to growth of shrimp, salmon, and tilapia farming. Reviews
in Fisheries Science and Aquaculture 24(2):136-152.
Kumar, G., C.R. Engle, and C.S. Tucker. 2016. Costs and risk of catfish split-pond systems. Journal of the World Aquaculture Society 47(3):doi: 10.1111/jwas.12271.