By: Carole R. Engle * Engle-Stone Aquatic$ LLC
Hundreds of decisions must be made in the aquaculture business. Incorrect choices in any one aspect of the company can lead to business failure. Successful managers recognize when change is needed and make the necessary adjustments to adapt effectively to changing market, regulatory, and production conditions.
Bad management is often cited as the reason for the failure of aquaculture businesses. It is easy to point to poor decisions made in some businesses, such as purchasing an expensive truck for personal use when more urgent investments are needed or hiring a friend who does not have the requisite skills.
However, just because a manager has not indulged in what are obviously poor choices does not mean that he/she is a good manager. Moreover, merely blaming financial problems or failure on “bad management” is not very enlightening because it implies that replacing one individual would have resulted in a successful business.
The answers to a successful aquaculture business are rarely that simple. Management is of course quite important, and a good manager greatly increases the chances of success. The problem is that the management input into the business consists of the total set of decisions (or, in some cases, the lack thereof) made across all phases of the business.
“Hundreds of decisions must be made in the aquaculture business. Incorrect choices in any one aspect of the company can lead to business failure.”
Extension aquaculture specialists are well aware of examples of aquaculture farm businesses that failed during favorable economic conditions because of poor choices made or because no decisions were taken to adapt to changing economic conditions.
Figure 1 depicts general categories of business functions within which decisions must be made on an ongoing basis. Such essential business functions include marketing, distribution, scope and scale, personnel, and financial aspects of the business in addition to the production of fish, shrimp, shellfish, or seaweed.
Ultimately, the key to whether individual decisions are correct or not is how well the many decisions made support and contribute to the overall business model and concept. Marketing decisions begin with the choice of markets to target, specified by geographic location, consumer segment, and market channel.
The choice of product form (i.e., fresh or frozen, fillet size ranges, value-added forms), then is made based on preferences of buyers in the targeted markets, but within the context of pricing and positioning the product with respect to other similar products in those markets, as well as logistical considerations related to the ability of the business to manage the variety of products and product lines chosen.
“Appropriate packaging design, size, and labeling must be selected as well.”
These various marketing decisions clearly must be made in conjunction with choices of distribution and the scope and scale of the business. Given the economies of scale in aquaculture, smaller farms will be at a cost disadvantage and will need to develop high-priced markets.
For example, a small-scale shrimp RAS farm would likely target a relatively small market niche with one or two preferred shrimp sizes. Still, it would not have the capacity to process, freeze, or use sophisticated packaging.
The product would be best delivered live or fresh directly to end consumers to capture higher prices. However, if the market selected was large, then advertising or promotional efforts might result in opportunities for competitors whose additional supply might drive prices down.
Distribution systems and strategies must be selected that will deliver products efficiently and promptly, maintaining quality throughout the whole value chain. Important tradeoffs exist in transportation costs among air freight, ground transportation, and whether to take advantage of wholesalers or distributors (at a reduced price to the aquaculture company) to provide distribution services.
“The choice of distribution system further affects production decisions due to volumes per shipment and harvests’ timing to meet shipping deadlines. “
For an aquaponics farm that plans to sell tilapia to high-end restaurants, for example, frequent deliveries of very fresh tilapia would be essential.
Personnel hired to deliver the tilapia who are not reliable or do not have good interpersonal skills when interacting with the customers receiving deliveries will likely reduce repeat sales. Thus, marketing and distribution choices must be made with respect to personnel and staffing choices as well.
Most aquaculture business managers pay great attention to production decisions related to stocking densities, growth rates, and feed types, among others. What is often overlooked is how such production decisions will support the marketing strategy selected.
For example, higher stocking rates might result in lower costs of production, but if slower growth from higher densities results in fish not reaching market size in time to take advantage of peak marketing seasons, the business may suffer.
Personnel and staffing decisions must address how the business will access all necessary expertise, not just how to raise, harvest, and maintain the health of the fish.
“Expertise in marketing and sales, customer service, and financial monitoring are equally important.”
Large aquaculture farms often have specialized individuals to attend to each of these functions, but smaller-scale aquaculture farms will need to either hire out these services (at additional cost) or ensure that farm personnel learn to manage the finances and sales effectively and successfully.
The business’s financial statements (profit & loss statement, balance sheet, and cash flow statement) will reveal whether the management decisions made are correct or if they are leading the business towards failure. All successful managers monitor financial statements closely, have learned to identify early warning signs, and take corrective action before problems become insurmountable.
The indisputable proof of whether decisions made (that form the overall business model/concept) were correct is if the business survives over time. The myriad decisions made across business functions must fit and mesh well together for the business to be successful.
There rarely is a single “manager” in the sense of one individual who makes all the decisions. More frequently, several individuals fulfill different functions, and each makes decisions related to those functions.
It is vital that individuals who make decisions in the business understand how their functions contribute to the overall business model and how their choices either support or create problems for other, equally essential business phases.
What makes a successful manager of an aquaculture business?
Firstly, the top manager must have a clear vision of the entire farm business, how its products fit and compete within the overall market for that type of product, and what that farm business model requires in terms of production, scope and scale, distribution, personnel/staffing, and financial performance.
The manager must have a team of individuals (even if unpaid family members) who understand and are committed to that business model and to fulfilling the functions of their assigned role(s).
“Secondly, the top manager must monitor production and financial efficiencies on an on-going basis, with particular attention to cost controls.”
Checkbook economics and management (i.e., if there is cash in the account, spend it) are no longer sufficient for aquaculture businesses’ economic survival.
Thirdly, in addition to understanding the larger picture of the business model, successful managers must also be detail-oriented because details reveal opportunities to reduce costs, improve performance, and increase the likelihood of success.
Finally, successful managers are those that recognize when change is needed and make the necessary adjustments to adapt effectively to changing market, regulatory, and production conditions.
Ph.D. Carole R. Engle*, Engle-Stone Aquatic$ LLC 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