Michigan Growth

 

Michigan’s path, to becoming a major producer in aquaculture, will begin with the conscious development of its first supply chain cluster.  We propose the selection of rainbow trout, as it has the most culture expertise in our area, year round egg supply, proven genetics, established feeds, and most importantly, an established (5000MT/yr) supply chain in neighboring Ontario.

Analyzing the economics of farms throughout the US and Canada, a minimum production volume of 500MT/yr is necessary to produce fish at a globally competitive cost.  Artisanal farming at 50MT/yr-125MT/yr can be successful, however, significant diversification is required to maintain cash flow, the business is highly dependent on the owner’s active labor, and farms have not shown sustained value creation in sale to a next generation.  There is a minimum amount of skilled labor required for the operation of a fish farm and a larger operation of 1000MT/yr is ideal, however, 500MT/yr seems to be a critical size to become effective.

The 500MT/yr production unit can be modeled for open water nets, flow-thru, and recirculating (RAS) growing methods.  Each has their advantages and disadvantages, with the regulatory permitting complexity, inversely proportional, to the culture method complexity.  Nets have excellent economics with low capital cost, low operating complexity, and limited skilled labor.  RAS has high capital cost, high operating complexity, and highly skilled labor, all with lower operating margins, however, steadier production rates and tighter environmental control, provide additional revenue stream opportunities and potential marketing premiums.  Flow-thru, at the 500MT/yr scale, presents a large water diversion challenge, unless operating in a semi-recirculating manner, and then the economics and labor skills fall somewhere between Nets and RAS.

To understand the supply chain development challenge, we created simple block diagrams to separate the different types of operations involved in the production of seafood: (http://www.miseagrant.umich.edu/seafoodsummit/files/2015/01/11.10b-Kent-Seafood-Summit-Slides_2.pdf )

To create a robust support system quickly, many large producers are vertically integrated with these elements and have been known to bring $100m+ investments to developing countries.  We believe Michigan will need to grow more organically and that the management of each of these blocks requires different focus to develop operating and productivity gains.  For understanding the Supply Chain, we view each of these blocks as separate businesses.  Each block needs at least 5 other customers to ensure reliability of delivery and quality throughout the production cycle.  This is based on a simple “20% rule” that no customer/supplier is more than 20% of the input/output of the business.

With the minimum farm size of 500MT/yr, this leads to a conclusion that the minimum cluster size is 2500MT/yr.  A single cluster of this size in Rainbow Trout is achievable for Michigan in the near term.  From this base, further expansion into various Salmon and the development of local species, such as Lake Whitefish, become much more feasible.  Based on the established experience of Canada in Lake Huron, we propose that a net operation be the first step towards the development of an industry cluster.  Subsequently, there are perhaps 1-2 sites that could be developed as simple flow-thru operations at the 500MT/yr scale and several 50MT/yr-100MT/yr sites that could expand.  From this foundation, a 500MT/yr RAS operation should be considered.

Globally, development of offshore and closed containment nets, are progressing in parallel with development of RAS operations.  Neither technology is currently commercially viable for Michigan, however, with the initial development of our supply chain, we will be in a position to expand aggressively on these methods as they become proven.

500MT/yr Operation in Ontario, near Manitoulin Island