ECONOMIC FEASIBILITY OF UTILIZING SALINE GROUNDWATER OF WEST ALABAMA TO PRODUCE FLORIDA POMPANO IN A RECIRCULATING AQUACULTURE SYSTEM Except where reference is made to the work of others, the work described in this thesis is my own or was done in collaboration with my advisory committee. This thesis does not include proprietary or classified information. ____________________ Jacob Gorman Certificate of Approval: _____________________ _____________________ Norbert L. Wilson John L. Adrian, Chair Associate Professor Professor Agricultural Economics & Agricultural Economics & Rural Sociology Rural Sociology _____________________ _____________________ Deacue Fields Jesse A. Chappell Associate Professor Associate Professor Agricultural Economics & Fisheries & Allied Rural Sociology Aquacultures _____________________ George T. Flowers Dean Graduate School ECONOMIC FEASIBILITY OF UTILIZING SALINE GROUNDWATER OF WEST ALABAMA TO PRODUCE FLORIDA POMPANO IN A RECIRCULATING AQUACULTURE SYSTEM Jacob Gorman A Thesis Submitted to the Graduate Faculty of Auburn University in Partial Fulfillment of the Requirements for the Degree of Master of Science Auburn, Alabama May 9, 2009 iii ECONOMIC FEASIBILITY OF UTILIZING SALINE GROUNDWATER OF WEST ALABAMA TO PRODUCE FLORIDA POMPANO IN A RECIRCULATING AQUACULTURE SYSTEM Jacob Gorman Permission is granted to Auburn University to make copies of this thesis at its discretion, upon request of individuals or institutions and at their expense. The author reserves all publication rights. _____________________ Signature of Author _____________________ Date of Graduation iv THESIS ABSTRACT ECONOMIC FEASIBILITY OF UTILIZING SALINE GROUNDWATER OF WEST ALABAMA TO PRODUCE FLORIDA POMPANO IN A RECIRCULATING AQUACULTURE SYSTEM Jacob Gorman Master of Science, May 9, 2009 (B.S., Auburn University, 2007) 66 Typed Pages Directed by John L. Adrian Recirculating aquaculture systems hold great promise for producing large amounts of fish in a confined area, using significantly less water and land resources than conventional aquaculture. However, these systems require a large capital investment and are often not profitable due to the low price received for traditionally cultured specie such as tilapia and catfish. In order become more profitable, high value marine species were evaluated to determine if the higher prices received would compensate for higher operating costs and capital oulays. To decrease the cost of producing these marine fish in recirculating systems, saline water from West Alabama aquifers was used to reduce or eliminate (depending on culture salinity) the cost of making seawater. v After evaluating numerous species such as grouper, snapper, and flounder, pompano was chosen as the specie for evaluation. This selection relates to the high prices it commands, as well as its suitability for culture in low salinity, recirculating systems. Culture was evaluated at both 15 ppt salinity and 6 ppt salinity. The system was designed to harvest 92,625 pounds of fish per year in 67,102 gallons of water. Operating costs totaled $478,084 per year if raised at 15 ppt and $250,993 per year if raised at 6 ppt salinity. The total capital investment for the facility was $298,206 regardless of the salinity at which pompano were cultured, with annual depreciation of $40,462. Sensitivity analysis was conducted to evaluate the profitability of a pompano facility producing pompano at various salinities, with different feed conversion ratios (FCR), and at different prices received. Pompano production was found to be an attractive investment when raised at 15 ppt at 90 percent survival with an FCR of 3.1 and a market price of $7 per pound. If pompano can be successfully cultured at 6 ppt, as research suggests, production is an attractive investment at 95 percent survival with an FCR of 3.1 and a market price of only $4 per pound. vi Style manual or journal used: Journal of Agricultural and Applied Economics Computer Software used: Microsoft Word, Mircrosoft Excel vii TABLE OF CONTENTS LIST OF TABLES AND FIGURES................................................................................viii INTRODUCTION...............................................................................................................1 OBJECTIVES AND METHODS...????.....................????????.??.?..6 LITERATURE REVIEW....................................................................................................8 BACKGROUND FOR ANALYSIS...........................................................................?...18 TECHNICAL SYSTEM.............................................................................................?...27 ECONOMIC ANALYSIS???????....................??????....?????.30 CONCLUSION??????????????.....................????....????.37 LITERATURE CITED??????????????.....................??....???.40 APPENDIX OF TABLES AND FIGURES......???????....................?....??44 viii LIST OF TABLES AND FIGURES TABLE 1. Marine Recirculating Aquaculture System Parameters; Parameters for Pompano Production in West Alabama, 2008...................................................................44 TABLE 2. Capital Outlay and Depreciation; Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008....................................................45 TABLE 3. Operating Expenses; Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008......................................................................47 TABLE 4. Year 1 Income Statement; Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008......................................................................48 TABLE 5. Year 2 Onward Income Statement; Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008....................................................49 TABLE 6. Sensitivity Analysis for Pompano Production in Salinity of 15ppt, West Alabama, 2008...................................................................................................................50 TABLE 7. Sensitivity Analysis for Pompano Production in Salinity of 6ppt, West Alabama, 2008...................................................................................................................51 TABLE 8. Cash Flow Budget for 15ppt Salinity; Pompano Production in a Marine Recirculating System, West Alabama, 2008......................................................................52 TABLE 9. Cash Flow Budget for 6ppt Salinity; Pompano Production in a Marine Recirculating System, West Alabama, 2008......................................................................54 TABLE 10. Analysis of Net Present Value (NPV) 15ppt Salinity; Pompano Production in a Marine Recirculating System, West Alabama, 2008..................................................56 TABLE 11. Analysis of Net Present Value (NPV) 6ppt Salinity; Pompano Production in a Marine Recirculating System, West Alabama, 2008..................................................57 FIGURE 1. NCST Fishbarn Diagram...............................................................................58 1 INTRODUCTION The world?s reliance on food captured from or cultured in water is undeniable. The U.N. Food & Agriculture Organization (FAO) reports that in 2004, 2.6 billion people throughout the world derived 20 percent of their animal protein from fish (FAO, 2007). In many areas of the world, it is not uncommon that the entirety of one?s protein intake comes from seafood. Often, this fact relates to the availability and abundance of fish, and hence, its affordability. However, in other areas of the world, such as in the United States, fish have historically accounted for a much smaller percentage of the general population?s protein intake. This relationship is changing. Many studies, such as those conducted by Dariush and Rimm, as well as marketing, may have changed the public?s perception of fish. One such study indicates that modest consumption of fish results in a 36 percent reduction in deaths from coronary heart disease and a 17 percent reduction in the risk of death from any cause (Dariush and Rimm, 2006). Studies such as these, as well as increased marketing by companies and organizations which represent the seafood industry, are working to significantly increase fish consumption in the U.S. Data from the National Oceanic and Atmospheric Association reports that from 2001-2006, per capita seafood consumption in the United States increased by 11 percent from 14.8 pounds to 16.5 pounds (NOAA, 2007). 2 However, one down side to the benefits realized by this increase in fish consumption is the ecological impact of more fish being harvested from the world?s oceans. The FAO reports that early studies predicted that ?the estimated maximum potential for traditionally exploited marine species is about 100 million tons per year?. After adjustments made to this research, the number was amended to a maximum potential of around 80 million tons harvested per year (FAO 2005, p. 1). Since the FAO estimates were released, data collected around the world have confirmed the earlier estimate of a maximum of 80 million tons to be quite on target. The U.N. FAO reports that the amount of seafood harvested from the world?s oceans increased from 16.7 million tons in 1950, to a record high of 86.2 million tons in 2000, and then settled to 84.4 million tons in 2002. Throughout the 1990s until present, the amount of seafood harvested has remained relatively stable, suggesting that we have reached the cap on the amount of seafood that can be harvested from the world?s oceans (FAO, 2005). The FAO reports that in the 1970s, overexploited, depleted, and recovering stocks made up 10 percent of the total catch. By 2002, this number had climbed to 24 percent of the total catch. Also in 2002, seven out of the ten species of fish that account for 30 percent of the world?s harvested seafood were classified as either fully exploited or overexploited, while 76 percent of fish populations for which information is available need to be either monitored and/or rebuilt to maintain sustainability objectives (FAO, 2005). In summary, the world?s human population is increasing, as well as its per capita demand for fish. Meanwhile, the amount of fish that can be harvested from our oceans 3 has peaked and in some cases, even decreased. In order to meet the demand of consumers, aquaculture (fish/seafood farming) has emerged as a fast growing industry in agribusiness in the United States (Aquatic Network, 2005). While increasing the amount of seafood available to consumers without increasing the amount of fish harvested from the wild and also providing economic benefits to the producer, aquaculture is not without its own problems and issues. The Secretariat of the Convention on Biological Diversity reported the ecological downfalls of many aquaculture ventures (Secretariat of the Convention on Biological Diversity, 2004). The Secretary?s report describes the negative impact of intensive salmon culture in raceways and cages. Ecological problems arise as a result of suspended solids being released into waterways, and an increased amount of organic material and nutrients that cause an accumulation of anoxic sediments, alteration of plant and animal communities, and rapid build up of algae in lakes. It also reports that large scale shrimp farming has harmfully altered coastal habitats through the conversion of mangrove forests and the destruction of wetlands. Shrimp culture has also increased the salinity of many agricultural and drinking water supplies and has led to land subsidence through the compaction of soil layers. Other ecological concerns include the misapplication of chemicals, by-catch of other species while collecting seed, and the use of fishery resources as feed inputs. Another problem that the report addresses is the release of non-native species into local waterways. It states, ?Aquaculture is the principle reason for the introduction of freshwater fishes and experience has shown that the introduced species will eventually enter the natural ecosystem (either through purposeful release or accidental escape)?. 4 This introduction of non-native species can have harmful effects on local resources through ?hybridization and loss of native stocks, predation and competition, transmission of disease, and changes in habitat? (FAO 2009, p. 1). In order to combat the potential ecological hazards of aquaculture, a study by White, et al., stresses that methods of sustainable aquaculture be employed. The study states that, ?sustainable aquaculture must consider the ecological, social, and economic aspects of development in a way that conserves land, water, plant and genetic resources, is environmentally non-degrading, technologically appropriate, economically viable, and socially acceptable? (White, O?Neill, Tzankova, 2004, p. 4). An increasingly popular approach to sustainable and ecologically friendly aquaculture is use of closed recirculating systems. These systems can be built anywhere from an arid desert, to a booming metropolis, as long as there is a sufficient water source. A basic system consists of a tank to hold the fish, a biofilter to clean the water that returns to the tank, pumps that continually circulate the water throughout the system, and an effluent pond to dispose of waste properly. Through water reuse, these systems minimize water use, and since they are closed systems, diseases, organic material, and non-native species are not at risk to be introduced into local waterways. Aquaculture already has a significant impact on the economy of the state of Alabama. The USDA reports in the 2005 Census of Aquaculture that Alabama has a total of 215 aquacultural production facilities, generating total revenue of over 120 million dollars. This is a significant increase from 1998 when 259 farms produced a total of only 59.6 million dollars worth of product. Most of this revenue is generated from catfish production, with 192 farms producing 98.4 million dollars of product in 2005 (USDA, 5 2007). In addition to the impact that aquacultural production has on the state?s economy, other businesses rely on the fish that these farms produce and make significant contributions to the state?s economy as well. In 2005, three catfish processors in Alabama generated total sales of 151.2 million dollars and employed 1,290 people. It was estimated that 94.66 percent of this sales revenue was generated from sales outside the State of Alabama, meaning that 143.1 million dollars was new money entering the State?s economy. All output impacts, ?the total value of revenues or expenditures associated with an activity or event?, of aquacultural production and processing combined in the State of Alabama generated an estimated 498 million dollars (Stevens, 2007). Alabama is a leader in aquacultural production, it has abundant water resources (including higher salinity groundwater suitable for some marine species), and is a strong candidate to incorporate recirculating aquaculture systems to produce new, high valued species of fin fish for consumption. High salinity groundwater has already been used for aquacultural production in West Alabama. In 1999, catfish producers in Greene County produced pacific white shrimp in abnormally saline ponds. These ponds consisted of water that ranged between 5 and 6 ppt salinity and was pumped from approximately 1300 feet below ground. Such groundwater is available throughout western Alabama (Coddington, 2002). 6 OBJECTIVES AND METHODS The purpose of this study is to evaluate the feasibility of using the saline water from West Alabama aquifers in order to produce high valued, marine fish in a recirculating aquaculture facility. Traditional aquacultural producers in the United States have seen dwindling profit margins in recent years, and the ability to produce a high valued product may make aquacultural production a more profitable enterprise (Timmons, 2001). Evaluation and modification of recirculating aquaculture systems that have been successful in the past were used in order to create a system that is capable of producing fish at high densities in a saline environment. Species of marine fish were evaluated based upon six criteria. These include their ability to tolerate low salinity conditions, their ability to be grown at high densities, the availability and use of a commercial feed diet, the availability of fingerlings, whether past research or commercial production shows a potential for the fish to be cultured successfully, and also their market price. Investment costs associated with building a recirculating aquaculture facility increase when the system is designed to produce fish in a warm, saline environment. Operating costs are higher as well, especially when compared to catfish or tilapia production. Feed, fingerlings, and the cost of supplemental salt work to push these costs significantly higher. However, the premium received for producing high valued species of fish may be sufficient enough to outweigh the increased costs, making it a profitable enterprise. This study will use standard budgeting, break-even, and sensitivity analysis to evaluate the 7 feasibility of producing a marine fish specie in the saline waters of West Alabama using a recirculating aquacultural production system. Technical and economical characteristics of the system are presented and evaluated. Alternative marine species are evaluated for production consideration. 8 LITERATURE REVIEW The concept of producing fish in a recirculating aquacultural system is not new. M.B. Timmons wrote the publication that the authors of Recirculating Aquaculture Systems refer to as ?the original aquacultural engineering bible? in 1977 (Timmons, et al 2001). Since that time, many aquacultural ventures started and then failed in trying to generate a sufficient profit from recirculating technology. In Recirculating Aquaculture Systems, the authors relay a story written by Peter Redmayne that points out significant failures in the aquaculture industry. These failures include an intensive tilapia operation, Simplot Co., which shut down their operations due to an inadequate biofilter, losing the company over $20 million. They also report that in 1991, the largest indoor catfish operation at that time was Blue Ridge Fisheries in Martinsville, Virginia. Their business failed because their Recirculating System was not cost effective. These cases highlight the difficulty that exists in raising fish in recirculating systems. The capital cost is very high, there is potential for catastrophic fish losses, and prices received for conventionally cultured species of fish are often low. Thus, fish produced in recirculating systems are generally not competitive price-wise (Timmons, et al 2001). More recently, to improve feasibility, researchers and entrepreneurs have looked toward more valuable species of fish to culture in recirculating systems. This approach has led to an increased interest in the culture of marine fish species. While the cost of 9 production is higher, there is the potential that the increase in revenue from selling the higher valued fish will outweigh the higher cost of production and generate a profit. Mariculture is specifically defined as ?the farming and husbandry of marine plants and animals in brackish water or marine environments.? Mariculture is still far behind in tonnage of production when compared to freshwater aquaculture, but it is growing globally, from 9 million tons in 1990 to 23 million tons in 1999. Better feed conversion ratios enable farmers to produce fish with about the same feed input as is required for a terrestrial animal (CBD, 2004). There is an additional benefit to producing marine fish in low salinity environments that was not mentioned by most researchers who conducted studies and have written papers in this area. An additional benefit to producing marine fish in low salinity environments is that in doing so, there is a significant decrease in the energy spent by the fish during osmoregulation, or the regulation of the salt and water balance within the fish?s body (Delbeek, 1987). Researchers at the University of Texas report that studies have shown that between 10 and 50 percent of a fish?s total energy intake is used during osmoregulation (Resley, Webb, Holt, 2006). By reducing the energy spent during osmoregulation, more efficient growth rates may be observed than in traditional net/pen culture. Dr. Yanothan Zohar of the University of Maryland Biotechnology Institute (UMBI) has successfully raised Mediterranean gilthead seabream in an urban environment using recirculating aquaculture systems technology to turn a Baltimore basement into an intensive mariculture facility. He reports that in the Baltimore area, gilthead seabream bring retail prices around $20/kg, or about $9/lb. These fish are traditionally raised in net 10 pens throughout the Mediterranean. Around 500,000 lbs. is imported to the United States each year. After conducting their own market research, it was decided that the fish could be sold at an ex-farm price of $12/kg in the live markets and around $9/kg fresh on ice. In his study, Dr. Zohar pumped city water through charcoal filters and into a tank where saltwater ranging between 15 and 25 ppt was produced by adding sodium chloride and other essential minerals. This water was used to raise the fish at an initial density of 44-47 kg/m 3 , or .392 lb/gallon with 7-10 percent water of the system?s water exchanged daily. Later, the stocking density was increased to 60kg/m 3 , or .5 lb/gallon. Growout time in the system (7.7 months) was roughly half of what is realized by culturing the fish in net pens (12.9 months) with overall survival exceeding 90 percent. This result was attributed to the optimal environment that was provided by being able to control photoperiod, temperature, and salinity (Zohar, 2005). While overall the results of this study are encouraging, Dr. Zohar reports that by exchanging 10 percent of the water volume daily, 25 percent of the total cost of production derives from the expenses associated with producing seawater. Dr. Zohar and his colleagues at UMBI have since embarked on research that would significantly decrease the daily water exchange. Some of this research includes recovering salt that may be lost by removing solids, addition of a denitrification unit, and the identification of new bacteria that work to oxidize ammonia and nitrites (Zohar, 2005). While this research shows promise, a possible solution to the problems associated with the cost of producing saltwater has already been addressed by aquaculturists throughout the country who have used and are using groundwater supplies that have a higher salinity, making the water unsuitable for conventional agriculture. In a 1993 paper published in 11 Aquaculture, Sandifer relates his study in which researchers attempted to produce red drum through intense pond culture using saline ponds averaging 28-ppt salinity. While parasite infestation and oxygen depletion caused significant losses in some of the fish populations, other ponds experienced survival rates between 88 percent and 94.9 percent (Sandifer, et al. 1993). James Forsberg published a 1996 paper in the Journal of World Aquaculture in which he describes culturing red drum in the saline waters of West Texas. Red drum were raised in seven different locations that ranged between five and fifteen parts per thousand with varying levels of success. The most successful site produced red drum in 5 ppt groundwater with a survival rate of 85 percent (Forsberg, 1996). Utilizing the water from high salinity aquifers in a recirculating system may decrease production costs for the production of marine fin fish. In addition to lowering the cost of production by utilizing high salinity groundwater and producing high value fish, a producer may also be interested in the potential for selling their product through live fish markets. In an attempt to study the nature of live markets in the southeast, a trip was made in July of 2007 to Atlanta, Georgia to visit both the Dekalb Farmers Market, as well as the Buford Highway Farmers Market. While both markets had an extensive selection of seafood items, only the Dekalb Farmers Market had tanks in which to hold live fish for sale. These tanks consisted of both rainbow trout, listed at $3.99 per pound, as well as tilapia, also listed at $3.99 per pound. There were also tanks available to hold live shellfish for sale. A conversation with one of the managers in the seafood department revealed that they do not have the ability to hold live fish in a saline environment. It may 12 be worthwhile to note that at Dekalb Farmers Market, whole red snapper on ice sold for $5.99, whole yellow snapper on ice sold for $5.29 per pound, and whole wild strawberry grouper on ice sold for $4.99 per pound. At Buford Highway Farmers Market, whole red snapper on ice sold for $4.99 per pound, whole grouper on ice was $5.99 per pound, whole flounder on ice was $4.99 per pound, and whole seatrout on ice sold for $2.44 per pound. Both of these markets rely heavily on a consumer base of Asian and Hispanic origins. Many other attempts were made to acquire more information about live markets in the southeast, by calling Asian restaurants, speaking with producers, and by contacting researchers who have themselves attempted to describe the nature of live seafood markets in the Southeast. These attempts were unsuccessful due to either language barriers or unwillingness of producers to discuss live markets that they may be supplying. Dr. Benedict Posadas at Mississippi State University had earlier in his career attempted to study these markets but was largely unsuccessful because of their secretive nature (Posadas, 2007). While my and other?s attempts at studying Southeastern live markets seem to have been largely unsuccessful, a more scientific and in depth analysis of live seafood markets in the northeast was released in 2007. This study was conducted by the New Jersey Department of Agriculture and consisted of surveys sent out to restaurants and consumer retail markets, as well as surveys of customers who were visiting markets where live seafood was sold. Generally, live seafood markets have been associated with areas that have a large Asian population. This is reflected in the New Jersey surveys in which 82 percent of 13 respondents said that Chinese was the most common language spoken in their household. Also, 64 percent of the market managers surveyed in stores replied that Asians made up at least 50 percent of their customer base. This is a large amount but leaves room for other ethnic/racial groups to make up a significant portion of sales as well. One market reported that Caucasians generate 50-80 percent of live seafood sales, while another reported than Hispanics and African-Americans made up its largest consumer base. Eighteen percent of markets reported that Hispanics made up 20-50 percent of the consumer base, 15 percent of markets reported Caucasians constituted 20-50 percent of the consumer base, and 12 percent reported that African-Americans made up 20-50 percent of the consumer base. It was also reported that ?increasing numbers of white tablecloth and gourmet restaurants are featuring live seafood (Myers, 2007). These variations in purchases by ethnic/racial groups show that the potential for live market sales exists in other areas outside those with a large Asian population. No specific numbers were given in regards to the volume sold either of specific species, or in total, but an informative overview of the magnitude of the live seafood market in the area was presented in the New Jersey Study. It relates that 161.7 family units entered the store each hour and 23.8 (14.7 percent) of these purchased live fish. Of the seafood consumers who were surveyed, 6.2 live seafood purchases were made each month, with an average of $14.80 spent per visit. With an average household size of 3.7, the live seafood expenditure averaged $301.15 per person per year (Myers, 2007). This demand was met by producers from in state (50 percent), out-of-state (44 percent), and even from foreign countries (6 percent), with considerable volume being shipped from the Southeastern United States. Thirty-eight percent of markets that sold 14 live seafood used between one and three vendors of live fish. Ninety-one percent of market operators established a relationship with the vendor through word-of-mouth, or some other contact such as an in-store visit by the supplier. Fifty-five percent of markets relied on these vendors to supply over 500 pounds of live seafood for sale per week, while 45 percent sold between 100 and 500 pounds per week (Myers, 2007). It is important to note that these surveys were conducted in large cities of the Northeast such as New York, Boston, and Philadelphia, as well as Washington D.C., and were accompanied by low response rates for restaurants (9.2 percent). However, this study highlights the potential that may exist to market live seafood in the southeast. A current example includes Mariculture Technology International in Oak Hill, Florida which sells live Pompano at $10 per pound. Previous researchers have studied the economic feasibility of freshwater recirculating aquaculture systems (De Ionno, et al, 2006) to produce finfish and also that of flow- through seawater systems to produce spiny lobsters (Jeffs and Hooker, 2000). Jeff and Hooker used information from previous studies and information from commercial farms for other marine species, such as abalone, in order to design a hypothetical spiny lobster farm. Financial analysis was prepared through the use of computer spreadsheets. Production parameters such as growth and mortality rates were varied in order to determine the sensitivity of the hypothetical farm?s profits to such changes. The researchers used straight-line depreciation and did not include tax on income ?as the focus of the analysis was solely on the economic performance of the farming operation.? Their results conclude that although biologically feasible, infrastructure and operating 15 costs must be reduced significantly in order to be profitable, regardless of mortality and growth rates (Jeffs and Hooker, 2000). De Ionno, et al used real industry data from a ?commercial RAS facility located in Warrnambool, Victoria, Australia? that was collected over a three-year period between July 1, 2002 and June 30, 2005, and ?incorporates the construction and start-up phase, the commission period (defined as the period to obtain maximum specified standing stock/and or feed rate), through to maximum output? (De Ionno, et al 2006, p. 317). The primary concentration of the facility was production of Murray cod. The income and expenditures of the facility were used to create both cash flow statements as well as profit and loss statements. Using the three years of data, projections were carried out to Year 10, ?as it is unlikely that an aquaculture enterprise would be an attractive investment opportunity if it were not profitable after ten years.? The reported and projected cash flows were used to generate cumulative cash flows, net present value (NPV), and internal rate of return (IRR) (De Ionno, et al 2006, p. 318). Cumulative cash flows are defined as ?a measure that represents the total, gross amount of the net cash flows (i.e. inflows less outflows) over a specific period. Cash inflows are netted out against cash outflows over the period, and hence a positive value indicates that inflows exceed outflows? (De Ionno, et al 2006, 318). It is important to keep in mind that, while a strong indicator of an operation?s performance, a positive cash flow does not indicate profitability, just as a negative cash flow does not necessarily indicate that an operation is not profitable (Kay, Edwards, Duffy, 2004). Emphasis is often placed on cash flow statements when evaluating high-risk investments such as 16 aquaculture ventures, as they are ?widely recognized as the preferred technique? for analysis (De Ionno, et al, 2006). Net present value (NPV) not only takes cash flows into account, but also the time value of money and the timing of the cash flows (De Ionno, et al, 2006). The NPV of an investment is ?the sum of the present values for each year?s net cash flow (or net cash revenue) minus the initial cost of the investment? (Kay, Edwards, Duffy 2004, p. 285). Hence, a positive NPV shows that the present value of the future cash inflows, calculated at the project?s required rate of return, is greater than that of the initial investment (Ionno, 2006). The formula for the net present value of an investment is NPV=P 1 /(1+i) 1 + P 2 /(1+i) 2 + ... + P n /(1+i) n ? C ?where NPV is net present value, P n is the net cash flow in year n, i is the discount rate, and C is the initial cost of the investment? (Kay, Edwards, Duffy 2004, p. 285). ?There are three components to calculating the discount rate and they include: uncertainty (the risk associated with the investment), alternative uses of capital, and inflation? (Thacker, Griffin 1994, p. 89). Thacker uses constant 1993 dollars in their analysis and so counts inflation as equal to zero. A savings account is used as capital?s minimum alternative use, and it is stated that ?each individual has his own risk factor depending on his willingness to take a risk? (Thacker, Griffin 1994, p. 89). Internal rate of return (IRR) is ?the discount rate that yields an NPV of zero for an investment. Hence, a project evaluated according to IRR is accepted if its IRR is greater than or equal to the required rate of return.? De Ionno, et al used a discount rate of 15 percent for his study, citing that ?this has often been used as a criterion for high risk 17 investments of this type, with a higher IRR required as investment risk, market uncertainty, and the cost of capital increases? (De Ionno, et al 2006, p. 318). De Ionno used straight line depreciation and a zero salvage value for equipment. He also excluded land values from the analysis in order to focus ?on the profitability of the RAS system itself.? As in the study conducted by Jeffs and Hooker, income was reported on a pre-tax basis (De Ionno, 2006). In order to study the effects on profits due to fluctuations in variables, De Ionno, et al (2006) conducted a sensitivity analysis. The feed conversion ratio (FCR) of 1.2 was used as the base in the economic analysis. The reported FCR was found to be quite low for other commercial RAS located in Australia, and so an FCR of 1.5 and 1.8 were also used in the sensitivity analysis to study the effects of a lower feed efficiency on profits. Ionno also allowed other ?key operating cost variables? such as feed, labor, and electricity costs to fluctuate by +/- 20 percent in order to evaluate their effects in the sensitivity analysis. Also, the effect of differing sales prices were evaluated at both $10/kg and $15/kg in order to capture volatility in the market (De Ionno, 2006). Similar to Jeffs and Hooker, Ionno found that over the specified ten-year period, the facility was not economically viable. However, by continuing onward and using the real industry data with larger, but hypothetical farms, the feasibility was much improved by increasing the capacity to 50 tons per annum, and finally reaching commercial viability at 100 tons per annum (Ionno, 2006). 18 BACKGROUND FOR ANALYSIS In searching for species that would grow successfully in a recirculating system, as well as bring a high market price, flounder production was analyzed early in the study but was eliminated as a potential candidate in this system. According to data provided by the National Marine Fisheries Service, wild caught flounder brought a six year average price of $1.31 per pound coming from boats in the Gulf of Mexico (NOAA, 2008). Other publications reported a higher price, such as a study by Daniels (2000) which reported that high quality fish weighing 1-2 pounds and bled on ice brought between $4 and $6 per pound. Flounder?s tolerance to low salinity environments also makes them an interesting species to evaluate for potential culture. In 2000, the Southern Regional Aquaculture Center reported that research on the culture of flounder had only started five years prior to the publication. While much information is available on Southern Flounder hatchery facilities, access to literature on their growout is sparse. However, Gregory Beckman of Water Management Technologies, made a presentation at the 2002 International Conference on Recirculating Aquaculture, where he reported that summer flounder were currently in commercial production. He went on to present evidence that summer flounder could be a profitable enterprise (Beckman, 2002). However, because summer flounder are a flat, bottom dwelling fish, they require different system parameters than the species of fish that were considered in this study. The density at which they can be 19 stocked is calculated not on volume, but instead on culture tank area (Beckman, 2002). This characteristic significantly alters the design of the system and increases the area of the facility from 4,160 square feet to 12,107 square feet. This design makes the system species specific with entirely different system parameters. Due to the lack of available information on the production of Flounder past the hatchery phase, as well as the requirement of a different system for analysis, Flounder was eliminated from consideration in this study. Grouper was also evaluated as a potential species candidate for culture but was eliminated due to lack of fingerling availability and satisfactory commercial feed. Grouper have been successfully farmed in Asia for many years. Rimmer, McBride, and Williams (2004) report that in 1997, Chinese farmers produced an estimated 8,256 tons of grouper, many of which brought high prices upwards of $70/kg wholesale in the live markets of Hong Kong and southern China. In 2001, Vietnamese farmers produced an estimated 2,600 tons of cultured fish, with a high proportion being grouper. However, their method for production was very different from that proposed, requiring much less technology and expertise. In the Chinese system, juvenile grouper are typically captured from the wild and then cultured in ponds or in floating net cages. These fish are then fed trash fish until they reach market weight (Rimmer, McBride, Williams, 2004). The National Marine Fisheries Service reports that landings of grouper in the Gulf of Mexico brought a six year average price between $2.22 per pound and $2.86 per pound depending on the type of grouper (NOAA, 2008). However, magazine and newspaper articles report retail fillet prices ranging between $10 and $12 per pound after the grouper season ends in the Gulf of Mexico ends. 20 The Australian Centre for International Agricultural Research has shown significant interest in evaluating grouper for aquacultural production. They published an online book in 2004 titled Advances in Grouper Aquaculture. In this book, they highlight numerous problems with current grouper culture techniques and seek to develop ways to improve aquacultural production methods. One problem associated with making intensive grouper culture possible is the availability of fingerlings. The reason that current production methods use wild caught juveniles is that successful hatchery production of grouper has not occurred on a large scale basis. Average survival of larvae to fingerling stage is reported to be between 0 and 10 percent with high variability. Total mortality is not uncommon (Rimmer, McBride, Williams, 2004). Another problem associated with the development of intensive grouper culture in tanks is that very little work has been done to develop an acceptable commercial, pelleted feed. Grow out in the Asia-Pacific involves the feeding of trash fish, which yields a very inefficient feed conversion ratio between 5:1 and 10:1. Also, the feeding of trash fish creates numerous environmental problems and increases stress on local fisheries. While the authors were able to develop a commercial diet that could replace most of the trash fish fed, improvements were not made that would be sufficient to produce grouper in intensive, recirculating tanks, thus eliminating them from the analysis (Rimmer, McBride, Williams, 2004). Florida Pompano were also evaluated as a species for production, although the design of the system allows for culture of most any other specie that can be cultured in a range from low salinities all the way to seawater at 35 ppt (Zohar, 2005). The Southern Regional Aquaculture Center reports that pompano are commonly found in warm, 21 shallow waters between Massachusetts and Brazil. They can grow to 25 cm in length and up to 8 pounds. They are a hardy fish that can withstand varying environmental conditions such as low levels of dissolved oxygen (4 mg/L) and salinities between 0 and 50 ppt. While very tolerant of fluctuating oxygen levels and water salinities, they are a warm water species that stresses easily when water temperatures fall. Death loss occurs when water temperatures are between 50 and 53 degrees Fahrenheit or when rapid water temperature changes occur. Optimal growing temperatures range between 77 and 86 degrees Fahrenheit (Main, 2007). Pompano is one of the most valuable fish caught in the Gulf of Mexico. Charles Weirich (2006) reports that the average wholesale price of Pompano was $7.42 per kilogram ($3.09/lb) in 2003. M.F. McMaster (2003), reports a higher price in 2003, stating that ?fair market values to the producer (fishermen) of between $3.50 and $5.50 per pound in the round? (McMaster 2003, p. 3). He also reports that live markets present more lucrative opportunities with prices of $10 per pound being offered. As of May, 2008, Pompano Farms, LLC, is currently selling fresh, farmed pompano on ice at $8 per pound. Meanwhile, after taking prices paid to the fisherman from 2000- 2005 as reported by the National Marine Fisheries Service, and adjusting for inflation, a six year average price of $3.75 was computed, with $3.25 being the lowest price reported, and $3.98 being the highest price (NOAA, 2008). This average price of $3.75 is the price used in the study, but price/yield sensitivity analysis was conducted to capture the possible range of prices reported by other sources and other markets. Other reasons that Pompano was selected for culture evaluation include their ability to be grown at high densities. McMaster reports that previously, Pompano have been raised 22 at densities of one pound of fish per gallon of water (McMaster, 2003). It is important to note that he goes on to say that he does not recommend culturing fish at such densities due to ?mechanical limitations for maintaining proper water quality and feed delivery? (McMaster 2003, p. 10). However, recirculating systems are designed to produce fish at very high densities, and it is only at these densities that they can be profitable. Tilapia at the North Carolina State Fish Barn are raised at densities of .66 pounds per gallon (NCDOA, 2002). It is not only freshwater systems that can handle this kind of biological load, but saltwater systems as well. Dr. Yonathan Zohar reports culturing Mediterranean gilthead seabream at 44-47 kg/cubic meter (almost .5 lb/gallon) in a recirculating system (Zohar, 2005). For the current study, Pompano were raised at a density of .5 pounds per gallon, a density that many successful aquacultural producers meet or exceed (Timmons, et al, 2001). Another reason that Pompano were selected for culture is their tolerance of low salinity waters. McMaster (2005) reports that Mariculture Technologies International (MTI) in Oak Hill, Florida, has successfully grown Pompano in ponds fed by 19ppt saline groundwater, measured at 15ppt after heavy rain, with seemingly no adverse effects attributed to lower salinity. A slower growth rate was observed but it was attributed to the lack of climate control, as the water temperature plunged as low as 56 degrees Fareinheight. In a subsequent publication, McMaster (2006) reported having measured pond salinities as low as 2 ppt with no recorded Pompano mortality. Michael Nystrom conducted a study in which Pompano juveniles were cultured in both low salinity (5ppt) and high salinity (30ppt) conditions. He found no statistical difference in growth between the two groups of fish, although the group of fish reared in very low salinity 23 waters (5ppt) had to be treated twice for infections, routinely had higher nitrite readings, and involved more water exchange (Nystrom, 2005). Pompano are a fast growing species of fish. Weirich reports Pompano reached a market size of 450 grams (one pound) in as little as four to five months (Weirich, 2006). McMaster reports that the total growth time from one-gram hatchery fry to market size is seven months. However, by purchasing 10g fingerlings to grow out to a market size of 453 grams (one pound), the time is reduced to around 5 months, or approximately 140 days. Ten gram fingerlings are available from MTI at a price of $1.50 per fish (McMaster, 2008). While available at this price, significant savings are realized by purchasing one gram pompano from overseas at a price of $0.30 a piece (Chappell, 2008). An additional 8 weeks is required to reach market size and so fewer cohorts may be stocked and harvested in a year (6.5 rather than 8.6). However, the savings realized by purchasing the smaller pompano outweighs the increases in revenue that are realized by purchasing ten gram fingerlings. Using the base feed conversion ratio (FCR) of 3.1, as well as the stated market price of $3.75, break-even price for pompano production falls from $6.37 per pound when purchasing fingerlings at $1.50 a piece, to $5.93 per pound when purchasing one gram pompano for $0.30 a piece. Greater detail on how these numbers were generated is provided in ensuing sections. One criticism of Pompano culture is that while they grow rapidly as juveniles, researchers are quick to point out that at around 250g, their growth stalls and feed efficiency becomes very poor. However, McMaster (2003) reports that while historically, feed conversion ratios (FCR) are 3.1:1, recently developed diets and culture methods have ?significantly outperformed the standard diet?. However, Coburn and 24 McMaster (2007) report use of a FCR of 2.2:1 for pond culture (Coburn and McMaster, 2007). While this FCR improves the opportunity to be profitable, the lack of information to support this claim makes it unreasonable to use this FCR which is drastically different from previous studies, and is also vital to the feasibility of the aquacultural operation. The FCR used in this study is the previously reported 3.1:1, which is also reported by McMaster and lies within the scope of other studies such as those by Weirich (2006). As in the study by De Ionno, et al (2006) a conservative approach was taken when evaluating the profitability of producing pompano in a recirculating system, as there are no definitive standards for feed conversion ratios, production cycles, or market prices, as is evidenced by the discrepancies in the literature. Projections for the facility were carried out to Year 10, ?as it is unlikely that an aquaculture enterprise would be an attractive investment opportunity if it were not profitable after ten years? (De Ionno, et al 2006, p. 318). All operating costs and biological parameters were held constant over the period of analysis. This assumes no fluctuation, positive or negative, in the price of expenses such as feed, energy, or juvenile pompano, as feed and energy are volatile markets and hard to predict, while there is no way of determining whether input costs of pompano hatcheries will significantly increase or if more producers will enter the market, increasing efficiency and supply, thereby reducing the price (Timmons, et al, 2001). This also assumes that no efficiency gains are made over the period. Operating costs such as electricity and liquid oxygen were calculated by comparing usage per hour per pound of fish produced at other RAS facilities, assuming a steady state of production over 24 hours per day, 7 days per week and applying prices provided by 25 local suppliers. Costs for natural gas were calculated by consulting equipment suppliers on power usage and consulting local suppliers for prices. The industry standard, straight-line depreciation was used and incorporated a salvage value of $0. Ionno states that, ?it could be expected that [a large facility] would obtain some salvage value at the expiry of the project? (De Ionno, et al 2006, p. 319). However, Timmons suggests that any amount received for used equipment is likely to be minimal, less than ten cents on the dollar, due to the specialized nature of the equipment (Timmons, et al, 2001). As with many analyses of aquaculture ventures, land was presumed to be owned. This excludes the land value from the analysis so that the focus of the study will be only on the profitability of the RAS facility (Jeffs and Hooker, 2000). It was assumed that 20 percent of the capital cost was assumed to be financed by the individual, while 80 percent of the investment is financed through a loan accruing interest at 8.5 percent over five years. An additional loan bearing interest of 8 percent was assumed to be taken to cover 50 percent of operating costs, with the remainder covered by the investor. These rates were chosen to reflect current credit markets for business investors (Adrian, 2008). Cash flow budgets were created to analyze the liquidity of the facility using the base FCR of 3.1 at both 15ppt salinity, as well as 6ppt salinity. This depicts the cash on hand that the facility has in order to continue operation. Interest and principle payments were included, though depreciation was not, in order to strictly analyze the operation?s cash position at any given year. A minimum $1,000 cash balance was maintained at all times. 26 When calculating net present value, net cash revenues were calculated by netting cash expenses from cash receipts, ignoring depreciation, interest, and principle payments. Depreciation is assumed to be a noncash expense and ?already accounted for by the difference between the initial cost and terminal value of an investment?, while interest and principle are not included because ?investment analysis methods are used to determine the profitability of an investment without considering the method or amount of financing needed to purchase it? (Kay, Edwards, Duffy 2004, p. 283). A discount rate of 15 percent was used which incorporates a 5 percent return on capital as the minimum alternative investment, and a risk premium of 10 percent (Ionno, 2006). This closely parallels the risk free rate and risk premium of other investments, as well as the 15 percent standard used ?as a criterion for high risk investments of this type? (De Ionno, et al 2006). Net present value was only calculated for scenarios that, through sensitivity analysis, showed the potential to provide positive cash flows, and hence, a positive NPV, as any scenarios that do not generate a positive NPV would not be considered an economic success (Thacker, Griffin,1994). 27 TECHNICAL SYSTEM Research indicates that Pompano show potential to be successfully cultured in salinities of 6ppt, as is found in West Alabama (Nystrom, 2005). This level significantly decreases the costs associated with supplementing salt in order to increase the water salinity. Currently, Pompano are not cultured at salinities below 15ppt. The recirculating system described is designed to operate at varying salinities and situations at both 6 and 15 ppt were evaluated in this study. The technical aspects of the system used in this analysis are based on an example system located at North Carolina State University that is used to produce tilapia (Losordo, 2000). The design of a system based on the North Carolina State System is described by Thomas Losordo while the economics of tilapia production in this system is evaluated by the North Carolina Department of Agriculture and Consumer Services. Figure 1 depicts the general layout of such a system (DeLong, 1999). Prices and exact specifications for equipment were derived from various industry suppliers and manufacturers such as Aquatic Eco-systems, Inc., Atlas Manufacturing, and Red Ewald. The system used in this study resides in a 30? by 112? greenhouse. The greenhouse includes both a ventilation system with air flow fans, exhaust fans and shutters, as well as a gas heating system, and a thermostat for temperature controls between 30 and 110 degrees Fahrenheit. The system consists of two quarantine tanks and four grow-out tanks, each made of fiberglass, Figure 1. The tanks are round with sloping bottoms in 28 order to facilitate easy cleaning, and also to generate a natural current that is desirable when producing marine fin-fish (Zohar, 2005). The first quarantine tank (Q1) is 750 gallons, the second (N1) is 4,200 gallons, and the four grow-out tanks each hold 15,538 gallons, bringing the total volume of the system to 67,052 gallons. This system is assumed to exchange 10 percent of its water volume each day (Zohar, 2005). Water is supplied to the system by a well approximately 1,300 feet deep that delivers saline water of 6 ppt to four, above ground, polyurethane tanks that each hold 6,300 gallons of water. These tanks may be used to store four tanks? supply of 6ppt water, or if producing at a higher salinity, three tanks may be used to treat the water to desired salinity. This approach provides 25,200 gallons of water readily available to replace the 6,803 gallons that is lost each day during operations, and also to provide excess water in any emergency that might require additional water. If culturing fish in water at 6ppt, this method provides three and a half days of water supply in reserve. However, if producing at a higher salinity, only three tanks may be treated and will only supply two and a half days? supply of water. The flow rate for this system is 250 gallons per minute, or one tank exchange per hour, as described by Zohar (2005), and replaces 6,803 gallons of water from the system per day. Water is drained from growth tanks using a center drain that runs through a particle trap to remove solids from the water, Figure 1. The water then travels through a drum screen filter and to the biosump. After leaving the biosump, water runs through an oxygen saturator, through the water heater, and then returns to the fiberglass tank it originated from. A monitoring system, composed of sensors wired to a computer, constantly evaluates and controls temperature, salinity, and dissolved oxygen, and is 29 connected to a modem that will send an alert for any abnormalities detected. Any sludge and waste-water that is not treated and returned the tank is removed from the system to a one acre effluent pond. Other equipment purchased includes a bulk storage feed bin, automatic feeders, a generator, and a used truck. 30 ECONOMIC ANALYSIS One gram pompano are to be purchased at a price of $0.30 each in lots of 15,000 every fifty-six days and stocked at an initial density of .045 lb/gallon, which after 8 weeks of growth to 10 gram fingerlings, becomes .44 lb/gallon, Table 1. A 95 percent survival rate is assumed. Fish are fed a diet of commercially available carnivorous fish feed available from Burris Mills/Cargill that is 46 percent protein, and is delivered at a price of $0.45 per pound ($900 per ton) every six weeks to a 24 ton feed bin. Fingerlings are maintained for 8 weeks in the first quarantine tank (Q1) and then moved into the second quarantine tank (N1) where they are held for an additional 8 weeks. They are then moved into one of the 15,000 gallon grow-out tanks (Growout 1 ? Growout 4) for another 8 week period until the group is split into two separate batches in 15,000 gallon tanks, where they will remain for approximately four to five more weeks, or until they reach a harvest weight of approximately one pound. One tank is harvested every four weeks in weekly intervals with 1,781 pounds harvested each week. The total investment associated with a system capable of producing 92,625 lbs of Pompano annually is $298,206 with annual depreciation of $40,462, using straight line depreciation and assuming a zero salvage value on all equipment, Table 2. The operation was evaluated assuming 20 percent owner equity and the remaining 80 percent financed over five years at 8.5 percent, reflecting current credit markets (Adrian, 2008). A loan to cover 80 percent of the initial investment is $238,565 and with an interest rate of 8 31 percent generates an annual interest payment of $11,021 for the facility. Land (5 acres) was assumed to be owned. Recirculating systems are available for commercial aquaculture production at a significantly lower cost to the producer than that used in this analysis (Chappell, 2008). However, no available literature discusses their ability to produce marine finfish. If the cost of the recirculating system could be decreased by $200,000 to $98,206, annual depreciation would decrease by $27,135 to $13,325 per year. Interest expense would also decrease by $15,129. This is a total savings of $0.31 per pound assuming 95 percent survival and no loss of efficiency of the system. Operating costs total $478,084 each year except for the first (Table 5), during which operating costs are only $396,196 (Table 4) while the system is building to full capacity. Fifty percent of the operating costs are financed through a short term (one year) loan at an interest rate of 8 percent, Table 3. This adds an additional $19,057 in interest expense each year. Labor was calculated at a rate of $10 per hour for eight hours each day (Timmons, et al 2001). Employment taxes were evaluated at 1.45 percent for Medicare and 6.2 percent for Social Security as specified by the Internal Revenue Service. Property taxes were evaluated as Class III property at the state average of 43 mills. Total operating expenses for the production of Pompano are $478,084 per year, Table 5. At this cost, and while receiving the stated price of $3.75 per pound, the operation generates total revenue of $347,344 and accumulates a substantial loss of $161,391 Table 5. The breakeven price of Pompano raised under the stated conditions is $5.92 per pound. Sensitivity analysis was conducted to evaluate the profitability of Pompano production at different prices, yields, feed conversion ratios, and salinities, similar to that the 32 analysis presented on an Australian aquaculture facility, Table 6 (De Ionno, et al 2006). Prices fluctuate widely, due to a lack of an established market, but reflect different reports of prices received for live pompano and pompano on ice. All prices below $8 per pound are assumed to be paid for fresh pompano on ice, and are the most likely prices a producer would expect to receive, based on evidence presented in this study. Prices of $8 per pound or higher were evaluated to show the potential profitability of marketing live fish. While live fish markets present a great opportunity for a lucrative outlet, it is doubtful that a producer could sell 92,000 pounds of pompano by only relying on live markets, due to the information that is available on the volume of live seafood sold in major markets (Myers, 2003). It is assumed that live markets exist and may be taken advantage of, as evidence presented suggests, but due to a lack of definitive information on details such as the volume of live pompano demanded, and information such as where and how to market large quantities, it is not reasonable to expect such returns without further information. The sensitivity analysis shows that at 95 percent survival, FCR of 3.1, and a market price of $6 per pound, Pompano production is generates an annual return to land and management of $7,126, Table 6. At 95 percent survival, and FCR of 3.1, return to land and management is $99,751 when the market price is $7 per pound. If survival falls to 85 percent, with a market price of $7 per pound, return to land and management is $72,427. If the feed conversion ratio is decreased to 2.75, then the operation returns $21,715 to land and management at a price of $6 per pound at 95 percent survival. If market price increases to $7 per pound, return to land and management is $58,155 at 85 percent survival and $114,340 at 95 percent survival, Table 6. 33 Further enhancing the feed conversion ratio to 2.2, as reported by Coburn and McMaster, the operation has positive returns of $20,215 at only 90 percent survival and a market price of $6 per pound (Coburn and McMaster, 2007), Table 6. At 95 percent survival, returns are $44,639 at $6 per pound. If the market price reaches $7 per pound, returns are $78,667 at 85 percent survival, and $137,264 at 95 percent survival. Producing pompano in saline water of 15ppt incurs a significant cost from supplementing sea salt. At a cost of $227,091, it accounts for 44 percent of total operating expenses, Table 3. However, if pompano are produced in salinities of 6ppt, the need to supplement salt is no longer required and thus, the cost of production greatly decreases. Sensitivity analysis was conducted to evaluate prices received under prices and yields identical to those described above, but without the added cost of adding additional salt to the water, Table 7. Under these conditions, and using a feed conversion ratio of 3.1, Pompano production has positive returns to land and management of $10,869 when survival is 80 percent and market prices are $4 per pound, Table 7. At 95 percent survival, return to land and management is $48,967 annually. If the FCR is enhanced to 2.75, pompano production has positive returns of $9,687 at only 75 percent survival when the market price is $4 per pound, Table 7. At 95 percent survival, returns increase to $63,555 annually at a price of only $4 per pound. Further enhancing the FCR to 2.2, pompano production has positive returns of $27,785 at 75 percent survival and a market price of $4 per pound, Table 7. At 95 percent survival, returns reach $86,480 annually. 34 While dockside prices paid to fisherman were used as the base price paid to producers in this study, other marketing avenues present an opportunity for much higher revenues. According to their website, Pompano Farms of Oak Hill, Florida sells whole, fresh pompano on ice at a price of $8 per pound, excluding shipping. At this market price, at 15ppt salinity, and using the FCR of 3.1, returns to land and management are $192,376 annually at 95 percent survival, Table 6. While income statements and associated sensitivity analysis show the operations profitability potential, cash flow analysis is a more accepted tool of investment analysis when dealing with high risk investments such as pompano production in a recirculating system (De Ionno, et al 2006). A cash flow budget was created to portray the operation?s liquidity over a ten year period using the specified FCR of 3.1 and the base market price of $3.75, under conditions of 15ppt salinity. Starting with a beginning cash balance of $806,369 at the start of Year 1, the operation generates a larger negative cash balance each year until reaching a cumulative cash balance at Year 10 of ($2,475,428), Table 8. The same facility evaluated under identical parameters but in salinity of 6ppt yields positive cumulative cash balance at Year 10 of $625,153, Table 9. In order to evaluate at what point the operation becomes an attractive investment, net cash revenues were calculated at each specified price and feed conversion ratio used in the profitability analysis that showed a positive return to land and management, from which the net present value (NPV) of the pompano farm could be calculated in each scenario. Each point at which NPV becomes positive is reported, as that is the combination of price, feed conversion ratio, and survival rate at which the investment 35 meets the expected return of at least 15 percent, and the point at which the operation would be considered an economic success (Thacker, Griffin1994). In the case where production is in water of 15ppt salinity and using an FCR of 3.1, NPV becomes positive at a market price of $7 per pound with 90 percent survival, Table 10. If the feed conversion ratio is decreased to 2.75, NPV becomes positive at a price of $7 per pound with 90 percent survival. Using the minimum FCR of 2.2, NPV is positive at a price of $7 per pound and 85 percent survival. Evaluating production at a salinity of 6ppt, NPV was calculated using all three FCRs, and at prices which show a positive return to land and management in the sensitivity analysis. At an FCR of 3.1, NPV is positive at a price of $4 per pound with survival rate of 95 percent, Table 11. If FCR is decreased to 2.75, NPV is positive at a price of $4 per pound, with survival of 85 percent. Using the minimum FCR of 2.2, NPV is positive at a price of $4 per pound and the minimum survival rate of 75 percent. In order to add value to their product, some farms decide to process their own fish and market fillets. The Southern Regional Aquaculture Center reported in 1997, that small scale, on farm processing adds a cost of $ .44 per pound to the producer (Lazur, 1997). Adjusted for inflation, this is equal to $ .60 per pound in 2008. Websites such as CharlestonSeafood.com offer fillets of wild caught marine fish at prices ranging between $11.83 per pound for amberjack to $34.21 per pound for Chilean Seabass, with shipping costs added after the sale. Information on pompano fillet yields was not available, but catfish fillet yields are approximately 36 percent (Li, 2001). At such a yield, 2.7 pounds of live pompano would provide 1 pound of processed fillets. At a breakeven cost of 36 $5.92 per pound of live fish, and adding the $.60 per pound of processed fillets, this would equate to a break even cost of $17.04 per pound of fillets. Live fish markets are another alternative to traditional marketing of fish to wholesalers. As stated earlier, Yonathan Zohar sold live guilthead seabream in the city of Baltimore at prices ranging between $12 per kilogram, or $5 dollars per pound. Their market research also shows that other high value species of marine fish such as grouper, snapper, and flounder bring prices ranging between $4.50 and $5.40 per pound (Zohar, 2005). Currently, as far as is known, there are two producers of pompano on the market. One is the Pompano Farms, LLC, spawned from Mariculture Technologies International. They produce pond raised Pompano available for purchase in the months of November, December, and January, ?or until supplies are gone.? Prices are $8 per pound, whole on ice, which may be shipped, or $10 per pound live and may be picked up at the farm, as reported by their website. The other company in production of Pompano is Dyer Aqua. They provide fresh pompano year round, in the form of whole fish or filets. The company?s website states that company has hatchery facilities located in Florida, but ships fingerlings to their ocean pen grow-out facilities in the Bahamas, Panama, and soon, Belize. 37 CONCLUSION Recirculating aquaculture systems provide a method to partially control all the factors of aquacultural production as well as meet increasing demand for fish in an environmentally sustainable way. Pompano production cultured at a salinity of 15ppt and supplemented with 6ppt groundwater from Alabama?s underground reservoirs shows the potential to be profitable, at prices of $6/lb and $4/lb respectively, particularly if the producer is able to take advantage of live markets, or adds value to their product by producing fillets and selling directly to individual consumers or restaurants. If pompano are successfully cultured at 6ppt salinity, without the need to supplement additional salt, as has been shown may be possible by previous research, then pompano becomes a much more attractive prospect for culture because the market price at which it is profitable falls from $6 per pound to $4 per pound. Total investment costs for a facility capable of producing pompano is $298,206 with annual depreciation of $40,462. Operating costs are $478,084 annually, of which the largest components are sea salt, feed, and pompano fry, constituting 44 percent, 25 percent, and 6 percent of costs respectively. Sensitivity analysis shows that pompano production becomes profitable between $4 per pound and $6 per pound, depending on salinity, and research into market prices shows that pompano often sells between $7 and $10 per pound. 38 By conducting cash flow analysis and computing net present value (NPV), exact parameter specifications were located at which the investment becomes economically successful. At a salinity of 15ppt, pompano production is shown to have positive returns at various survival percentages at a market price of $6 per pound. However, the operation only reaches a positive NPV at market prices of $7 per pound and with high rates of survival. It is doubtful that, unless highly confident of the ability to take full advantage of lucrative, high dollar markets, such an operation would be a successful investment. If, as previous research indicates, pompano may be raised successfully in salinities of 6ppt, the investment becomes much more attractive. NPV becomes positive at a market price of only $4 per pound, indicating the facility to be a profitable investment. Historically there has been only a minimal supply of pompano available to the consumers. At the beginning of this study, there was no company commercially producing Florida pompano. However, in recent months, both Pompano Farms as well as DyerAqua have started to culture and sell pompano commercially. Until recently, pompano were only available when caught from the ocean in limited amounts (less than 500,000 lbs per year) and at certain times of the year. While Pompano Farms only has pompano available for three months of the year, DyerAqua produces pompano year- round and is anticipating expanding production to two additional sites. With a large increase in the amount of pompano available, and also the fact that it is now available year-round, investment in an enterprise to produce pompano should be entered into cautiously. An individual?s success may depend largely on their experience in aquacultural production, as well as their business management skills. 39 Techniques that allow for the capture and reuse of salt from wastewater would significantly decrease operating costs at 15ppt. UMBI has experienced success by implementing such methods (Zohar, 2005). Feed costs are substantial and any improvements in FCR significantly improve economic performance of the facility. 40 LITERATURE CITED Adrian, John. 2008. Personal Communication. Agricultural Economics & Rural Sociology. Auburn, University, AL. Aquatic Network. 2005. ?Aquaculture-An Ecologically Sustainable and Profitable Venture?. www.aquanet.com. Last accessed July 31, 2008. Beckman, G. 2002. ?Design of a 100 Ton Per Annum Flatfish Farm?. Proceedings From 2002 International Conference on Recirculating Aquaculture. Buchanan, S. 2007. ?Seafood Consumption Increases in 2006?. 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Cambridge, MA: CABI Publishing. 44 TABLE 1: Marine Recirculating Aquaculture System Parameters Parameters for Pompano Production in West Alabama, 2008 Pompano number of growout tanks 4 number of quarantine tanks 2 total water volume (gallons) 67,102 building size (sq ft) 3,360 fish stocked per cohort 15,000 cohorts stocked/harvested per yr 6.5 survival 95% fish harvested per cohort 14,250 average size at harvest (pounds) 1 feed conversion ratio 3.1 avg. length of production cycle in days 252 pounds harvested per tank 7,125 lbs. Harvested, year 1(6.5 tanks) 46,312 lbs. Harvested, year 2 and on (13 tanks) 92,625 cost of one gram pompano (each) 0.30 electricity (kwh per pound of production) 2.54 bank credit line int. rate for annual op exp 8% % of capital financed by owner 20% bank interest rate for construction (5 yr) 8.5% sale price ($/pound) 3.75 45 TABLE 2: Capital Outlay & Depreciation Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 Part Price # units Total Years Depreciation Quarantine 1 Q1 Tank (750 gallons) 930 1 930 7 133 pumps (1hp) 565 1 565 7 81 particle trap (Ecotrap) 1,942 1 1,942 7 277 titanium heat exchanger 723 1 723 7 103 oxygen saturator (35-65 gpm) 688 1 688 7 98 foam fractitionator 1,417 1 1,417 7 202 biosump 584 1 584 7 83 bio sump media 235 1.92 451 7 64 media blower 208 1 208 7 30 regenerative blower 912 1 912 7 130 drum screen filter 8,825 1 8,825 7 1,261 subtotal 17,246 2,464 Quarantine 2 Q2 Tank (4200 gallons) 2,710 1 2,710 7 387 pumps (1hp) 565 2 1,130 7 161 particle trap (Ecotrap) 3,258 1 3,258 7 465 titanium heat exchanger 832 1 832 7 119 oxygen saturator (65-90 gpm) 1,323 2 2,646 7 378 foam fractitionator 1,417 1 1,417 7 202 bio sump 812 1 812 7 116 bio sump media 235 4.34 1,020 7 146 media blower 208 1 208 7 30 regenerative blower 912 1 912 7 130 drum screen filter 8,825 1 8,825 7 1,261 subtotal 23,770 3,396 Growout System Tanks (15538 gallons) 6,920 4 27,680 7 3,954 pumps (2hp) 1,808 8 14,464 7 2,066 particle trap (Ecotrap) 4,387 4 17,548 7 2,507 oxygen saturator (150-260 gpm) 1,255 8 10,040 7 1,434 foam fractitionator 8,895 4 35,580 7 5,083 bio sump 1,460 4 5,841 7 834 bio sump media 235 15.4 3,619 7 517 media blower 309 4 1,236 7 177 regenerative blower 912 2 1,824 7 261 drum screen filter 12,600 2 25,200 7 3,600 subtotal 143,032 20,433 46 TABLE 2 CONT'D: Capital Outlay & Depreciation Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 Part Price # units Total Years Depreciation System-wide equipment building (30' x 112' greenhouse) 14,358 1 14,358 10 1,436 water heating units 6,800 2 13,600 7 1,943 feed bins 4,285 1 4,285 7 612 feeders 385 6 2,310 7 330 gas generators 8,289 1 8,289 7 1,184 oxygen monitor 2,046 6 12,276 7 1,754 airlift pumps (for harvest) 8,000 1 8,000 7 1,143 misc. harvest equipment (nets, etc.) 1,000 1 1,000 7 143 misc. equipment 1,000 1 1,000 7 143 well 17,500 1 17,500 15 1,167 water tanks 2,885 4 11,540 7 1,649 1 acre effluent pond 10,000 1 10,000 15 667 subtotal 104,159 12,169 System Total 288,206 38,462 Truck 10,000 1 10,000 5 2,000 TOTAL 298,206 40,462 47 TABLE 3: Operating Expenses Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 Operations Unit Cost Units Total feed lb 0.45 287,138 129,212 one gram pompano fish 0.30 97,500 29,250 Instant Ocean Sea Salt 160 gallons 50.48 4,499 227,091 electricity kwh 0.10 235,268 24,592 liquid oxygen 100 cubic ft 4.91 703,950 34,564 natural gas ccf 2 1,518 2,417 hired labor hrs 10 2,080 20,800 other (repairs, alarm, phone) 2,000 marketing, promotion/travel 4,000 insurance 2,500 property tax 43 mills 43 67 employment taxes 6.2% 1.45% 1,591 interest: annual operating capital 19,057 fixed capital 11,021 subtotal 508,162 48 TABLE 4: YEAR 1 INCOME STATEMENT Marine Recirculating Aquaculture System for Pompano Production, West Alabama,2008 Revenue: 1 lb Pompano @ $3.75/lb 106,875 Total Revenue 106,875 Expenses: Purchased Feed 64,606 Purchased Fingerlings 29,250 Other Cash Operating Exp. electricity 24,592 oxygen 17,282 natural gas 2,417 labor 20,800 sea salt 227,091 other (repairs, phone) 2,000 marketing, travel 4,000 insurance 2,500 property taxes 67 employment taxes 1,591 Total Operating Expenses 396,196 Depreciation 40,462 EBIT (289,321) Interest Expense 30,651 Net Income (319,972) 49 TABLE 5: YEAR 2 ONWARD INCOME STATEMENT Marine Recirculating Aquaculture System for Pompano Production, West Alabama, 2008 Revenue: 1 lb Pompano @ $3.75/lb 347,344 Total Revenue 347,344 Expenses: Purchased Feed 129,212 Purchased Fingerlings 29,250 Other Cash Operating Exp. electricity 24,592 oxygen 34,564 natural gas 2,417 labor 20,800 other (repairs, phone) 2,000 marketing, travel 4,000 insurance 2,500 sea salt 227,091 property taxes 67 employment taxes 1,591 Total Operating Expenses 478,084 Depreciation 40,462 EBIT (130,740) Interest Expense 30,651 Net Income (161,391) 50 TABLE 6: Sensitivity Analysis for Pompano Production in Salinity of 15ppt, West Alabama, 2008 FCR: 3.1 WHOLE ON ICE LIVE Survival Yield (lbs) Price/lb 3.00 4.00 5.00 6.00 7.00 8.00 10.00 75% 73,125 (302,046) (228,921) (155,796) (82,671) (9,546) 63,579 209,829 80% 78,000 (294,222) (216,222) (138,222) (60,222) 17,778 95,778 251,778 85% 82,875 (286,398) (203,523) (120,648) (37,773) 45,102 127,977 293,727 90% 87,750 (278,573) (190,823) (103,073) (15,323) 72,427 160,177 335,677 95% 92,625 (270,749) (178,124) (85,499) 7,126 99,751 192,376 377,626 FCR: 2.75 WHOLE ON ICE LIVE Survival Yield (lbs) Price/lb 3.00 4.00 5.00 6.00 7.00 8.00 10.00 75% 73,125 (290,529) (217,404) (144,279) (71,154) 1,971 75,096 221,346 80% 78,000 (281,937) (203,937) (125,937) (47,937) 30,063 108,063 264,063 85% 82,875 (273,345) (190,470) (107,595) (24,720) 58,155 141,030 306,780 90% 87,750 (264,753) (177,003) (89,253) (1,503) 86,247 173,997 349,497 95% 92,625 (256,160) (163,535) (70,910) 21,715 114,340 206,965 392,215 FCR: 2.2 WHOLE ON ICE LIVE Survival Yield (lbs) Price/lb 3.00 4.00 5.00 6.00 7.00 8.00 10.00 75% 73,125 (272,431) (199,306) (126,181) (53,056) 20,069 93,194 239,444 80% 78,000 (262,632) (184,632) (106,632) (28,632) 49,368 127,368 283,368 85% 82,875 (252,833) (169,958) (87,083) (4,208) 78,667 161,542 327,292 90% 87,750 (243,035) (155,285) (67,535) 20,215 107,965 195,715 371,215 95% 92,625 (233,236) (140,611) (47,986) 44,639 137,264 229,889 415,139 51 TABLE 7: Sensitivity Analysis for Pompano Production in Salinity of 6ppt, West Alabama, 2008 FCR 3.1 WHOLE ON ICE LIVE Survival Yield (lbs) Price/lb 3.00 4.00 5.00 6.00 7.00 8.00 10.00 75% 73,125 (74,956) (1,831) 71,294 144,419 217,544 290,669 436,919 80% 78,000 (67,131) 10,869 88,869 166,869 244,869 322,869 478,869 85% 82,875 (59,307) 23,568 106,443 189,318 272,193 355,068 520,818 90% 87,750 (51,482) 36,268 124,018 211,768 299,518 387,268 562,768 95% 92,625 (43,658) 48,967 141,592 234,217 326,842 419,467 604,717 FCR 2.75 WHOLE ON ICE LIVE Survival Yield (lbs) Price/lb 3.00 4.00 5.00 6.00 7.00 8.00 10.00 75% 73,125 (63,438) 9,687 82,812 155,937 229,062 302,187 448,437 80% 78,000 (54,846) 23,154 101,154 179,154 257,154 335,154 491,154 85% 82,875 (46,254) 36,621 119,496 202,371 285,246 368,121 533,871 90% 87,750 (37,662) 50,088 137,838 225,588 313,338 401,088 576,588 95% 92,625 (29,070) 63,555 156,180 248,805 341,430 434,055 619,305 FCR 2.2 WHOLE ON ICE LIVE Survival Yield (lbs) Price/lb 3.00 4.00 5.00 6.00 7.00 8.00 10.00 75% 73,125 (45,340) 27,785 100,910 174,035 247,160 320,285 466,535 80% 78,000 (35,541) 42,459 120,459 198,459 276,459 354,459 510,459 85% 82,875 (25,742) 57,133 140,008 222,883 305,758 388,633 554,383 90% 87,750 (15,944) 71,806 159,556 247,306 335,056 422,806 598,306 95% 92,625 (6,145) 86,480 179,105 271,730 364,355 456,980 642,230 52 TABLE 8: CASH FLOW BUDGET FOR 15ppt SALINITY (Year 1-5) Pompano Production in a Marine Recirculating System, West Alabama, 2008 Year 1 Year 2 Year 3 Year 4 Year 5 Beginning Cash Balance 806,369 1,000 1,000 1,000 1,000 Operating Receipts: Pompano sales 106,875 347,344 347,344 347,344 347,344 Total Cash Inflow: 913,244 348,344 348,344 348,344 348,344 Operating Expenses: Feed expense 129,212 129,212 129,212 129,212 129,212 1 gram pompano 29,250 29,250 29,250 29,250 29,250 Instant Ocean Sea Salt 227,091 227,091 227,091 227,091 227,091 Electricity 24,592 24,592 24,592 24,592 24,592 Liquid oxygen 34,564 34,564 34,564 34,564 34,564 Natural gas 2,417 2,417 2,417 2,417 2,417 Labor 20,800 20,800 20,800 20,800 20,800 Marketing, Promotion/Travel 4,000 4,000 4,000 4,000 4,000 Insurance 2,500 2,500 2,500 2,500 2,500 Property tax 67 67 67 67 67 Employment taxes 1,591 1,591 1,591 1,591 1,591 Other (repairs, alarm, Phone) 2,000 2,000 2,000 2,000 2,000 Total Cash Operating Expenses 478,084 478,084 478,084 478,084 478,084 Capital Expenditures: Building 14,358 Recirculating System 246,348 Truck 10,000 Well and Pond 27,500 Scheduled Debt Payments: Current Debt-Principal 238,213 191,072 406,854 639,898 891,585 Current Debt-Interest 19,057 15,286 32,548 51,192 71,327 Noncurrent Debt- Principal 58,734 58,734 58,734 58,734 58,734 Noncurrent Debt-Interest 11,021 11,021 11,021 11,021 11,021 Total Cash Outflow: 1,103,316 754,198 987,242 1,238,929 1,510,752 Cash Available (190,072) (405,854) (638,898) (890,585) (1,162,408) New Borrowing: Current: 191,072 406,854 639,898 891,585 1,163,408 Ending Cash Balance: 1,000 1,000 1,000 1,000 1,000 53 TABLE 8 Cont'd: CASH FLOW BUDGET FOR 15ppt SALINITY (Year 6-10) Pompano Production in a Marine Recirculating System, West Alabama, 2008 Year 6 Year 7 Year 8 Year 9 Beginning Cash Balance 1,000 1,000 1,000 1,000 Operating Receipts: Pompano sales 347,344 347,344 347,344 347,344 Total Cash Inflow: 348,344 348,344 348,344 348,344 Operating Expenses: Feed expense 129,212 129,212 129,212 129,212 1 gram pompano 29,250 29,250 29,250 29,250 Instant Ocean Sea Salt 227,091 227,091 227,091 227,091 Electricity 24,592 24,592 24,592 24,592 Liquid oxygen 34,564 34,564 34,564 34,564 Natural gas 2,417 2,417 2,417 2,417 Labor 20,800 20,800 20,800 20,800 Marketing, Promotion/Travel 4,000 4,000 4,000 4,000 Insurance 2,500 2,500 2,500 2,500 Property tax 67 67 67 67 Employment taxes 1,591 1,591 1,591 1,591 Other (repairs, alarm, Phone) 2,000 2,000 2,000 2,000 Total Cash Operating Expenses: 478,084 478,084 478,084 478,084 Capital Expenditures: Building Recirculating System Truck Well and Pond Scheduled Debt Payments: Current Debt-Principal 1,163,408 1,387,221 1,628,938 1,889,993 Current Debt-Interest 93,073 110,978 130,315 151,199 Noncurrent Debt-Principal Noncurrent Debt-Interest Total Cash Outflow: 1,734,564 1,976,282 2,237,337 2,519,277 Cash Available (1,386,221) (1,627,938) (1,888,993) (2,170,933) New Borrowing: Current: 1,387,221 1,628,938 1,889,993 2,171,933 Ending Cash Balance: 1,000 1,000 1,000 1,000 54 TABLE 9: CASH FLOW BUDGET FOR 6ppt SALINITY (Year 1-5) Pompano Production in a Marine Recirculating System, West Alabama, 2008 Year 1 Year 2 Year 3 Year 4 Year 5 Beginning Cash Balance 806,369 37,018 63,614 90,209 116,804 Operating Receipts: Pompano sales 106,875 347,344 347,344 347,344 347,344 Total Cash Inflow: 913,244 384,362 410,957 437,552 464,148 Operating Expenses: Feed expense 129,212 129,212 129,212 129,212 129,212 1 gram pompano 29,250 29,250 29,250 29,250 29,250 Electricity 24,592 24,592 24,592 24,592 24,592 Liquid oxygen 34,564 34,564 34,564 34,564 34,564 Natural gas 2,417 2,417 2,417 2,417 2,417 Labor 20,800 20,800 20,800 20,800 20,800 Marketing, promotion/travel 4,000 4,000 4,000 4,000 4,000 Insurance 2,500 2,500 2,500 2,500 2,500 Property tax 67 67 67 67 67 Employment taxes 1,591 1,591 1,591 1,591 1,591 Other (repairs, alarm, phone 2,000 2,000 2,000 2,000 2,000 Total Cash Operating Expenses: 250,993 250,993 250,993 250,993 250,993 Capital Expenditures: Building 14,358 Recirculating System 246,348 Truck 10,000 Well and Pond 27,500 Scheduled Debt Payments: Current Debt-Principle 238,213 Current Debt-Interest 19,057 Noncurrent Debt-Principle 58,734 58,734 58,734 58,734 58,734 Noncurrent Debt-Interest 11,021 11,021 11,021 11,021 11,021 Total Cash Outflow: 876,225 320,749 320,749 320,749 320,749 Cash Available 37,018 63,614 90,209 116,804 143,399 New Borrowing: Current: Ending Cash Balance: 37,018 63,614 90,209 116,804 143,399 55 TABLE 9 Cont?d: CASH FLOW BUDGET FOR 6ppt SALINITY (Year 6-10) Pompano Production in a Marine Recirculating System, West Alabama, 2008 Year 6 Year 7 Year 8 Year 9 Year 10 Beginning Cash Balance 143,399 239,750 336,101 432,451 528,802 Operating Receipts: Pompano sales 347,344 347,344 347,344 347,344 347,344 Total Cash Inflow: 490,743 587,094 683,444 779,795 876,146 Operating Expenses: Feed expense 129,212 129,212 129,212 129,212 129,212 1 gram pompano 29,250 29,250 29,250 29,250 29,250 Electricity 24,592 24,592 24,592 24,592 24,592 Liquid oxygen 34,564 34,564 34,564 34,564 34,564 Natural gas 2,417 2,417 2,417 2,417 2,417 Labor 20,800 20,800 20,800 20,800 20,800 Marketing, promotion/travel 4,000 4,000 4,000 4,000 4,000 Insurance 2,500 2,500 2,500 2,500 2,500 Property tax 67 67 67 67 67 Employment taxes 1,591 1,591 1,591 1,591 1,591 Other (repairs, alarm, phone) 2,000 2,000 2,000 2,000 2,000 Total Cash Operating Expenses: 250,993 250,993 250,993 250,993 250,993 Capital Expenditures: Building Recirculating System Truck Well and Pond Scheduled Debt Payments: Current Debt-Principal Current Debt-Interest Noncurrent Debt-Principal Noncurrent Debt-Interest Total Cash Outflow: 250,993 250,993 250,993 250,993 250,993 Cash Available 239,750 336,101 432,451 528,802 625,153 New Borrowing: Current: Ending Cash Balance: 239,750 336,101 432,451 528,802 625,153 56 TABLE 10: ANALYSIS OF NET PRESENT VALUE (NPV)~15ppt Pompano Production in a Marine Recirculating System, West Alabama, 2008 FCR 3.1 Year 1 Year 2-5 Year 6-10 Net Cash Revenues NPV Price/lb Survival Yield (lbs) 7 75% 73,125 (320,584) 33,791 33,791 (16,463) (436,768) 80% 78,000 (310,084) 67,916 67,916 301,162 (286,046) 85% 82,875 (299,584) 102,041 102,041 618,787 (135,324) 90% 87,750 (289,084) 136,166 136,166 936,412 15,398 95% 92,625 (278,584) 170,291 170,291 1,254,037 166,120 Year 1 Year 2-5 Year 6-10 Net Cash Revenues NPV FCR 2.75 Price/lb Survival Yield (lbs) 7 75% 73,125 (281,864) 72,511 72,511 370,734 (242,443) 80% 78,000 (277,397) 100,603 100,603 628,031 (121,998) 85% 82,875 (272,930) 128,695 128,695 885,328 (1,554) 90% 87,750 (268,463) 156,787 156,787 1,142,625 118,891 95% 92,625 (263,995) 184,880 184,880 1,399,921 239,336 Year 1 Year 2-5 Year 6-10 Net Cash Revenues NPV FCR 2.2 Price/lb Survival Yield (lbs) 7 75% 73,125 (263,766) 90,609 90,609 551,718 (151,611) 80% 78,000 (258,092) 119,908 119,908 821,081 (25,111) 85% 82,875 (252,418) 149,207 149,207 1,090,443 101,389 90% 87,750 (246,744) 178,506 178,506 1,359,806 227,889 95% 92,625 (241,071) 207,804 207,804 551,718 (151,611) 57 TABLE 11: ANALYSIS OF NET PRESENT VALUE (NPV)~6ppt Pompano Production in a Marine Recirculating System, West Alabama, 2008 FCR 3.1 Year 1 Year 2-5 Year 6-10 Net Cash Revenues NPV Price/lb Survival Yield (lbs) 4 75% 73,125 (160,993) 41,507 41,507 212,571 (265,979) 80% 78,000 (154,993) 61,007 61,007 394,071 (179,852) 85% 82,875 (148,993) 80,507 80,507 575,571 (93,725) 90% 87,750 (142,993) 100,007 100,007 757,071 (7,598) 95% 92,625 (136,993) 119,507 119,507 938,571 78,528 FCR 2.75 Year 1 Year 2-5 Year 6-10 Net Cash Revenues NPV Survival Yield (lbs) Price/lb 4 75% 73,125 (122,273) 80,227 80,227 599,767 (71,654) 80% 78,000 (122,306) 93,694 93,694 720,939 (15,804) 85% 82,875 (122,339) 107,161 107,161 842,111 40,045 90% 87,750 (122,372) 120,628 120,628 963,283 95,895 95% 92,625 (122,405) 134,095 134,095 1,084,455 151,744 FCR 2.2 Year 1 Year 2-5 Year 6-10 Net Cash Revenues NPV Survival Yield (lbs) Price/lb 4 75% 73,125 (104,175) 98,325 98,325 780,752 19,178 80% 78,000 (103,001) 112,999 112,999 913,989 81,083 85% 82,875 (101,827) 127,673 127,673 1,047,227 142,988 90% 87,750 (100,654) 142,346 142,346 1,180,464 204,893 95% 92,625 (99,480) 157,020 157,020 1,313,702 266,798 FIGURE 1 NCST Fishbarn Diagram 58