Shellfish Aquaculture Is an Old Industry in the Northeast U

SHELLFISH AQUACULTURE FEASIBILITY STUDY

Expanding Shellfish Culture in the NRAC Region – Constraints to existing industry expansion and an analysis of the economic feasibility of new, small-scale oyster culture businesses

Part II: The feasibility of new, small-scale oyster culture businesses.

Edwin Rhodes

Aquatecnics LLC, 49 Reed Street, Milford, CT06460

Rob Garrison

,Nantucket Aquaculture, 11 Union Street, Nantucket, MA02554

Dana Morse

Maine Sea Grant College Program, UMaine Cooperative Extension, Darling Marine Center, 193 Clark's Cove Road, Walpole, ME 04573

Tessa Getchis

ConnecticutSea Grant, 1080 Shennecossett Road, Groton, CT06340-6048

Sandra Macfarlane

Coastal Resource Specialists, Box 1164, Orleans, MA02653

Expanding Shellfish Culture in the NRAC Region – Constraints to existing industry expansion and an analysis of the economic feasibility of new, small-scale oyster culture businesses.

Part II: The feasibility of new, small-scale oyster culture businesses.

Introduction

In 2004 the NRAC funded a number of proposals to develop model business plans for start-up companies in selected aquaculture businesses. These model plans are part of an NRAC strategy to reach its goal of doubling northeast aquaculture production within a decade. We have focused our efforts on evaluating several opportunities for shellfish aquaculture in the Northeast region, and present here business plans that can be used as models for start-up oyster aquaculture companies.

Why Aquaculture in the Northeast and Why Oysters?

In the northeast region, shellfish aquaculture annual ex-farm value is currently about 50 million dollars from more than 350 separate culture operations and employs approximately 500 people. Only salmon farming in Maine contributes more to the value of aquaculture in the northeast. Although there is a fair amount of shellfish aquaculture underway in the NRAC region, we believe that there are still opportunities to increase production and sales.

Shellfish aquaculture is an old industry in the northeast U.S. and techniques to enhance survival and growth of oysters go back about 200 years. “Modern” shellfish aquaculture that uses shellfish seed produced in a hatchery and employs very intensive culture techniques can mark its beginnings with the first successful production of seed from hatcheries in the 1960’s.

The Northeast U.S., in particular, has been noted for its productive shellfish growing areas, of which thousands of individuals have taken advantage. The industry is based principally on hard clams (Mercenaria mercenaria), Eastern oysters (Crassostrea virginica), and blue mussels (Mytilus edulis), and to a lesser degree, European flat oysters or “Belon” (Ostrea edulis), soft-shell clams (Mya arenaria), and bay scallops (Argopecten irradians irradians).

Shellfish propagation methods range from wild seed collection to land-based hatchery systems, while nursery and grow-out technology includes bottom culture (open bottom, netted bottom, cages), midwater culture (longlines, pearl and lantern nets), and surface culture (floating trays, bags, upwellers, rafts, etc.) (Leavitt, 2003).

Compared to most other forms of aquaculture in the U.S., shellfish aquaculture is a more mature industry with a longer documented history (Barber, 1836; Brooks, 1891; Kellogg, 1910; Kochiss, 1974; MacKenzie et al., 2002a,b; Matthiessen, 2001; Carriker, 2004). As far back as 1959 Loosanoff was talking about new business formation when he wrote and widely distributed an article entitled “You, too, can now hatch clams.” (Loosanoff, 1959).

Since Loosanoff’s early aquaculture publications (Loosanoff 1937; 1954; 1963), a number of other authors have written manuals on how to cultivate oysters, including Burrell (1989), Creswell et al. (1990), Korringa (1976), Matthiessen (1973, 1989) and Shaw (1962). These have been considered in our development of the model oyster production systems described here, but we relied most heavily on the experience in our team that included individuals with hands-on experience in starting shellfish businesses.

The profitability of our model oyster businesses will depend heavily on obtaining a premium price for the product. The willingness of consumers to pay more for quality product has been recently noted in work by Hanson et al (2003). They surveyed U.S. residents in 2000-2001 and found that consumers were willing to pay 34 cents per oyster above the usual raw bar price for a guaranteed safe product. In the same study, 38% of oyster consumers identified price as a constraint to consuming more oysters, but 49% indicated that they would consume more oysters if they were safer to eat and if more fresh oysters were available. Bishop (2003) estimates that in the next decade shellfish sales in the U.S. and Canada could increase by 40%, but notes that this increase will depend on producing “a safe, quality, branded product”.

Some recent work on the logistics and economics of shellfish business start-ups has been done. Adams et al (2001) produced cash flows and enterprise budgets for a small business producing and marketing southern bay scallops and suggest that bay scallop culture is marginally profitable at a small-scale. On Martha’s Vineyard, Karney and Blake (1999), described start up businesses for oysters that grew a high quality product, and received a premium price. Rice and Ganz (1994) have described the basic steps for starting an aquaculture business.

We chose to focus on the oyster aquaculture business opportunities after considering the whole suite of native shellfish that are in culture in the northeast region and the market conditions and state of the technology for each. However, our decision to concentrate on an oyster business is based on information current in early 2005, and may very well change. A prudent potential investor in shellfish aquaculture should make an effort to insure that the oyster business is the right one for them.

In our opinion, the best opportunity for a successful shellfish aquaculture business is with the native oyster, Crassostrea virginica. Hard clams (Mercenaria mercenaria) are also widely cultured, but the market price of hard clams is currently very close to the price of production due to a robust supply from aquaculture companies from Massachusetts to Florida. Blue mussels (Mytilus edulis) are less widely cultured and in Maine, the center of the U.S. production, the industry is moving from on-bottom culture to suspension techniques, making an economic analysis difficult. Additionally, there has been some recent success with culturing mussels offshore in New Hampshire. (Langan, 2001) and investors considering business opportunities in the shellfish arena should consider mussel aquaculture. Bay scallops have been successfully cultured, but in the Northeast growth to produce a market product of sufficient size takes more than one season, and overwintering success has been variable. Sea scallops have also been cultured, but hatchery production of seed is not very reliable, and grow out time is long making this species currently unattractive as an investment. Work with the soft-shell clam, Mya arenaria, is underway but we know of no successful commercial operations.

The authors believe that there are realistic opportunities for new aquaculture companies for oysters, recognizingan unmet demand for superior quality oysters for the white-tablecloth restaurants and other upscale institutions. Oysters for this market are often referred to as “boutique oysters”. Oysters in this category are grown using methods that guarantee a large percentage of market-sized oysters with a good shape and good quality shells that make the oysters easier to open. Additionally, boutique oysters are name-branded to add marketing appeal, and they are grown in specific geographic locations that impart a distinctive flavor to the oysters and insure that they are safe to eat as a raw product.

The Business Plans - General

We have developed two principal business plans, one for a small company with a target production of 100,000 marketable oysters per year, and one for a medium-sized company that would market 1 million oysters per year. We have presented a highly detailed plan for the larger company which we call the Acme Oyster Company, and some additional information for the small company we call My Oyster Farm. The business plan scenarios for the Acme Oyster Company creates a fictional oyster company in a fictional locations in language and detail that we believe will facilitate the writing of an actual business plan.

We forecast that the company with a target production and sales of 100,000 oysters per year can operate with one or two people, and can be done on a part-time basis, at least until it reaches its operating capacity. The oyster business with target sales of 1 million oysters per year will require a company with 5 or 6 full-time employees.

We hypothesize that both of our model companies will buy seed oysters from existing hatcheries, will operate seed nurseries to produce planting-sized oysters, and will use grow-out culture methods that have proven track records in the northeast. Persons entering the oyster businesses with little or no experience in this industry are urged to startinitial production at about 10% of the final target production, and build the company to its final size over a three or four year period. This will allow the start-up company to gain the maximum amount of experience with the minimum risk, and also allow for a gradual increase in the supply of market-sized oysters that makes marketing more rational.

The oyster company models include descriptions of costs and timing for site selection, permitting, site leasing, nursery construction and operation, seed purchase, grow-out gear selection, grow-out operations, oyster cleaning and grading, labor, insurance and financing. Our team members obtained materials cost information from open market commercial sources and from personal knowledge of construction and maintenance cost for gear. Estimates of labor use and costs came from the team’s personal experience and from conversations with commercial growers. We also obtained some additional information from our survey of commercial companies that we did as part of another NRAC-funded study (MacFarlane et al., in press).

For both of our model companies, it is expected that the product will be sold directly to up-scale restaurants. Our experience with oyster marketing indicates that direct-sales to white-tablecloth restaurants is the best starting point. Our experience also has shown that it is nearly impossible to obtain contracts or other “bankable” assurances of future product sales. The market price information in this report came from personal experience by team members, and from some additional conversations with restaurant owners and seafood purchasers.

Finally, the success of an oyster aquaculture start-up company will depend on four major factors. These are location, methods, capital and marketing. There is more detail on these critical factors later in this report, but their importance cannot be overemphasized. The vision we have in these plans is for companies that efficiently grow a high quality, brand-labeled oyster, grown in a location that will guarantee that it is safe to eat and marketed directly to white tablecloth restaurants and other high-end retailers.

The Oyster Aquaculture Company Business Plans

Acme Oyster Company

Business Plan

(1 million market oysters/year)

Introduction

The Acme Oyster Company will be formed to produce one million high quality oysters per year. Located on 10 acres of leased water adjacent to the pristine HollywoodBeach, Acme will use a floating bag system to provide white tablecloth restaurants with half shell oysters.

Objectives

Objective 1. Plant 1.5 million oyster seed per year

Objective 2. Begin market sales in year 3

Objective 3. Minimum sales price of 55 cents per oyster, average sale price 65 cents

Keys to Success

Production System that reduces labor, provides optimum growing conditions, and ensures a high quality product. Sales and marketing service that provides the customer with a consistent high quality product, professional packaging and on time delivery. Management that ensures a well organized, efficient operation, motivated employees and financial responsibility.

Mission

Acme Oyster offers high quality, half-shell oysters to high end restaurants year round. Frequent testing insures that our product meets the highest standards of health certification. Acme will provide customers with a consistent quality product harvested and shipped within 24 hours of ordering. Initial market focus will be high end restaurants and wholesalers along the East Coast. As production increases major cities throughout the U.S will be targeted and export opportunities will be investigated. Acme will provide employees a living wage with benefits and ensure a healthy, safe working environment. Every effort will be made to produce oysters in an eco-friendly manner using accepted best management practices.

Facilities/Equipment

Requirements:

Gear Preparation and Storage, Staging Area – Minimum 1000 sq.ft of indoor space required for gear preparation/assembly, workshop, and tool storage. Minimum 1500 sq.ft. outdoor space required for storage of gear, construction projects, boat maintenance, etc.

Wholesale Dealer permitted packing/storage facility – Indoor space with walk-in refrigerator conforming to State Department of Public Health requirements to be used to pack oysters and store before shipment.

Boats (with location to load/unload) – One boat should be large enough to handle 20,000 oysters (approximately 1.5 tons) as well as transport culture gear equal to 100 oyster bags. The second boat can be smaller and used mostly for transporting personnel. A convenient place near the operation’s staging area and packing facility should be secured for loading and unloading the boat(s). Ideally, this will be a permanent dock where the boat is routinely tied up.

Truck – Depending upon the shipping arrangement, a refrigerated truck able to carry 20,000 oysters (approximately 1.5 tons) may be needed to deliver the boxed oysters to customers or a commercial carrier. In addition, a standard pickup truck is also required for general purposes.

Work Barge/Rafts – Unless the farm site is located adjacent to controlled dock space or land, a floating work barge or raft is required for operations including; grading, counting, stocking, harvesting and cleaning. At a minimum a 50 ft X 20 ft platform is necessary and, depending upon the size of cleaning or grading machinery (if operated on site) further area may be required.

Nursery Upwellers (tidal/land-based) – Tidal upwellers are the most economical and efficient nursery systems , but require at least 2 knots of current. FLUPSYs are also very efficient, but require protected waters with access to electricity. Land based, pump operated upwellers require the most labor and are the most expensive to operate. One 8 ft. X 20 ft. tidal upweller or FLUPSY can grow approximately 100,000 oyster seed to one inch. Land based upweller performance is based on water flow and productivity.

Equipment – Major Equipment includes a mechanical grader, pressure washer, and hydraulic hauler (for cage culture system). Labor costs and other variables will determine the sophistication of the oyster grader, which can be purchased to grade through various sized mesh or using image analysis can sort oysters within 1 mm. A normal range of carpentry and mechanic tools will be required for construction and maintenance.

Permitting

Permitting will vary depending upon location. Contact your Town government to learn about local regulations. Local extension agents and State government agencies can provide information on State regulations. The Army Corp of Engineers will also require a permit application.

Site Selection

General requirements/considerations for a good oyster growing site

-Temperature
- Reasonable flow
- Medium to harder bottom, not muddy, not rocky
- Predators
- Security: is it so remote that watching over it will be difficult
- Navigation: does it impede navigational use
- Competing use such as fishing, recreation, navigation, etc.
- Ice scour, is it deep enough to withstand the ice cover?
- Access: can I get to it easily, and can I unload product close by?

If possible, several sites should be compared for growth, fouling, weather exposure, biofouling, etc. before deciding upon the final site. It is also recommended that several growout systems are compared during the preliminary trial period.

Operations

Nursery – 1.5 million 1 mm oyster seed are purchased from a commercial hatchery to coincide with the beginning of the growing season, i.e. water temperature of approximately 11° C. Seed are introduced into nursery system(s) and cleaned and graded weekly. (Land based upwellers require daily cleaning). Mesh bins are cleaned with a pressure washer. Oysters are rinsed with freshwater if available. As oysters grow density is maintained to ensure maximum growth evidenced by a doubling in volume of the oysters each week. As the oysters reach one inch in size they are transferred to the growout system.

Growout – One inch oysters are stocked in to ¾” mesh oyster bags at a density of approximately 250 oysters per bag. Bags are maintained through the growing season. With the floating bag and rack and bag system, bags are “flipped” every two weeks to control fouling. Cage culture systems require brine dip or pressure washing, frequency to be determined by local biofouling conditions. Before the end of the first growing season, all oysters should be graded and restocked at either 100-125 oysters (final stocking density) or 250 oysters per bag. In the nursery to bottom system, oysters are distributed on the bottom at the end of the first growing season. Oysters are maintained through the next growing season and may be culled for harvest beginning the end of the second growing season.