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The Danish model fish farm in Finish production

environment

Members

Apelacio, Lemuel

Amba-an, Windelyn P.

Calanao, Jm Ridge I.

Soloren, Claire Marie

Medel, Rica jay D.

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Introduction

1.1. Economic feasibility assessment

Environmental policy goals to decrease nutrient emissions have led to stagnated fish

production in the Baltic Sea Region (BSR). Fish products are imported into BSR to

meet the demand, while environmental consequences are externalized to those

regions that produce the fish consumed in the BSR. To switch this trend, BSR

aquaculture must adopt new sustainable practices and technologies, and introduce

regulation that encourages the development and use of abatement measures. New

environmentally sustainable technologies are emerging in aquaculture and the

opportunity to increase production without additional nutrient discharges makes

recirculation aquaculture systems (RAS) an interesting option. In addition to reduced

discharges, RAS allows better control of production conditions especially temperature

and the technology drastically reduces the need for intake water which enables these

farms to be placed in unconventional locations. There are high expectations among

decision makers on adopting RAS farming. However, markets are global and highly

competed, and new technologies need to be economically competitive to be viable in

the long term. RAS systems require higher investments and there are other additional

cost items which may increase production costs. Therefore, assessment of economic

feasibility by comparing production costs and market price is thus of utmost

importance within the BSR, including Finland (Nielsen et al. 2014). This report

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illustrates the use of the Excel spreadsheet published by Aqua best-project, to

evaluate economic feasibility of RAS farming (Kankainen 2014). As the example, we

use Danish model fish farm concept applied in Finnish production environment

(market, cost structure, climate) to assess the opportunities by meeting the nutrient

discharge reduction targets by RAS farming. The production equipment and tank

investment costs were evaluated according to Danish cost level. Other cost factors,

such as isolated building and variable costs such us energy, work and fingerlings,

were estimated according to Finnish cost level. The technology used in these farms

is briefly described below.

1.2. Danish model fish farms

In traditional freshwater or marine production systems, the water flows through the

system only once. In RAS farms, 95-99% of the water is directed back to the

production system after used in fish tanks. To maintain proper water quality before

the water is reused, mechanical and biological water treatment is needed. The main

emphasis to maintain proper conditions for fish welfare and viable business is to,

firstly, remove particle substances quickly by sedimentation and filtration, secondly,

to remove carbon dioxide by aeration and/or stripping, thirdly, to add oxygen, and

finally, to transform toxic ammonia to less harmful nitrate by biological filtration.

Further information on RAS technology is available at e.g., Jokumsen and Svendsen

(2010), Dalsgaard et al. (2013), Pedersen and Jokumsen (2014), and Suhr (2014).

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The Danish model fish farm concept was developed to reduce nutrient discharges

due to stringent environmental regulation (Jokumsen and Svendsen 2010). The first

generation of these farms (model trout farm type 1) was actually not recirculation

aquaculture, but merely used mechanical filtration and re-used a part of the water

after aeration and in some cases oxygenation. The second generation (model trout

farm type 2) introduced the biological filtration, and can thus be classified as RAS

farms.

However, many engineering changes to these farms have emerged, and the current

farms (model trout farm type 3) are more intensive. Model farms mostly use raceways,

but lately, octagonal or rounds tanks have become more common in new type 3 farms.

Model farm water treatment technology can also be placed indoors for especially

juvenile production (Figures 1-4). Model fish farms are not the most intensive RAS

farms. Model fish farms typically use 3000-4000 liters of water per kg feed in

comparison to 100-1000 liters per kg in more intensive RAS farms. Model fish farms

do not heat or cool the water, nor have used UV or ozone in water treatment. So far,

these farms have been placed outdoors whereas globally most RAS farms are located

indoors, even in isolated buildings. However, type 3 farms may in future be located in

buildings in Denmark. Typical for the Danish concept is also the use of constructed

wetlands to decrease nutrient discharges further. These characteristics make model

trout farms a rather unique. An additional characteristic of model farms is low water

pumping heights and, thus, moderate energy consumption than has been typically

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considered high in RAS. Lower pumping heights (typically 0.5-1.0 meters) decrease

energy consumption, which can be as low as 1.0-2.0 kWh per kg growth. Low

pumping heights are achieved by several engineering decisions, especially bio filter

design, lowhead aeration and oxygenation systems, and by modern pump

technology. The waste from a model farm is similar but smaller in quantity to the waste

from a traditional farm, and will mainly consist of organic matter (measured as BOD,

biological oxygen demand), nitrogen (N) and phosphorus (P). Table 1 shows a

comparison in discharges between traditional Danish farms and a Danish model 3

farm. The specific discharge (kg/t fish produced) of N, P, and organic matter from the

model farms amounted to 64, 38, and 6%, respectively, of the corresponding

estimated discharge from traditional Danish freshwater trout farms (Svendsen et al.,

2008). Without the wetlands, phosphorus load (the main target of regulation in

Finland) would be 1.3 kg per tn produced fish based on the data by Svendsen et al.

(2008).

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1.3. Model farm concept in colder climate conditions

Climate and access to ground water sources makes model farm concept ideal for the

Danish conditions. Within the Baltic Sea region, similar conditions can be expected in

southern Sweden, Germany and Poland. However towards the north, the concept will

face the challenge of colder winter temperatures and consequent decrease in fish

growth and annual production. The important question now becomes if farms should

invest in water temperature control consisting of isolated building and even heat

pumps and relating temperature control systems. By these investments, winter growth

can be increased and also peaks of high temperature during the summer can be

avoided, but with additional capital and variable costs.

1.4. Profitability case study

In the present economic feasibility study we analyze production costs of portion size

(500 gram) rainbow trout production in the northern BSR by using Finnish

temperatures in the case study, and then do sensitivity analyses by varying the most

important parameters likely to be encountered in practical business cases. Of special

interest will be the influence of water temperature and consequent annual production.

Furthermore, the economic feasibility of investing in isolated building to control the

temperature will be analyzed. We have designed a cost structure for a farm producing

500 gram rainbow trout, which is a rather common product for the European markets.

It is also currently the major product for Danish model trout farms. The investment,

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which stems from the knowledge on several farming projects in Denmark, would be

able to produce 500-600 tons of fish under typical Danish model fish farm temperature

conditions. The production equipment and tank investment costs were evaluated

according to Danish cost level. Other cost factors, such as isolated building and

variable costs such us energy, work and fingerlings, were estimated according to

Finnish cost level. The production costs are compared to assumed producer price of

500 gram rainbow trout in Finland. In Finnish domestic market neither portion size

rainbow trout nor filet of portion size fish are common products. Thus market price or

producer price was not available. Based on substitute product prices and discussion

with the processing and retail sectors, producer price of 4.5 €/kg could be possible in

Finnish market for a small volume of domestic production of fresh (nor frozen), high

quality production. In comparison, the producer price for larger trout has varied in the

past few years between 3.20 and 5.50 €/kg.

2. Cost and productivity factor assumptions

2.1. Investment and other fixed costs

2.1.1. Investments and the annual production The farm consists of 24 pcs of

octagonal /or round concrete tanks, each of 135 m3 in volume. The large number of

tanks allows constant delivery of fish to markets, and is also beneficial for the disease

control since several separate water treatment units are used. Fish are put into the

systems at an average size of approx. 20 g and are feed until they reach a size of 500

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g. Farm has four water treatment systems for six tanks each, with common water

treatment unit consisting of a drum filter, submerged bed filter, degassing and

oxygenation units. The above mentioned production system with fish tanks and water

treatment systems would require 3.600 m 2 building. The total tank volume of 3240

m3 is adequate for 500-600 tn production in typical for Danish farm using

groundwater. With a typical annually turnover between 2.5-3 for fish up to 500 gr and

a stocking density up to approx. 70 kg/m3 the total standing stock (average biomass)

will be approx. 227 tn. For the present case study, we estimated annual production

by using temperature profile from a lake in the Middle-Finland, and assumed based

on experience at RAS farms, that pumps and other devices increase the temperature

within the isolated building by two degrees. Annual growth was estimated using TGC-

model (e.g., Jobling 2003), and found to be 430 tons. This annual production is the

value used in further profitability calculations. Without the isolated building, ambient

lake temperature would provide annual growth of 370 tons, whereas additional

investments in heat pumps and additional energy would allow annual production

similar to the Danish conditions. These issues are discussed further in the sensitivity

calculations (Chapter 3.2 and 3.3). Farm should locate near the water resource that

generally increases the value of estate. The “Constructions” include earthwork, water

canals/pipes, concrete tanks as well as feed and pump warehouses; “Covered

isolated building” price estimate (500€/m2 ) is for Finnish conditions with high

construction costs due to earthwork for cold climate, thick insulation and snow load

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for winter times. The building price includes also the basic electricity and air-

conditioning devices. “Equipment” includes technical equipment and items such as

biofilters and drum filters aeration, oxygenation and pumps. Back-up power, alarm

system, electricity installation and fish and feed handling devices (e.g. separation,

harvesting, gutting equipment) are estimated to “Other production equipment”.

Transport includes lift trucks, bulk trucks and tractors for managing the feed and

harvest operations and transfers. Also “Monitoring and management” of the

construction work and “Technical consultancy and supervision” of fish farm are

calculated separately. The work related to other cost item is included in investment

prices. For estates and constructions we used 10 year depreciation time. For technical

equipment we used 5 years write-off period. Constructed wetland is not included in

this investment. Public investment subsidy in for such investment has been lately 30%

through European Fisher ies Funds (EFF, in the future European Maritime and

Fisheries Fund EMFF). However some communes may support these kind of projects

even with larger subsidies or discounts, for example for purchasing the estates. All

cost factors include VAT.

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2.1.2. Permanent personnel

According to experience from Denmark it should be possible to produce

approximately 250 – 300 tn annually with one person year, however manager

personnel is also needed for running operations. The larger the farm, the less

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personnel are needed per produced kilo fish. In this feasibility study it is assumed that

personnel costs consist of entrepreneur who participates daily fish farm operations

and two operational staff. RAS farms should have personnel on standby 24/7 in case

of production risks, such us electricity or water quality problems. Salary overhead rate

of

2.1.3. Other costs with fixed character

Fixed costs means cost factors that will not directly change when production volume

changes. Other fixed costs herein consist of miscellaneous cost factors listed in Table

3. The more specific descriptions of each fixed cost item can be found at red info

triangles in the model (Kankainen 2014). In practice many of these cost factors may

turn out to be much higher, or, in some occasions some cost factors, such as

marketing is not needed at all. Infrastructure, vehicles and equipment maintenance

costs increase in time and generally become significant cost factor at the end of the

investment lifetime. The electricity costs estimated does not cover the electricity

needed in production but includes heating and air-conditioning of the buildings, and

technical devices for the gutted fish. All cost factors include VAT.

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2.2. Variable costs

Feed is usually the major variable cost factor (Table 5). Feeds for smaller fish are

more expensive, but feeds for larger fish form bulk of the feed usage. Also FCR (Feed

conversion ratio) changes with fish size. However these details are not included in the

present model. Instead, average feed price and FCR is used. The price of fingerlings

becomes relevant factor for profitability especially in the production of table size fish

when fish are sold small. The larger the fish are farmed, the less significant becomes

the fingerling purchasing cost, because less fingerlings are needed for producing the

same tonnage. We estimated the price of 15 €/kg for 20 gram vaccinated fingerling.

Other variable costs consist of fish insurance, electricity and transport. Also

oxygenation, medical treatments and waste water treatment costs are important cost

factors in RAS farming. We assumed the cost of 0.10 euros per kWh for the electricity

and electricity consumption is assumed to be 2.0 kWh per kg fish growth. The modern

Danish low-head model farms can be designed to use even down to 1.0 kWh per kg,

but we wanted to be more conservative with the estimation. All cost factors include

VAT.

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2.3. Production efficacy parameters

Bio-economical productivity factors, such us growth, mortality and feed efficiency

influence the effi ciency of production and thereby the need for cost items introduced

above (Kankainen et al 2011). Production cycle length also influences the effect of

certain cost items. The average harvest size of 500 gram was chosen because it is

common European market size for rainbow trout and also produced in Danish model

fish farms. In our example, at 500 g fish are gut ted, although they can also be

transferred to sea cage production or grown to traditional market size of over 2 kg in

RAS. To calculate costs for that kind of production, gutting investments and variable

labour costs can be deleted and “Gutting yield” is 100%. Mortality varies between

years, fish populations and production environments. Sometimes dis eases or

realisation of production risks may cause loss of a complete production batch. Normal

yearly mortality is around 2-3% of individuals; however we used 10% mortality to

include unexpected higher losses. To avoid total monetary lost and bankruptcy,

insurance is included as variable costs in the feasibility calculation.

2.4. Market value

Market price for the fish is of utmost importance for the profitability. In Denmark,

portion size trout producer price has lately been approximately 3.5 - 3.8 €/kg including

VAT (26-28 DKK/kg) (www.danskakvakultur.dk), and has faced tough competition by

especially the Turkish production. In Finnish domestic market neither portion size

rainbow trout nor filet of portion size fish are common products.

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Thus market price or producer price was not available. Based on discussion with the

processing and retail sectors on subsidy products for traditional salmonids, producer

price of 4.5 €/kg could be possible in Finnish market for a small volume of domestic

production of fresh, high quality production. In comparison, the producer price for

larger trout has varied in the past few years between 3.20 and 5.50 €/kg. It is not

obvious why consumers would be willing to pay extra or even an equal price for

smaller fillets of trout, in comparison to large fillet. Furthermore, typical products (cold

smoked and dill-cured “gravlax”) would be more expensive and less convenient to

produce using small portion size fish.

3. Preliminary profitability analysis of model farm concept

3.1. Results

Production cost based on the present calculation is 4.48 €/kg gutted fish. The

production costs would mean profit of 0.02 €/kg at the producer price 4.5 €/kg. In other

words, on the basis of our assumptions, productions costs would be very close to the

break-even price. 3.2. Sensitivity analysis Sensitivity analyses is a useful exercise to

evaluate the influence of assumptions in the profitability calculations. Profitability

analysis is useful to evaluate effects of one or several simultaneously changing cost

factors. For example it is possible that water treatment system functions well and

allows using higher densities and thus higher annual production of fish. On the

opposite, it is also possible that the farm is still on a learning curve during the first few

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years of the operation, and the annual production is less than anticipated. Similar

differences can take place in investments, mortality and many other parameters

Major cost savings could be achieved by lower feed or fingerling costs. Also deviation

from growth expectations have major influence on probability. RAS operations tend

to overestimate fish growth especially during the first years of operation, when the

new farm is still on a learning curve regarding daily management routines. Our growth

estimate for the investment used in this feasibility study is somewhat conservative.

Higher densities and elevated water temperatures might yield higher production. On

the other hand, the water treatment systems have their maximum capacity above

which prob lems with water quality will become apparent. Lower feed costs are not

easy to realize either. The trend for feed price is rather increasing than decreasing.

Higher volumes for feed purchases may give scale discounts. The feeds assumed in

the present calculation contain astaxanthin, whereas for some markets table size fish

do not need to be pigmented. Fish are usually fed at restricted feeding ratios without

feed wastage. Good water quality and careful observation of the feeding and fish stock

are essential for good FCR. Savings in feed price do not necessarily translate into

lower feed costs, since RAS farms are sensitive to feed quality. Fingerling could be

purchased for a lower price than we have estimated, especially if they are produced

within the company. Other variable cost include some specific cost factors that may

change significantly from the assumed; for example electricity, oxygenation, transport,

medicines and most of all insurance are such cost factors that can vary extensively.

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In the Baltic Sea region, EU member states can use European Maritime and Fisheries

Funds to support (subsidy) investments. In the present calculation, we have assumed

30 % subsidy for the investment.

3.3. Model farm without isolated building with northern growth rate

In our example for the cold climate, isolated production building is costing as much as

0.47 € per kg, although the building is the only way to preserve the heat loss and thus

produce more than in ambient tempareture. There is no proven example of using the

model trout farm technology in a colder climate without isolated production building.

At minimum, the water treatment systems would require a small isolated building of

approximately 400 m2 (0.2 milj. €). Without the isolated building, due to the colder

ambient temperature the annual production would be some 60 tons lower than with

the building con serving the heat loss from the pumps. This operation would result in

production cost of 4.26 €/kg (Table 9). The cost is 0.2 euros lower than when company

invests in the isolated building to utilize the heat loss. We want to emphasize that this

kind of solution has not been tested yet in colder climate. During cold winters, severe

mechanical failures may occur despite isolated building for the water treatment

system. For temperature control, access to borehole or well water sources and

efficient use of space at the farm become important factors influencing the production

costs. All real investments in RAS in Finland rely on isolated building

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3.4. Discussion and conclusions

3.4.1. On the profitability analyses model

Economic feasibility calculations are routinely used by the business sector, but the

information these calculations provide on the opportunities of new technologies are

also useful for decision makers and R&D community. This report serves as an

example on the use of Excel spreadsheet tool produced as part of the Aquabest-

project. We have extended this simple profitability analyses model to include more

detailed production planning and economic performance analysis. As an example, we

have combined the spreadsheet with growth modeling that also provides information

on the daily use of feed, oxygen and energy for heating the water. As an example of

more detailed economic evaluation, different production cycles, multispecies farming,

seasonally varying fish prices and company cash flow-analyses can be combined with

the present basic model.

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