Challenges during the start up and development phase of private funded hatcheries involved in new species

Brian Blanchard

Scotian Halibut Ltd.

An Historical Perspective on Aquaculture An Historical Perspective on Aquaculture Development & CommercializationDevelopment & Commercialization

The “Continuum”The “Continuum”

CAIA workshop, Ottawa, March 2003CAIA workshop, Ottawa, March 2003

ResearchResearch Development / PrecommercialDevelopment / Precommercial CommercialCommercial

• Duration of R, D, C phases vary, but generally declineDuration of R, D, C phases vary, but generally declinealong the continuumalong the continuum

• The level of “risk” diminishes along the continuumThe level of “risk” diminishes along the continuum• There is an ongoing “development” component (feedback)There is an ongoing “development” component (feedback)

in commercial production in order to remain competitivein commercial production in order to remain competitive

An Historical Perspective on Aquaculture An Historical Perspective on Aquaculture Development & CommercializationDevelopment & Commercialization

The “Continuum”The “Continuum”

CAIA workshop, Ottawa, March 2003CAIA workshop, Ottawa, March 2003

• Initial research $$ are Initial research $$ are comparativelycomparatively small e.g., cod small e.g., cod• Development & precommercialization $$ risky, need public /Development & precommercialization $$ risky, need public /

private partnerships (PPP)private partnerships (PPP)• Ongoing development / research $$ are needed from PPPOngoing development / research $$ are needed from PPP• Commercial production is strictly a private initiative Commercial production is strictly a private initiative

$$$$ $$$$$$$$$$ $$$$$$$$$$$$

ResearchResearch Development / PrecommercialDevelopment / Precommercial CommercialCommercial

Alternate Marine Finfish Species Stages to Commercial Operation

Research(University and Govt Lab)

Public $

Development(In Partnership with Industry)

Public $$$

Commercial

Commercialization CycleHatchery

Private Outside forces Investment

$ $ $ $

Year 1 2 3 4 5 6 7 8 9 10

$ $ $ $

Sales must happen!!

What do you know before start up

Brood Stock Diet Hatchery Grow out Market Government policy

Domesticated

Genetically selected

Commercially available

Algae

Micro Diet

Weaning diet

Trained available staff

Off shelf technology

Trained

Available staff

Established technology

Mature market

Low competition

Identified as species for development

wild Cultured in house

Algae

Rotifer

Artemia

Must be trained

New sites

New / upgraded technologies

New Market

Competition form wild/ other new species

Not fully committed

Lack of demonstration

Hatchery StartupFinancing

Permits

Construction Start up Scale up Production &

Sales

Ongoing operations

1- 2 years 1 year 1 year 1 – 2 years 2 – 3 years

7 to 9 years for start up

Land Based Culture

• Minimum 10 acres• Flat terrain and easy to work with respect to

excavation and site preparation• Road access• Electrical Access• Fresh water supply• Support services• Access to labour force• Availability

Water Supply

• Sea water wells– Thermally stable ~ 70 C

– Low filtration requirements

– Low pathogen risk

• Deep water abstraction– Relative thermal stability below thermal cline

– Low to moderate filtration depends upon water depth

– low to moderate pathogen risk

• Shallow water abstraction– Thermally unstable Tidal influence

– High filtration requirement

– high pathogen risk

Human Resources

• Training programs – not specific

• Competition – other sectors i.e environmental / it

• Competition government vs private.

Wages and benefits not competative.

Rural vs Urban (quality of life issues)

Technical staff

Start up Scale up Production &

Sales

Ongoing operations

1 year 1- 2 years 2 - 3 years 3 years

Turn over starts

Maintain >70% staff retention

Human ResourcesTurnover

• It takes about one to two years to train hatchery staff from a technical and operational point.

• Once staff is trained it is important to retain 70% of the staff to maintain normal operations (this applies to turnover)

Human Resource Development

• Invest in the staff– Send to other sites to work– Participate in conferences– Encourage the building of networks– Provide communication and management

resources

Hatchery inputs

Start up Scale up Production & Sales

Ongoing operations

1 year 1- 2 years 2 – 3 years 3 years

Feed Suppliers change, new materials available, standard items no longer available

How to deal with Change

• Accept it

• After run workshops

• Annual summary workshops

• External audit of system

• Ask for help

Equipment

Start up Scale up Production & Sales

Ongoing operations

1 year 1- 2 years 2 – 3 years 3 years

Equipment failures and replacement becomes common

History / documentation - SOP’s

Sea Water Challenges

• Highly corrosive - Must use non- metallic materials

• Fouling - barnacles, shellfish, tunicates, invertebrates, algae.

• Highly conductive - electrical ground faults req..

• Buoyancy - Feed, fecal material etc.

• Solubility of gases - O2, CO2,

Fish Health Issues

Start up Scale up Production Ongoing operations

1 year 1 year 2 years 3 years

FH starts with scale up and Increased biomass within Production tanks

Fish Health

Species Noda virus Vibrio Sp. Atypical

Aeromonas

ISA Fatty liver

Cod Yes

Hatchery

Yes

Grow out

No

Grow out

No

Grow out

Yes

Grow out

Haddock Yes

Hatchery

Yes

Grow out

No

Grow out

No

Grow out

Yes

Grow out

Halibut No

Hatchery

yes

Grow out

Yes

Grow out

No

Grow out

Fatty Necrosis

Syndrome

V = vaccine available

V

VV

V

V V

Fish Health Haddock & Cod

• Gill disease (hatchery)

– husbandry and prophylactic treatment

•Nodavirus (hatchery and nursery phases)

•Vibriosis (ongrowing)

– relatively disease resistant

– no antibody response to vaccination

– vaccination efficacy

Fatty LiverFatty Liver

HSI = 18.4%

Direct linear relationship between fat consumption and hepatosomatic index

Fish Heath - Bone Deformities

Growth curve of production

#

0 10 gram

Size of fish

cull

Ideal

Current production profile

Research Resources

Start up Scale up Production &

Sales

Ongoing operations

1 year 1 – 2 years

2 – 3 years 3 years

Access to research resources toAssist in solving production issues

In house (how to pay for it)External – DFO, Universities

Access to Capital• Major constraint to growth• Difficult to attract investors• Banks are cautious about lending to

aquaculture• Gaps exist in programs to finance

development activity• Government agencies expect results to quickly• Large fish companies are reluctant to invest

Stages of Venture Capital Investments

Seed/start-up stage is very early in the growth cycle of the business. Seed financing required for research and prototype development and to launch the business.

Development stage refer to firms that have successfully implemented the project and completed the market research but have few, if any, commercial sales. Development financing is required to initiate full scale production.

Expansion financing is provided for the initial expansion of a company that is producing and a saleable product that has not yet shown a profit.

Mature stage companies have operated profitably for several years and would use additional investment to provide funding to further expand the business and to firmly establish market share.

Stages of Venture Capital Investment

Seed/Start-up Development Expansion Maturity

Fundingrequired

FailureRate

Incubation Venture Funding

Investment Banking

Profitabilitylevel

Access to Capital by StageStartup/Seed

Development Expansion Maturity

Entrepreneur

Friends, Family

Angels

Strategic Partners

Venture Capital

ACOA & AIF Program

NRC/IRAP

Other Government Grants

Research Partnerships

Tax Credit Programs

Commercial Banks

Suppliers & Customers

Asset Lenders – Gov’nt

Asset Lenders – Comm.

Leasing Companies

Private Placements / IPOs

Biggest challenge

• Proving the financial viability

• Paper never refused ink yet!

• Demonstration is key

Who should take the lead

• Horse – Cart

• Chicken – egg

• Government – Industry

Why • long term economic prosperity based upon

renewable resources