The University of Georgia

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1 The University of Georgia enter for Agribusiness and Economic Development ollege of Agricultural and Environmental Sciences Feasibility of Marine Shrimp Production in Georgia hristopher Ferland and Kent Wolfe FR April 2003

2 Table of ontents U.S. Shrimp Market Trends...1 Imports and Domestic...1 Table 1. Quantity and Value of Shrimp Imports...1 Regulations for Marketing and Transporting Aquatic Species...2 Domestic Aquaculture Production...2 Exotic Aquaculture Production...2 ontact Information...3 Local Area Live Market Demand...3 Local Market Area...3 Likelihood to Visit Aquaculture Farm... 4 Table 2. Likelihood to Buy Shrimp From Local Farm...4 Table 3. Likelihood to Purchase Farm Raised Shrimp and Estimated Visitor Potential (Estimated Area Market)...5 Direct to onsumer Market or Secondary Market...5 Metro Atlanta Live or Whole Seafood Market...5 Restaurant Survey...6 onclusion...6

3 1 Feasibility of Marine Shrimp Production in Georgia U.S. shrimp consumption has trended upward since the early 1930's. The United States Department of Agriculture=s Economic Research Service (ERS) reported annual per capita shrimp consumption grew from one to over three pounds between 1990 and According to the National Fisheries Institute (NFI), shrimp consumption is second only to canned tuna. The NFI states that shrimp constitute 20% of all seafood consumed in the U.S. The continued growth in demand has opened the door for farm-raised shrimp. urrently, it is estimated that 7% of all shrimp consumed in the U.S. are farm raised, combining domestic and foreign farm raised shrimp. The year-round availability combined with the downward shrimp prices over time, has changed shrimp=s product position. Once shrimp was considered a luxury seasonal product, now it has become one of many commodities in the shellfish market. Gulf oast shrimp (20 and under count) appear to have a niche in the high end product market, while the other counts compete directly with imported shrimp. Imports and Domestic U.S. shrimp imports increased 16% between 2000 and 2001; however, the price fell 3.6% during this same time period (USDA, ERS, 2002). It is believed the greatest growth in the import market came from the frozen and prepared category with Ecuador and hina leading the way. Table 1 indicates the quantity, value, and change in shrimp imports for the past few years. Table 1. Quantity and Value of Shrimp Imports Quantity (pounds) 7.31 million 7.60 million 8.83 million Percent hange % 16% Value (dollars) 3.13 billion 3.75 billion 3.62 billion Percent hange % 3.6% Source: USDA Economic Research Service, 2002 Table 1 indicates that the import shrimp market increased 1.52 million pounds between 1999 and 2001; this increase is estimated to be equivalent to about half of the total US production of shrimp. Eight countries control about 66% of the import shrimp market. Some countries, which are grouped as >other= by the USDA, have begun producing large quantities of shrimp and are expected to continue to increase production and exportation into the U.S.

4 2 According to the ERS, the average shrimp price per pound in 2001 was $4.11, although the large market shrimp (10 count) was $6.95, and the smallest market count was $2.58. The shrimp production facility in Hawkinsville will have to decide what size shrimp it will market to produce a more accurate economic analysis. Domestic shrimp harvests amounted to approximately 332 million pounds, with roughly 165,000 pounds being farm raised. Total domestic shrimp placed on the market compromises 26% of the total shrimp market. Domestic harvesting increased 5% over the last two years, but is expected to slow down due to lower import prices and increased regulations (ERS). Regulations for Marketing and Transporting Aquatic Species Since the proposed aquaculture initiative is going to market live and whole shrimp, the AED investigated regulations pertaining to the transportation and marketing of live shrimp were investigated. According to Mr. Mark Norton with the Georgia Department of Agriculture, live shrimp are not regulated by the Department of Agriculture. Mr. Norton indicated that live shrimp are regulated by the Georgia Department of Natural Resources. However, if any processing occurs the supplier must file with the Department of Agriculture under a food processor status. Mr. Ted Hendricks with the Georgia Department of Natural Resources indicated that if aquatic species were produced in an approved re-circulated system, there are no regulations impacting the transportation of aquatic species except the farmer registering as an aquaculturalist. The aquaculturalist application can be obtained by contacting Mr. Ted Hendricks (ontact information on page 3). If the shrimp are not sold in a live state and packed on ice, they are subject to regulation by the Georgia Department of Agriculture. This is true if the shrimp are sold directly to consumers or to wholesalers. However, if the shrimp cross state lines, those states need to be contacted to determine their regulations regarding the transportation of live shrimp. In Georgia, for instance, to transport live shrimp a company must have a wholesale seafood dealer license. Domestic Aquaculture Production If an aquaculturalist is producing, selling, or re-selling species indigenous to Georgia or the species was recognized before 1992 as having an established population in Georgia=s public waters, registration is free. The certificate expires on April 1 st two years after registration. For more information on determining whether a species is considered to be indigenous or colonized in Georgia, prior to 1992 contact Mr. Ted Hendricks.

5 3 Exotic Aquaculture Production No license is needed for exotic aquaculture species if they are held in containers where no water is discharged except for periodic cleaning. This water must be filtered to remove all impurities that may be discharged and can only be disposed in a septic tank permitted by the county wastewater treatment system and the Environmental Protection Division. Depending on the system to be utilized, it is important to explore these regulations in more detail with the Georgia Department of Natural Resources. ontact Information Mr. Mark Norton Georgia Department of Agriculture 19 Martin Luther King, Jr. Drive, S.W. Atlanta, Georgia (404) Mr. Ted Hendricks Georgia Department of Natural Resources Fisheries Management Section 2070 U.S. Hwy. 278, S.E. Social ircle, GA (770) Local Area Live Market Demand One component of the AED=s research was to investigate the local market for farm raised shrimp. To complete this task, a telephone survey was administered by The University of Georgia=s enter for Survey Research, to obtain a better understanding of northeast Georgia residents as well as South arolina and North arolina residents and their willing to purchase farm raised seafood products. The survey examines consumer awareness, purchasing habits, consumption habits, and the likelihood of residents to purchase live, unprocessed shrimp from local farmers. In addition, this survey investigated the most effective method of informing consumers about the availability of farm raised aquatic species. A screening question was used to eliminate respondents that do not eat seafood products. The interviewer asked to speak to the primary seafood consumer. If no one in the household eats seafood, the survey was terminated. A random sample of 232 people was contacted and 71 indicated they did not eat seafood products. Therefore, it was determined that 69% of area residents were consumers and potential customers of the proposal aquaculture initiative.

6 4 Local Market Area It is important to obtain a thorough understanding of the area market when considering a new business opportunity. The following are some highlights from the telephone survey: 53% eat seafood one or more times per week. Roughly one in five residents purchases fresh seafood weekly. On average, the households eat roughly 4.0 pounds of fresh seafood per month. (Aided awareness of all shrimp was high). One-quarter to one-third of respondents would be likely to purchase shrimp. Sixty percent or more of the respondents have eaten shrimp. 42% would purchase live or whole, unprocessed products from a local aquaculture farm. Respondents would travel approximately 27 miles to a local aquaculture farm. Likelihood to Visit Aquaculture Farm To determine the local market potential for an aquaculture initiative, it is important to first determine area residents= interest in visiting and purchasing aquaculture products from such an operation. However, it is important to remember that 31% of area residents indicated that they do not eat these types of products and need to be taken into consideration when calculating market potential. The information in Table 2 indicates how likely respondents are to visit a local aquaculture facility to purchase live or whole, unprocessed aquaculture products. Approximately 42% of the respondents would visit such a facility. Given this figure, there appears to be a significant number of potential consumers in the local area. Table 2. Likelihood to Buy Shrimp From Local Farm (n = 161) Response Percentage Very Likely 20.5% Somewhat Likely 21.7% Neither 2.5% Somewhat Unlikely 13.7% Very Unlikely 40.7% No Response 1.2% Using the reported likelihood to visit and purchase figures, it is possible to estimate the market potential in terms of likely visitors based on the area population figures. However, the total area population must be adjusted to reflect adult consumers since they are generally the

7 head of household. According to census data, approximately 23%-24% of the area population is less than 18 years of age. Therefore, the total population must be adjusted down to reflect the adult population. Additional analysis is needed to determine interest in purchasing live or whole, unprocessed shrimp. The first step is to determine how likely area residents are to purchase farm raised shrimp. The information contained in Table 2 provides insight into the likelihood of residents to purchase shrimp from a local aquaculture farm as well the estimated market potential in terms of people. A distance of 30 miles was used because residents indicated they would drive 27 miles to visit a local farm. 5 Table 3. Likelihood to Purchase Farm Raised Shrimp and Estimated Visitor Potential (Estimated Area Market) Product Likely to Purchase* Population within 30 miles (2,002,358)** Monthly onsumption (lbs)*** Shrimp 31.70% 32, *Percentage has been re-based to all respondent including those who were unlikely to purchase shrimp from a local aquaculture farm. This provides a more accurate representation of potential customers. ** Population used in calculating consumption by distance was derived from ensus Population estimates. *** Average Monthly consumption of shrimp as stated by survey respondents. The estimated shrimp market potential is estimated to be 67,627 pounds per month based on stated consumption and the number of likely consumers residing within 30 miles of the Hawkinsville farm. Again, these numbers are very encouraging but additional calculations are needed to derive the estimated consumption for the different species by distance. Direct to onsumer Market or Secondary Market The AED attempted to interview consumers at several identified ethnic markets in metropolitan Atlanta. However, only a few completed interviews were obtained due to language and communication problems as well as skepticism of potential respondents. To compensate for the lack of direct consumer interviews, the AED conducted a limited survey of hinese residents in the Athens area. The results should only be used as a guide due to the small number of competed surveys. According to the limited survey data, it appears that hinese residents in the Athens area are willing to drive about 30 miles to purchase live or whole, locally grown unprocessed seafood from an aquaculture farm. This is consistent with the people surveyed in the telephone survey.

8 6 Metro Atlanta Live or Whole Seafood Market The AED representatives visited eight ethnic food retailers in the eastern Atlanta metropolitan area. The retailers all carried seafood products with seven of the eight offering both live unprocessed and processed seafood. The AED conducted in-depth surveys with the food retailers= seafood department managers to determine product movement of shrimp, and their willingness to consider farm raised shrimp from a local supplier. All of the managers reported their suppliers were out of state. The seafood department managers all expressed interest in meeting and working with new local suppliers. The managers were looking for a consistent year-round supply of quality product that is competitively priced. Headless shrimp in these markets were selling for as low as $1.99/pound. These retailers want to purchase shrimp on a weekly basis year-round. After discussing their needs, it does not appear that supplying a large quantity of shrimp twice a year would benefit the ethnic retailers. Therefore, if the project wishes to sell shrimp in the ethnic retail and wholesale markets, a system to raise the shrimp year-round needs to be developed. If the shrimp is harvested only twice a year, even staggered by a couple weeks the markets would become saturated as large quantities of shrimp enter the market at one time. This would lead to a fall in shrimp prices. Another issue is that farm production competes with Georgia=s coastal harvesting during the same period. Restaurant Survey The AED surveyed high-end restaurants in the metro Atlanta area to determine the marketability of producing and retailing marine shrimp in Georgia. Ten restaurants responded with various statements: A year round supply is needed for a restaurant to be interested in switching suppliers The and count sizes are the desired size Prices ranged between $7.50 and $9.00 per pound for headless shrimp (which would be $3.75 to $4.50 for whole shrimp) Prefer fresh over frozen shrimp Eight (8) restaurants purchase 4,600 pounds monthly or an average of 575 pounds per restaurant per month. Extrapolating this data to all Atlanta high-end Seafood restaurants (38 establishments) and assuming each seafood restaurant uses an average of 575 pounds monthly, the total market is estimated to be 21,850 pounds of shrimp monthly.

9 Marketing onclusion 8 These results indicate that the Hawkinsville shrimp project will have a difficult time marketing to restaurants, ethnic markets, and wholesalers because the farm cannot supply them a product year around. In addition, the larger seafood restaurants and ethnic markets are wary of adding another vendor, especially one that offers a limited quantity, seasonal product. A potential market may be the direct to consumer market, where consumers travel to the pond and purchase directly from the farm. Economic Analysis This next section investigates the economic feasibility of producing marine shrimp in a 1 acre pond in Georgia. The cost figures and other assumptions were obtained through multiple meetings with the Department of Industry, Trade, and Tourism and their consultants. apital ost apital cost figures include equipment and structures for producing marine shrimp on the farm. Land costs are minimal and not included in this analysis. Working capital is included in the capital costs. Working capital are resources used to support a business until it begins to generate its own support, generally in the form of positive net revenues. Initial working capital is obtained from start-up and/or short-term loans. Enough capital is needed to cover expenses incurred by the business during the startup phases and slow sales periods to remain in operation. Enough working capital is needed to cover 6 months of operation until the shrimp are large enough for market sales. Table 4 indicates a total capital cost of $17,079. This does not include any land price. Table 4. apital ost for a 1 Acre Shrimp Facility Equipment $9,525 Working apital $7,554 Total apital $17,079 Fixed osts Total fixed costs are expenditures which do not change with the number of days used. Stated another way, it does not matter if the facility is used for one weekend or every weekend during the operation period; these cost remain the same. Fixed costs are consistent with the same costs occurring each period, whereas other costs are related to the level of use. Included in fixed costs are interest, depreciation, and taxes and insurance. The tax is property for the equipment and structure and not income tax. Economic depreciation is used to cover physical

10 deterioration of equipment. If helpful, depreciation can be thought of as annual average principal debt payment occurring if a 100% loan is structured for the entire useful life of the facility. Return on invested capital can be thought of as average annual interest payment for a loan capitalized over the anticipated useful life of the facility. Annual fixed costs associated with the shrimp production totaled $2,218. (Table 5). 9 Table 5. Fixed ost Total Per Pound Head On Taxes and Insurance $476 $.16 Depreciation - Equipment $1,361 $.45 Interest - Equipment $381 $.13 Total Fixed ost $2,218 $.74 Direct Labor Labor needed for the facility came from the Dr. Bill MacGraff and Jeff Peterson consultants working with Geogia s Department of Industry, Trade and Tourism. It was assumed that 3 hours of labor is needed daily for the entire grow out season (150 days) to feed and monitor the water. Additional labor was required during the harvest period of three days. The hourly rate was $11.25, consisting of $8 per hour and the remainder was payroll tax, workers comp and miscellaneous benefits (Table 6). Table 6. Labor ost Total Per Pound Head On Daily Labor $4,950 $1.65 Harvest Labor $792 $.26 Total $5,742 $1.91 Direct Shrimp ost Based on information provided by Dr. Bill MacGraff and Jeff Peterson, 160,000 shrimp larvae will be needed for the annual production process. The cost for the larvae are $10 per 1,000. Multiplying the 160 thousands needed by $10 create a larvae cost of $1,600 per acre.

11 10 Variable osts Other direct variable costs associated with this project include utilities, repairs, interest on working capital, and operating costs (Table 7). Positive relationships exist among the days used and the variable costs, although this is not linear. An increase in use increases the variable costs. This is seen significantly in the operating materials and larvae. A detailed list of these costs can be found in the Appendix. Table 7. Larvae and Variable ost Total Per Pound Head On Larvae ost $1600 $.53 Variable ost $8369 $2.79 Total $9,969 $3.32 Income Income for this project was derived by multiplying the price per sound by the total pounds produced (Table 8). This study utilized three different prices per pound $4, $6, and $9 to see the income obtained at the different levels. However, it should be noted the income figure assumes 100% of the produced product is sold. Table 8. Income for Shrimp Operation $4 Per Pound* $6 Per Pound* $9 Per Pound* Income $12,000 $18,000 $27,000 * 3000 Head on Pounds Harvested Total ost & Net Revenue Total costs can be determined by adding variable (labor, supplies, and operating cost) and fixed (administrative labor, depreciation, taxes and insurance) costs. Table 9 summarizes the total net revenue/loss costs. Table 10 summarizes per pound costs and returns at the different income levels.

12 Table 9. Projected Net Revenue/Loss 11 $4 Per Pound* $6 Per Pound* $9 Per Pound* Income $12,000 $18,000 $27,000 Labor $5,742 $5,742 $5,742 Variable $9,969 $9,969 $9,969 Fixed $2,218 $2,218 $2,218 Total ost $17,929 $17,929 $17,929 Net Revenue/Loss -$5,929 $71 $9,071 * 3000 Head on Pounds Harvested Table 10. Projected Net Revenue/Loss $4 Per Pound* $6 Per Pound* $9 Per Pound* Income $4.00 $6.00 $9.00 Labor $1.91 $1.91 $1.91 Variable $3.32 $3.32 $3.32 Fixed $.74 $.74 $.74 Total ost $5.98 $5.98 $5.98 Net Revenue/Loss -$1.98 $.02 $3.02 * 3000 Head on Pounds Harvested Sensitivity Analysis Net Revenue versus Budgeted ost In order to determine the potential viability and risk of a project, a sensitivity analysis is performed. The sensitivity analysis adjusts the budgeted cost by 5% increments to test net revenue of the operation if cost increased. Budget numbers included operating expenses (utilities, taxes, labor, and supplies), fixed costs (interest on start-up cost, depreciation), and income. Total costs are subtracted from income, resulting in net revenue/loss. This information is useful for decision planning and risk aversion, as costs are subject to change. Utilities for example, can fluctuate periodically through the year depending on supply of their inputs. The AED suggests allowing for a 10-15% over budgeted cost for this size project. Often, costs change after the start up of the business or the feasibility report. To ensure

13 Net Revenue/Loss all cost are covered, a buffer should be included. 12 Graph 1 indicates how the facility responds to an increase in cost at 5% intervals and the potential net revenue/loss incurred when costs fluctuate. Graph 1. hange in Net Revenue vs. hange in Budgeted ost at 3,000 pounds of production. $20,000 $15,000 $10,000 $5,000 $0 ($5,000) ($10,000) ($15,000) $14,083 $5,083 ($917) $13,222 $12,361 $11,500 $10,639 $9,778 $4,222 ($1,778) $3,361 $2,500 $1,639 $778 $8,917 $8,056 $7,195 $6,334 $5,472 ($2,639) ($1,805) ($83) ($2,666) ($944) ($6,083) ($3,500) ($4,361) ($7,805) ($3,528) ($5,222) ($8,666) ($6,944) ($9,528) 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% 125% Percent hange in ost $4 Per Pound $6 Per Pound $9 Per Pound Graph 1 demonstrates that neither the $4 nor $6 per pound at the maximum harvest rate of 3000 pound is profitable at the current cost or any increases.

14 Net Revenue/Loss 13 Graph 2. hange in Net Revenue vs. hange in Budgeted ost at 2,000 pounds of production. $10,000 $5,000 $0 ($5,000) ($10,000) $5,083 ($917) ($4,917) ($5,778) $4,222 $3,361 $2,500 $1,639 $778 ($1,778) ($2,639) ($3,500) ($4,361) ($5,222) ($6,639) ($83) ($6,083) ($6,944) ($7,500) ($10,083) ($8,361) ($9,222) ($10,944) ($944) ($1,805) ($2,666) ($3,528) ($7,805) ($8,666) ($11,805) ($9,528) ($12,666) ($15,000) ($13,528) 75% 80% 85% 90% 95% 100% 105% 110% 115% 120% 125% Percent hange in ost $4 Per Pound $6 Per Pound $9 Per Pound Graph 2 indicates that no prices are profitable at the current cost or modified cost when the yield is 2000 pounds. If cost could be reduced and prices were $9 per pound head on then the 2000 pound yield would be profitable. onclusion Due to the limited market and the high breakeven cost for the shrimp it will be difficult to create a profitable venture with marine shrimp. The yields need to be 3000 with prices in the $9 per pound with the head on to have any returns to the operation.

15 The enter for Agribusiness & Economic Development The enter for Agribusiness and Economic Development is a unit of the ollege of Agricultural and Environmental Sciences of the University of Georgia, combining the missions of research and extension. The enter has among its objectives: To provide feasibility and other short term studies for current or potential Georgia agribusiness firms and/or emerging food and fiber industries. To provide agricultural, natural resource, and demographic data for private and public decision makers. To find out more, visit our Web site at: Or contact: John McKissick, Director enter for Agribusiness and Economic Development Lumpkin House The University of Georgia Athens, Georgia Phone (706) caed@agecon.uga.edu The University of Georgia and Fort Valley State University, and the U.S. Department of Agriculture and counties of the state cooperating. The ooperative Extension Service offers educational programs, assistance and materials to all people without regard to race, color, national origin, age, sex or disability. An equal opportunity/affirmative action organization committed to a diverse work force. FR April 2003 Issued in furtherance of ooperation Extension Acts of May 8 and June 30, 1914, the University of Georgia ollege of Agricultural and Environmental Sciences, and the U.S. Department of Agriculture cooperating. J. Scott Angle, Dean and Director