Hauke L. Kite-PowellMarine Policy CenterWoods Hole Oceanographic InstitutionShelton, 7 February 2011

Business Plan Economic Model Start-up Capital Requirements Return and Payback Period Risk

Purpose Components

Concept

Market

Operations (biology, logistics, marketing)

Staffing

Financial Projections

http://www.lib.noaa.gov/retiredsites/docaqua/reports_miscellaneous/musselbusinessplan.pdf

Cash flow, year to year Costs

Longlines (purchase, installation, maintenance)

Expendables/supplies/seed

Boat operations

Staff salary

Other

Revenue

For each year:

New lines installed

Lines in operation

Lines stocked

Lines harvested

Harvest yield (lbs/line)

Boat days (stocking, maintenance, harvesting)

New longlines (installed cost) Expendables, supplies, seed Vessel fixed costs Vessel variable costs Staff salaries On shore costs (dock use, administrative,

insurance, permits, marketing, etc.)

Scale: 20 longlines (10 in year 1) Yield (maximum)

14,000 lbs per line (years 2, 3)

16,000 lbs per line (years 4, 5)

18,000 lbs per line (years 6 ->)

Scale: 20 longlines (10 in year 1) Installed cost: $6,000 per longline Expendables: $600 seed, $500 other per

longline per year

Boat:

second-hand, $25,000 upgrade in year 1

$100/day fixed costs (capital, maintenance, dockage, insurance)

$600/day variable cost (2x $250/day crew, $100/day fuel)

Onshore/adminstrative costs: $25,000/year

Boat utilization:

Longline deployment: 2 lines/day

Longline stocking: 6 lines/day

Longline maintenance: 12 lines/day, every two weeks

Longline harvesting: 1 line/day

longlines, 13%

seed & expendables

22%

vessel & crew, 40%

onshore/other, 25%

Major Cost Components

Long-term production cost: about $0.25/lb

Farmgate price ($/lb)

10-year project NPV @ 5% ($)

Internal rate of return (%)

Payback period (years)

0.30 -70,000 -- --

0.32 -20,000 -- --

0.34 30,000 7 8

0.36 80,000 11 7

0.38 130,000 15 7

0.40 180,000 18 6

0.45 300,000 26 5

Boat: full utilization => about 80 longlines, 600+ tons/year production

20 longline farm operation requires ~$230,000 in start-up capital

80 longline require close to $1 million

Risk and Return What is the likelihood that you will not make

a specified return (or positive NPV)? Risk = variability, uncertainty Risk factors are not necessarily the largest

cost components

Harvest yield

model results on previous slides assume consistent maximum yield production

In fact, yields will sometimes be lower – and there’s a non-zero chance of losing everything

Price

Mussel price in New England over the past ten years (NOAA data) has ranged from below $0.40/lb to above $0.90/lb

$85,000 expected NPV

25% chance of negative NPV

Longline mussel farming should be economically viable in New England if good production yields can be achieved

People and boat costs are major cost components

Yield and price are important risk factors Full utilization of boat requires a very large

operation – look for “part-time” boat

Funding provided by NOAA via MBL, and by the WHOI Marine Policy Center.

Thanks to Scott Lindell, Bill Silkes, and members of the Martha’s Vineyard and Rhode Island longline mussel projects.