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Aquaculture Economics & Management
ISSN: 1365-7305 (Print) 1551-8663 (Online) Journal homepage: https://www.tandfonline.com/loi/uaqm20
A discounted cash-flow analysis of salmon
monoculture and Integrated Multi-Trophic
Aquaculture in eastern Canada
Mark A. Carras, Duncan Knowler, Christopher M. Pearce, Adrian Hamer,
Thierry Chopin & Ted Weaire
To cite this article: Mark A. Carras, Duncan Knowler, Christopher M. Pearce, Adrian Hamer,
Thierry Chopin & Ted Weaire (2019): A discounted cash-flow analysis of salmon monoculture and
Integrated Multi-Trophic Aquaculture in eastern Canada, Aquaculture Economics & Management,
DOI: 10.1080/13657305.2019.1641572
To link to this article: https://doi.org/10.1080/13657305.2019.1641572
Published online: 27 Jul 2019.
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A discounted cash-flow analysis of salmon monoculture
and Integrated Multi-Trophic Aquaculture in
eastern Canada
Mark A. Carras
a
, Duncan Knowler
a
, Christopher M. Pearce
b,c,d
, Adrian Hamer
e
,
Thierry Chopin
e
, and Ted Weaire
f
a
School of Resource and Environmental Management, Simon Fraser University, Burnaby, British
Columbia, Canada;
b
Fisheries and Oceans Canada, Pacific Biological Station, Nanaimo, British
Columbia, Canada;
c
Department of Geography, University of Victoria, Victoria, British Columbia,
Canada;
d
Department of Fisheries and Aquaculture, Vancouver Island University, Nanaimo, British
Columbia, Canada;
e
Seaweed and Integrated Multi-Trophic Aquaculture Research Laboratory,
University of New Brunswick, Saint John, New Brunswick, Canada;
f
Kelly Cove Salmon, Blacks
Harbour, New Brunswick, Canada
ABSTRACT
We assess the financial performance of an Atlantic salmon
(Salmo salar) monoculture versus an Atlantic salmon, blue
mussel (Mytilus edulis), and sugar kelp (Saccharina latissima)
Integrated Multi-Trophic Aquaculture (IMTA) operation. Using
updated methods and models, we improve on earlier studies
of IMTA economics. A discounted cash-flow analysis was used
to assess the profitability of hypothetical monoculture and
IMTA operations over a 10-year period in the Bay of Fundy,
New Brunswick, Canada. The IMTA operation was more profit-
able, even when no price premium was included for its prod-
ucts. A 10% price premium for IMTA salmon and mussels
resulted in a substantially higher net present value for the
IMTA operation than for salmon monoculture. However, uncer-
tainty related to IMTA’s financial and environmental perform-
ance, as well as IMTA’s increased operational complexity, may
be barriers to IMTA adoption in Canada at present. As a result,
it is likely that IMTA must generate substantially greater
profits than salmon monoculture to stimulate investment.
Alternatively, declining salmon production in recent years may
encourage IMTA adoption in the future since it can provide
crop diversification and economic stability benefits. IMTA
research may benefit from alternative assessment methods
such as the real options approach that explicitly incorporate
uncertainty.
KEYWORDS
Economic analysis;
Integrated Multi-Trophic
Aquaculture; New
Brunswick; profitability;
salmon farming; sustainable
aquaculture
Introduction
Aquaculture is the world’s fastest growing food production sector, steadily
increasing in importance as a protein and nutrient source for a growing
CONTACT Duncan Knowler djk@sfu.ca School of Resource and Environmental Management, Simon Fraser
University, 8888 University Drive, Burnaby, British Columbia V5A 1S6, Canada.
ß2019 Taylor & Francis Group, LLC
AQUACULTURE ECONOMICS & MANAGEMENT
https://doi.org/10.1080/13657305.2019.1641572
global population. The industry is also an important economic driver for
developing economies and rural populations, including rural Canadian
coastal communities (Ridler, Robinson, Chopin, Robinson, & Page, 2006;
Food and Agriculture Organization of the United Nations, 2012,2014;
Nguyen & Williams, 2013). However, aquaculture operators are facing calls
to improve their societal, environmental, and economic performance to
ensure sustainable future growth and social license (Soto, Aguilar-
Manjarrez, & Hishamunda, 2008; Food and Agriculture Organization of the
United Nations, 2012,2016). One sustainable aquaculture technology that
has been investigated in Canada, and other countries, is Integrated Multi-
Trophic Aquaculture (IMTA). In IMTA, species from different trophic lev-
els are raised in proximity to one another with the organic and inorganic
wastes of one cultured species serving as nutritional inputs for others.
IMTA has been shown to reduce benthic ecological impacts in proximity
to Atlantic salmon farms, improve social perceptions of aquaculture, and
provide potential financial benefits for aquaculture producers via product
diversification, faster production cycles, and price premiums for IMTA
products (Alexander, Freeman, & Potts, 2016; Barrington, Ridler, Chopin,
Robinson, & Robinson, 2010; Chopin et al., 2001; Chopin & Sawhney,
2009; Ridler et al., 2007; Ridler & Ridler, 2011; Shi, Zheng, Zhang, Zhu, &
Ding, 2013; Whitmarsh, Cook, & Black, 2006).
IMTA research on Canada’s east coast has typically examined a three-
component system configuration that employs Atlantic salmon (Salmo
salar), blue mussels (Mytilus edulis), and kelps (Saccharina latissima and
Alaria esculenta) (Nguyen & Williams, 2013; Ridler et al., 2007). Ridler
et al. (2007) used a discounted cash-flow (DCF) analysis to examine IMTA
versus salmon monoculture profitability in the Bay of Fundy, New
Brunswick, Canada. They found that an IMTA operation employing
Atlantic salmon, blue mussels, and kelps resulted in a higher net present
value (NPV) than salmon monoculture at discount rates of both 5 and
10%. Their sensitivity analysis showed that IMTA farms can enhance resili-
ency and provide superior financial returns in the face of both a sustained
market price decrease of 12% over 10 years for salmon, and the loss of sal-
mon harvests due to common environmental perturbations. Though the
Ridler et al. (2007) study is widely cited in the IMTA literature, a paucity
of data at the time of the work precluded their definitive assessment of
IMTA’s economic potential.
A Scotland-based DCF study compared separate Atlantic salmon mono-
culture and blue mussel monoculture operations with a combined salmon/
mussel polyculture, or IMTA, operation (Whitmarsh et al., 2006). It found
that the NPV and internal rate of return (IRR) of salmon and mussel
IMTA was greater than those for both salmon and mussel monoculture
2 M. A. CARRAS ET AL.
operations at a discount rate of 8%, whether the monoculture profits were
considered individually or in combination. It also found, however, that
IMTA’s NPV turned negative when salmon prices were subjected to a sus-
tained drop of 2% per annum, even with a productivity enhancement for
mussels of 20% from co-culturing. In another study—based in Sanggou
Bay, China—kelp monoculture and scallop monoculture were compared
with a kelp and scallop IMTA operation (Shi et al., 2013). That study found
that IMTA had a higher NPV and benefit-cost ratio (BCR) than either the
kelp or scallop monoculture operations, as well as improved environmental
performance. Despite these encouraging results concerning IMTA profit-
ability, researchers and industry stakeholders continue to note that profit-
ability and economic analyses can be improved and investment uncertainty
reduced with higher quality data and more detailed analyses (Alexander,
Angel, et al., 2016; Crampton, 2016; Ridler et al., 2007; Ridler &
Ridler, 2011).
IMTA is likely to be justifiable for investors only if there is additional
profitability (Ridler & Ridler, 2011). Whitmarsh et al. (2006), Ridler et al.
(2007), and Shi et al. (2013) all suggested that higher profitability is pos-
sible with IMTA than with monoculture aquaculture farms, ascribing it to
higher growth rates of co-cultured extractive IMTA species, the ability to
spread some of the IMTA’s administrative and operational expenses over a
wider range of products (e.g. marketing and sales costs, salaries and wages,
utilities), and access to additional income streams. These authors also
acknowledged that IMTA investors would face higher capital investment
requirements and added operational complexity than traditional monocul-
ture operators, but did not attempt to address these issues explicitly. Other
studies suggested that the ongoing uncertainty around IMTA’s technical
feasibility, profitability, and increased technological complexity are limiting
its adoption (Alexander et al., 2015; Crampton, 2016). To help address
such uncertainty in the IMTA literature, we incorporated a higher capital
contingency requirement for IMTA to simulate the added costs of
increased operational complexity, along with updated research and real-
world financial data into our analysis that were not discussed by Ridler
et al. (2007). Our hypothesis is that a more detailed financial analysis will
provide better information for IMTA adoption decisions.
Methods
We used a capital budgeting and investment appraisal approach to compare
the financial performance of two hypothetical aquaculture projects located
in the Bay of Fundy, New Brunswick: an open net-pen, Atlantic salmon
monoculture farm and a salmon, blue mussel, and kelp IMTA operation.
AQUACULTURE ECONOMICS & MANAGEMENT 3
The biological, technical, economic, and financial data, figures, and
assumptions used in our study are anchored in academic, industry, and
government papers/reports/studies, statistical databases, and conversations
with industry operators and researchers. Capital budgeting models were
developed taking into consideration the DCF models employed by Ridler
et al. (2007) and Boulet, Struthers, & Gilbert (2010), as well as unpublished
kelp and mussel production models. Costs that were not included in these
mussel and kelp models (e.g. mooring system) were incorporated into our
IMTA model. Regulatory costs were based on those of doing business in
the province of New Brunswick, but Atlantic salmon prices were linked to
global commodity markets, necessitating the incorporation of international
data. We obtained additional data at an aggregated level from Cooke
Aquaculture Inc., a salmon-farming company in New Brunswick.
Like Ridler et al. (2007), we used DCF analyses to examine the profitabil-
ity of different investment opportunities and then calculate and compare
the NPV of the two investment options (monoculture versus IMTA). NPV
analyses allow potential investors to examine the net monetary return of a
project over its estimated useful life in present-day dollars. NPV analysis
assumes that the projects under investigation are mutually exclusive, “now-
or-never”decisions (Bierman Jr. & Smidt, 1993; Dixit & Pindyck, 1994;
Pearce & Nash, 1981).
The NPV calculation yields the present-day value of the net returns (or
losses) of a given project by discounting cash flows over the expected useful
life of the operation to the present using the following formula (Bierman
Jr. & Smidt, 1993):
NPV ¼X
n
t¼0
BtCt
ðÞ
1þrÞt
(1)
where nrepresents the useful life of the project, B
t
and C
t
are the project’s
benefits (revenues) and costs, respectively, and tis the year. The discount
factor is (1 þr)
t
, where ris the discount rate. The present value of benefits
minus costs in years 1 through nare summed to give the investment’s
NPV. The decision rule for an NPV analysis states that if the NPV is posi-
tive, the investment is worthwhile and should be pursued (Bierman Jr. &
Smidt, 1993; Hawkins & Pearce, 1971; Pearce, 1971; Pearce & Nash, 1981).
The discount rate used in an NPV calculation typically is the opportunity
cost of capital and represents the rate of return that could have been
earned on the proposed capital if it had been invested in the next best
investment opportunity. In our study, we set the discount rate equal to the
borrowing rate (marginal cost of financing) for a firm (Bierman Jr. &
Smidt, 1993). We also attempted to calculate the internal rate of return
(IRR), alternatively known as the return on investment (ROI). The IRR of
4 M. A. CARRAS ET AL.
a project is calculated as the discount rate at which NPV equals zero
(Bierman Jr. & Smidt, 1993). However, we encountered a multiple-root
problem (Hawkins & Pearce, 1971). Despite attempts to address it, we
decided to abandon the IRR calculation and employ the NPV analysis as
our investment appraisal method of choice.
Technical and biological assumptions
We assumed that both the monoculture and IMTA operations are located
on a hypothetical 30-ha coastal plot with a uniform site depth of 30 m and
with a useful project life of 10 years, the maximal lease length granted to
shellfish farmers in New Brunswick (Gail Smith, New Brunswick
Department of Agriculture, Aquaculture and Fisheries (NBDAAF), personal
communication). Mussels (M. edulis) and kelps (S. latissima) were assumed
to be harvested annually starting in year 1 with salmon harvested bi-annu-
ally beginning in year 2. All species were assumed to be harvested at the
end of the calendar year. Salmon were assumed to be grown on an 88-
week grow-out cycle (Boulet et al., 2010), leaving time for the mandatory
four-month fallowing period required by the NBDAAF (Gail Smith,
personal communication).
The weight of an individual fish at week swas represented by:
Ws¼Ws1þFs
Ns
1
FCR
"# (2)
where FCR represents the feed conversion ratio, W
s
is the average individ-
ual fish weight at week s,F
s
is the total weight of salmon feed used at week
s, and N
s
is the number of fish at week s. We used the formula above,
together with a growth function that was derived using data from a com-
mercial salmon monoculture operation on Canada’s east coast, to deter-
mine fish-feed costs at our hypothetical aquaculture operations.
We assumed that the IMTA site was optimally designed to ensure that
IMTA-cultured mussels and kelps obtained maximal productive growth
benefits derived from co-cultured Atlantic salmon. Our mussel model
incorporated mussel growth data from Lander, Barrington, Robinson,
MacDonald, & Martin (2004), which showed that mussels cultured in an
IMTA setting with salmon can increase their biomass production by up to
50% (compared to controls), thereby enabling more frequent harvests and
revenues. To be conservative, however, we allowed only a 20% increase in
mussel biomass from co-culturing in our model. Our kelp model used data
collected by the authors over a six-year period. We also developed capital
costs for the mooring and anchoring of kelp and mussel rafts, which were
not considered in the original models. Finally, we conservatively assumed
AQUACULTURE ECONOMICS & MANAGEMENT 5
there were no biological/economic benefits, such as potential growth bene-
fits or labor savings, from mussel and kelp co-culture.
We initially wanted to examine the impact of reducing salmon produc-
tion to accommodate additional species at the lease site. Discussions with
industry veterans and researchers, however, revealed that salmon farmers
on Canada’s east coast would not be willing to reduce their total salmon
production to accommodate IMTA since salmon is too valuable for existing
operators (Food and Agriculture Organization of the United Nations, 2016;
Gregor Reid, Fisheries and Oceans Canada, personal communication; Ted
Weaire, personal observation). Accordingly, we configured this study’s
hypothetical aquaculture operations so that the total amount of salmon
produced on site was not reduced with the addition of kelps or mussels,
and the salmon cage configuration, mooring system, and costs were
unchanged in both models. Key technical and biological data and assump-
tions employed are detailed in Table 1 and an overhead schematic of the
IMTA site layout is shown in Figure 1.
Economic and financial assumptions
All values are presented in 2016 US dollars. Data expressed in Canadian
prices for years prior to 2016 were converted to 2016 US dollars using the
Bank of Canada’s online inflation calculator. In keeping with recommended
best practice in capital budgeting, no financial costs (e.g. depreciation,
interest charges on working capital) were included in our DCF (Bierman
Jr. & Smidt, 1993). All capital costs were assumed to be incurred in year 1
with no replacement capital assumed over the project life cycle and no sal-
vage value at the end of the project. All harvested species were assumed to
be sold at farm-gate prices. Following Ridler et al. (2007), we assumed dis-
count rates of 5 and 10%. Operating losses in year t-1 were carried forward
to year tto reduce total taxable income at year t, in accordance with con-
ventional taxation in Canada (Canada Revenue Agency, 2017).
Managerial costs for IMTA were estimated to be higher than salmon mono-
culture due to IMTA’s greater technological complexity (Ridler et al., 2007;Shi
et al., 2013; Whitmarsh et al., 2006). Due to the experimental/pilot-project
nature of existing IMTA efforts, however, real-world costing data are lacking
(Ridler et al., 2007). Therefore, we accounted for higher managerial and oper-
ational uncertainty in IMTA by increasing the capital contingency requirement
in the capital budget models from 10% for salmon monoculture to 15% for
IMTA. This is the same approach taken by Boulet et al. (2010) in their examin-
ation of a more complex, land-based recirculating aquaculture system (RAS)
versus a traditional salmon monoculture operation. They assumed a 20% cap-
ital contingency for RAS compared with 10% for salmon monoculture, but
6 M. A. CARRAS ET AL.
IMTA has less technical complexity than RAS, so a midpoint between these
two assumptions was taken in the present study.
Mooring line lengths used to inform mooring system costs were calcu-
lated based on a proposed 30-m depth site and proprietary mooring infor-
mation for aquaculture farms in the same area. The costs for mooring lines
and associated hardware were provided by Cooke Aquaculture Inc. and are
based on internal pricing used by Cooke Aquaculture Inc. in its business
modeling. However, we increased the costs of the mooring system by 25%
in our modeling to provide an estimate of the fair market value for
the equipment.
Table 1. Technical and biological capital-budgeting parameters for salmon, mussels, and kelps
(2016 US prices).
Item Value Description Source
Salmon (Salmo salar)
Number of salmon cages 12 12 (6 2) 160-m circumference
salmon cages and 76-m grid array
–
Initial number of smolts 800,000 Number of fish at beginning of
production cycle
–
Initial weight per smolt 0.075 kg –Boulet et al., 2010
Feed conversion ratio 1.25 Amount of feed ingested and
converted into biomass (e.g.
1.25 kg of feed per 1kg of flesh)
Ridler et al., 2007
Mortality rate, salmon 10% Fish mortality over harvest period (as
% of initial number of smolts)
Marine Harvest, 2015
Live weight percentage
after gutting, salmon
83% Portion of fish for sale after gutting
(as % of live weight)
Marine Harvest, 2012
Live weight at
harvest, salmon
5.85 kg Weight of fish prior to head-on-
gutted (HOG) processing
1/
Mussels (Mytilus edulis)
Number of mussel rafts 11 Quantity of 32-m diameter mussel
rafts on IMTA farm site
–
IMTA productivity gain 20% Percentage of production increase
(harvestable mass) over
nonintegrated mussel
farm operations
1/
In-sock mortality rate
per month
1.39% Percentage of monthly mortalities of
socked mussels
1/
Processing loss/waste 10% Percentage of total live weight at
harvest lost during
harvest activities
1/
Number of mussels per
meter of socking
500 –1/
Mussels harvest per
meter of sock
5.875 kg per annum Total weight of mussels per meter of
sock at time of harvest,
annual cycle
1/
Weight of mussels
at harvest
11.75 g Weight of 55-mm mussels at harvest 1/
Kelps (Saccharina latissima)
Number of kelp rafts 5 70-m x 30-m kelp rafts (occupying
0.21 ha/raft)
1/
Number of ropes per
kelp raft
36 35-m ropes 1/
Fresh weight per meter
of rope
15 kg Used to calculate S. latissima dry
weight and revenues
1/
Drying factor 10% Conversion of fresh weight (wet
weight) to dry weight
1/
1/: Authors’unpublished data.
AQUACULTURE ECONOMICS & MANAGEMENT 7
Regulatory costs were based on NBDAAF-estimated application costs
(Gail Smith, personal communication). Labor rates were reflective of real
wages at Cooke Aquaculture Inc. We assumed that salmon and IMTA
operations required six laborers and one site manager over the project life
cycle, with the site manager earning an annual salary and hourly wages
being paid at 37.5 hours per week for 45 weeks per year for each laborer.
Wages were assumed to be the same for salmon monoculture and IMTA.
Additional labor costs associated with IMTA—due to kelp and mussel raft
building, deployment, and harvesting activities—were built into the mussel
and kelp models. Tables 2–5summarize key capital cost and variable cost
information. Variable costs not included in Table 3, but included in the
capital budgeting models, are harvesting costs, chemical and vaccination
costs, and diving costs—which are expressed on a head-on-gutted, pound-
per-harvest basis (Steve Smith, Cooke Aquaculture Inc., personal communi-
cation)—as well as regulatory compliance and fuel costs. Total salmon feed
expenses were dependent on the salmon production model developed using
the technical and biological parameters above.
Investment appraisal and sensitivity analyses
The base-case scenario uses the biological, technical, and financial assump-
tions articulated above to forecast costs and revenues over a 10-year time
Figure 1. Overhead view of a salmon, mussel, and kelp Integrated Multi-Trophic Aquaculture
(IMTA) farm design. Note: The salmon monoculture site would have the same salmon cage grid
as the IMTA site, but would not include the mussel and kelp rafts.
8 M. A. CARRAS ET AL.
horizon for salmon monoculture and IMTA. In the base-case production
scenario, adult salmon reach a live weight of 5.85 kg at harvest, with a sin-
gle production cycle yielding 4212 tonnes of salmon and revenues of
$23,282,896 every two years, including a four-month fallow period. The
IMTA base case includes the same salmon costs and revenues, as well as
annual harvests and sales of 9.45 tonnes dry weight of S. latissima worth
$249,752 and 530 tonnes of mussels worth $583,664.
The impact of salmon price on IMTA operations has been explored by
Ridler et al. (2007) and Whitmarsh et al. (2006) and shown to be an
important consideration regarding the overall profitability of integrated
aquaculture systems, as discussed earlier. Though farmed salmon prices
continue to remain high and show an overall upward trend, farmed salmon
is still an agricultural commodity susceptible to rapid price spikes or
declines (see Figure 2). We conducted two sensitivity analyses to examine
(i) an immediate and sustained 10% drop in the price of salmon over a 10-
year period, as well as (ii) a 2% drop per annum in the price of salmon
over a 10-year period.
IMTA price premiums were not addressed by Ridler et al. (2007),
Whitmarsh et al. (2006), or Shi et al. (2013), but market studies and
Table 2. Key economic and financial parameters for salmon monoculture and Integrated
Multi-Trophic Aquaculture (2016 US prices).
Item Value Description Source
Price per smolt $2.43/smolt Price per 75-g smolt Ridler et al., 2007
Atlantic salmon selling price $5.03/kg Price of salmon, farm
gate (HOG)
IndexMundi.com, 2016
Mussel selling price $1.10/kg Bartsch et al., 2012
Kelp (S. latissima)
selling price
$26.43/kg Selling price is per kg of kelp,
dry weight
1/
Federal tax rate 15% –Richards & Gowins, 2017
New Brunswick provincial
tax rate
14% –Canada Revenue
Agency, 2016
2016 USD: CAD
exchange rate
0.755107 Average 2016 value of 1 CAD
in USD
www.canadianforex.ca
1/: Authors’unpublished data.
Table 3. Key variable cost indicators for salmon monoculture and Integrated Multi-Trophic
Aquaculture (2016 US prices).
Item Value Description Source
Farm-site manager $47,572 per annum Annual salary, based on
CAD 63,000/annum
Cooke Aquaculture Inc.
Farmhand (laborer) $12.80 per hour Hourly wage, based on CAD
17.00/hour
Cooke Aquaculture Inc.
Net cleaning and
maintenance
$108,953 per annum Net cleanings occur
monthly and costs
incorporate a hourly
barge rental and
two laborers
Cooke Aquaculture Inc.
Cost of salmon feed $1,006 per tonne –Boulet et al., 2010
AQUACULTURE ECONOMICS & MANAGEMENT 9
Table 4. Capital cost summary for salmon monoculture (2016 US prices).
Item Value Description Source
Net-pen cage system $453,064 6 2 salmon grid and 160-m
circumference cage system
Cooke Aquaculture Inc.
Service and crew boat $113,153 Jackson Craft Boulet et al., 2010
Fork lift $19,822 1/
Feed barge $1,887,768 AKVA
Feed monitoring system $101,939 AKVA
Miscellaneous fish
culture equipment
$247,059 Graders, fish pumps, feeding
equipment, etc.
Boulet et al., 2010
Nets $1,016,676 Holding and predator nets Cooke Aquaculture Inc.
Mooring system $395,152 Compensator buoys, lift lines,
mooring lines, chains, etc.
Cooke Aquaculture Inc.
Capital contingency (10%) $423,463
Total capital costs $4,658,096
1/: Authors’unpublished data.
Table 5. Capital cost summary for Integrated Multi-Trophic Aquaculture (IMTA)
(2016 US prices).
Item Value Description Source
Salmon (Salmo salar)
Net-pen cage system $453,064 6 2 salmon grid and 160-
m circumference
cage system
Cooke Aquaculture Inc.
Service and crew boat $113,153 Jackson Craft Boulet et al., 2010
Fork lift $19,822 1/
Feed barge $1,887,768 AKVA
Feed monitoring system $101,939 AKVA
Miscellaneous fish
culture equipment
$247,059 Graders, fish pumps,
feeding equipment, etc.
Boulet et al., 2010
Nets $1,016,676 Holding and predator nets Cooke Aquaculture Inc.
Mooring system $395,152 Compensator buoys, lift
lines, mooring lines,
chains, etc.
Cooke Aquaculture Inc.
Mussels (Mytilus edulis)
Mussel raft mooring system $130,975 1/
Mussel and spat rafts $433,622 1/
Socking and
grading equipment
$33,300 1/
Predator net $71,060 1/
Labor associated with initial
capital outlay/raft
construction
$33,496 1/
Kelps (Saccharina latissima)
Kelp raft mooring system $61,001 1/
Truck $20,000 1/
Bonar ice chests $12,000 1/
Raft piping $20,670 1/
Kelp dryer $30,800 1/
Refrigerated room $6,980 1/
Labor and vessel costs
associated with initial
capital outlay/setup
$7,270 1/
Lab culture system $26,583 1/
Capital contingency (15%) $768,359 1/
Total capital costs (IMTA) $5,890,749
1/: Authors’unpublished data.
10 M. A. CARRAS ET AL.
consumer preference/attitudinal surveys conducted in communities in
Canada, the USA, and Europe indicate that consumers are willing to pay
more for IMTA products than for their conventionally-produced counter-
parts. Price premiums estimated in various studies range from 10% for sal-
mon and mussels to 24–36% for oysters (Bartsch, Chopin, & Robinson,
2012; Bunting, 2008; Kitchen, 2011; Ridler & Ridler, 2011; Shuve et al.,
2009; Whitmarsh & Palmieri, 2011; Yip, Knowler, Haider, & Trenholm,
2017). This willingness to pay more for IMTA products is expected to
apply to North American and European consumers, where there is a strong
demand for sustainable seafood (Bartsch et al., 2012; Organic Monitor,
2014; Ridler et al., 2007). A sensitivity analysis has been included in our
study to examine the effect on the profitability of a 10% price premium on
IMTA salmon and mussels. We also examined the impact of losing one
harvest of salmon to disease or other natural disturbances (e.g. storm
events) on NPV in scenarios with and without price premiums on IMTA
salmon and mussels. The harvest was assumed to be lost in the sixth year
of the project.
Results
The base-case scenario compares salmon monoculture and an IMTA oper-
ation with no IMTA price premiums. Considering just the share of reve-
nues attributable to each species in the base-case IMTA scenario reveals
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
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Oct-14
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Apr-15
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Apr-16
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Jan-17
Date
US Dollars per kg
Figure 2. Price of farmed salmon in US dollars per kilogram (July 2011–January 2017) (export
price of Norwegian farm-bred Atlantic salmon (IndexMundi, accessed: April 15, 2017)).
AQUACULTURE ECONOMICS & MANAGEMENT 11
that an IMTA aquaculture operation would generate 93.2% of total reve-
nues from salmon production (Figure 3). Assuming discount rates of 5 and
10%, the IMTA operation has an NPV that is 5.9 and 5.7% higher, respect-
ively, than the salmon monoculture farm with no price premium included
(Table 6a), and 26.3 and 27.3% higher, respectively, with the inclusion of a
10% price premium on IMTA salmon and mussels (Table 6b).
We next consider a production scenario in which salmon monoculture
and salmon within IMTA operations are subjected to a mortality event.
This loss is assumed to occur in year 6 of operations and to wipe out an
entire salmon harvest, but leave other species unaffected. Under this scen-
ario, and again assuming discount rates of 5 and 10%, the IMTA operation
has an NPV that is 9.5 and 9.4% higher, respectively, than salmon mono-
culture if there is no price premium (Table 6c), and 36.5 and 38.6% higher,
respectively, if a 10% price premium on IMTA salmon and mussels is
included (Table 6d).
The final two production scenarios examine the impact of a salmon price
decline on the salmon monoculture and IMTA operations. Firstly, we sub-
jected our hypothetical aquaculture operations to a one-time 10% decline
in the market price of salmon that was assumed to persist for the entire
period. Assuming 5% and 10% discount rates, the NPVs for salmon mono-
culture are reduced from the base case by 19.4 and 20.5%, respectively,
while those for IMTA declined by 18.3 and 19.3%, respectively (comparison
of Table 6a to Table 6e). If instead, salmon sales are subjected to a drop of
2% per annum in their market price, then assuming 5 and 10% discount
rates, salmon monoculture NPVs decline from the base case by 20.5 and
20.3%, respectively, while the NPVs for IMTA drop by 19.4 and 19.2%,
respectively (comparison of Table 6a to Table 6f). Comparing salmon
monoculture and IMTA, the latter earns a higher NPV than monoculture
93.2%
4.8% 2.0%
Salmon
Mussels
Kelp
Figure 3. Average percentage share of the present value of total revenue in the base-case,
3-component Integrated Multi-Trophic Aquaculture (IMTA) operation by component (10 years,
2016 US prices, 5% discount rate).
12 M. A. CARRAS ET AL.
regardless of the declining price scenario or discount rate (from 7.2 to
7.4% higher; Table 6e and 6f).
Discussion
Our results substantively agree with those of Ridler et al. (2007), namely that
the net financial returns from salmon, mussel, and kelp IMTA on the east
coast of Canada are superior to those from salmon monoculture when it is
assumed that the quantity of salmon produced remains unchanged after
IMTA adoption. This is intuitive since if mussels and kelps are added to an
existing salmon monoculture operation to create an IMTA farm, with no
changes to the production schedule or size of the salmon harvest, and if the
revenues of mussel and kelp sales exceed their costs of production, IMTA
will have a higher NPV than salmon monoculture. Furthermore, our results
suggest an additional opportunity for higher returns if there is a price pre-
mium on salmon produced by IMTA. We did not examine differences in
the rate of return on investment for salmon monoculture and IMTA scen-
arios, as this performance measure could present more complex outcomes.
Canada’s aquaculture industry now has pilot-scale experience with
IMTA, and Canadian studies have suggested positive financial results and
consumer attitudes toward IMTA (Barrington et al., 2010; Ridler et al.,
2006,2007). Similar conclusions have been drawn by researchers in Europe
and Asia (Alexander, Angel, et al., 2016; Alexander, Freeman, et al., 2016;
Shi et al., 2013; Whitmarsh et al., 2006). Altogether, with the results of our
Table 6. Net present values for hypothetical salmon monoculture and Integrated Multi-Trophic
Aquaculture operations in eastern Canada (10 years, 2016 US prices).
Discount rate Salmon monoculture 3-component IMTA
Percent difference, IMTA vs.
monoculture
(a) Base-case monoculture and IMTA results
r¼5% $32,096,556 $33,974,817 5.9%
r¼10% $23,649,913 $24,998,840 5.7%
(b) Base-case monoculture and IMTA results, with 10% price premium on salmon and mussels
r¼5% $32,096,556 $40,538,598 26.3%
r¼10% $23,649,913 $30,106,888 27.3%
(c) Loss of salmon harvest in year 6, without 10% price premium on salmon and mussels
r¼5% $19,760,976 $21,639,238 9.5%
r¼10% $14,318,676 $15,667,602 9.4%
(d) Loss of salmon harvest in year 6, with 10% price premium on salmon and mussels
r¼5% $19,760,976 $26,969,461 36.5%
r¼10% $14,318,676 $19,842,526 38.6%
(e) Impact of 10% immediate drop in salmon price sustained over 10-year project period on salmon
monoculture and IMTA
r¼5% $25,869,878 $27,748,140 7.3%
r¼10% $18,813,010 $20,161,937 7.2%
(f) Impact of 2% drop in salmon price per annum on salmon monoculture and IMTA
r¼5% $25,512,591 $27,390,853 7.4%
r¼10% $18,850,404 $20,199,331 7.2%
AQUACULTURE ECONOMICS & MANAGEMENT 13
study, this body of research and experience suggests that the net financial
return for a salmon, mussel, and kelp IMTA operation can exceed that of
salmon monoculture. In addition, IMTA has been predicted/shown to have
environmental benefits in terms of reduction in dissolved inorganic
nutrients and benthic particulate organic matter (Cubillo et al., 2016;
Fossberg et al., 2018; Hadley, Wild-Allen, Johnson, & Macleod, 2018;
Hannah, Pearce, & Cross, 2013; Shpigel et al., 2018; Zamora, Yuan, Carton,
& Slater, 2018). Laboratory studies have shown how various filter-feeding
shellfish can ingest/digest salmon lice (Molloy et al., 2011; Webb et al.,
2013), which may be another environmental benefit of IMTA (but see
Byrne et al. (2018) who showed no significant impact of shellfish on lice in
the field). Also, consumers are likely to pay more for IMTA products (Yip
et al., 2017).
Given all these findings and the accumulated pilot-scale experience with
IMTA in the Canadian aquaculture industry, why has IMTA not yet been
adopted at a commercial scale to maximize investment returns? Our work-
ing hypothesis is that previous studies may have underestimated the costs
of IMTA. To test this, we attempted to compare the updated costs in our
study with the Ridler et al. (2007) modeling costs, but the limited technical
information provided precluded such a comparison. The challenges we
encountered when comparing our costs with those of similar economic
studies reported in the aquaculture literature stress the importance of
including as much detail on modeling assumptions and results as possible
in future investigations.
To test the validity of our modeling results, we calculated our capital
cost per tonne of salmon produced and attempted to compare it with the
same value from other studies, excluding the Ridler et al. (2007) study for
which the necessary data were not available. We considered, but ultimately
rejected, comparisons with Whitmarsh et al. (2006) and Liu & Sumaila
(2007) due to a lack of data in the former paper and a lack of a comparable
production cycle in the latter. Instead, we made our comparison with
Boulet et al. (2010), who studied ocean net-pen Atlantic salmon monocul-
ture and a land-based closed containment Atlantic salmon farm. Even
though these researchers based their study on Canada’s west coast, they
provide a much more detailed accounting of their assumptions, making for
easier comparison.
Boulet et al. (2010) assumed total estimated capital costs of $4,762,587
and a 2500-tonne biennial harvest cycle for a 12-cage salmon monoculture
operation. Capital cost per tonne of salmon produced was then calculated
by dividing total capital costs by total tonnes of live salmon produced per
harvest cycle. On this basis, Boulet et al. (2010) demonstrated a capital cost
per tonne of salmon produced of $1905 compared to our study’s $1106.
14 M. A. CARRAS ET AL.
This large discrepancy suggests that we underestimated capital costs in our
salmon model. Our study’s cost estimates, however, reflect detailed cost
information provided by industry players, as well as previous academic
studies and we used conservatively high-cost estimates where there was an
option. Based on conversations with industry professionals, it is our view
that the salmon farm costing presented in our model is accurate. One rea-
son that may help account for discrepancies between the two studies is the
difference in the Canada-US exchange rates used in Boulet et al. (2010)
and in our study, which were 1.05:1 and 0.75:1, respectively. Boulet et al.
(2010) also presented their study in Canadian prices, while our costs are
presented in US prices (we have converted their figures into US prices for
this study). Another possible reason for the difference could be variations
in the quotes received from industry suppliers. Ultimately, we believe our
capital cost estimates are valid and do not provide an explanation for the
lack of adoption of IMTA in the aquaculture industry in Canada.
If under-estimation of capital costs does not explain the slow embrace of
IMTA in Canada, an alternate explanation is needed. Crampton (2016)—
who undertook interviews with stakeholders from Canada’s aquaculture
industry, government, and environmental non-governmental organiza-
tions—suggested that qualitative considerations related to uncertainty may
be at fault. He implied that Canadian stakeholders have doubts about
IMTA’s profitability, ecological sustainability, technical viability, and add-
itional operational complexity. Technical uncertainty and insufficient
organizational and managerial expertise with IMTA were seen as the key
barriers to IMTA adoption.
Given the concerns expressed by Crampton (2016), real options analysis
(ROA) provides an alternative framework that may help explain the diver-
gence between financial analyses of IMTA and the qualitative concerns
identified above. ROA is an investment appraisal technique that highlights
three interacting aspects of investments that influence investor decisions
that are not included in neoclassical investment theory, including NPV
analysis (Dixit & Pindyck, 1994). The first aspect is that investments are
either partially or totally irreversible, and therefore investment costs are at
least partially lost. The second is that the future cash flows of investment
are uncertain. The third is that investors can choose when they want to
invest based on any given number of factors (e.g. foreign exchange rates,
interest rates, waiting for further information to reduce uncertainty, etc.).
The ROA critique of NPV highlights implicit, unstated assumptions in
NPV analysis, namely that investment is either reversible or, if irreversible,
the decision is “now or never”. This assumption implies that the investor is
precluded from waiting and learning more about a given investment oppor-
tunity before making an investment decision. Dixit and Pindyck (1994)
AQUACULTURE ECONOMICS & MANAGEMENT 15
argued that the act of investing is effectively exercising an investor’s option
to invest and eliminates the possibility and potential value of waiting for
further information to assess the investment opportunity.
To address uncertainty, investors often use a hurdle rate or required rate
of return on investment (i.e. IRR or ROI), which investment opportunities
must meet to be pursued (Dixit & Pindyck, 1994). Summers (1987)
observed that investment hurdle rates have been shown to range from 8 to
30%, with a median of 17%. Anderson and Newell (2004) indicated hurdle
rates of 50–100% for manufacturing plants to invest in energy-efficiency
projects, with uncertainty over the performance and staffing requirements
of new technology as possible investment-deterring factors. Uncertainty
associated with IMTA profits, technological viability, and regulatory policy,
as identified by Crampton (2016), appear to fit within the ROA framework
as important investor considerations that are not captured by traditional
NPV analysis. Salmon farmers in Canada may simply see a greater benefit
in delaying investment to wait for better technological certainty or improv-
ing regulatory or economic conditions, meanwhile continuing to sell
farmed salmon produced in net-pen monoculture operations. Future
research on IMTA adoption in Canada may benefit from exploring the
ROA approach further.
An additional consideration is the contribution from salmon production
versus that of other species in IMTA. The disproportionately large share of
revenues accruing to salmon production with IMTA suggests that a poten-
tial investor comparing salmon monoculture and IMTA may view the add-
itional revenues from other species under IMTA as not worth the
additional operational complexity, capital expenditure, and corresponding
risk. This possibility suggests that the relative proportion of an aquaculture
component’s contribution to total farm revenues may be a relevant factor
influencing investor decision-making when comparing potential monocul-
ture and IMTA investments.
Nonetheless, suppliers and merchants throughout North America have
indicated an interest in selling IMTA products (Alexander, Angel, et al.,
2016; Bartsch et al., 2012). However, consumers need to be educated about
IMTA to help ensure IMTA products are seen as socially acceptable, sus-
tainable, and safe, therefore to induce the potentially lucrative IMTA
premium and reduce investor risk (Alexander, Angel, et al., 2016; Bartsch
et al., 2012; Ridler et al., 2007; Shuve et al., 2009). IMTA’s relative novelty,
the increasing importance of sustainable seafood to consumers, and the
desire of vendors to obtain an IMTA price premium suggest that seeking
eco-certification and developing educational and outreach programs for
seafood vendors and consumers would be desirable (Bartsch et al., 2012;
Kitchen, 2011; Yip et al., 2017). Packaging IMTA products with clear eco-
16 M. A. CARRAS ET AL.
certification labeling may be necessary, though not necessarily sufficient, to
increase demand for more sustainable aquaculture products (Nguyen &
Williams, 2013). Nobre, Robertson-Andersson, Neori, & Sankar (2010) note
that adoption of IMTA may lead to greater benefits for the public than for
aquaculture operators. However, an enabling institutional environment,
including the internalization of the environmental costs of aquaculture, is
critical to supporting IMTA initiatives (Bunting & Shpigel, 2009). Such an
enabling policy framework could help encourage IMTA investment in
Canada. So what would such an enabling framework look like? According
to Crampton (2016), factors that could help to promote industry adoption
of IMTA, by order of importance, are: (1) IMTA-only site leases, (2) tech-
nical and knowledge transfer, (3) corporate tax credits, (4) nutrient taxes
on salmon feed with lower tax rates for IMTA operators, and (5) subsidies.
Based on the uncertainty of IMTA adoption for Canadian aquaculture
investors, it is likely that IMTA must generate significantly greater profits
than net-pen salmon monoculture to stimulate investment (Crampton,
2016). Our study suggests that only scenarios where price premiums can be
attained for IMTA products would yield significantly higher profits over
salmon monoculture. A quantitative analysis using ROA to incorporate the
effect of uncertainty on IMTA investment may provide an even more
accurate assessment of adoption potential in Canada.
Conclusions
Despite recent studies demonstrating the positive financial results of IMTA
systems, their adoption at a commercial scale in Canada and other western
countries is slow. It is, however, worth noting that these studies span only
the last decade (since Ridler et al., 2007) and that it always takes time for
the knowledge acquired in academic studies to be transferred to industry,
investors, and regulators.
Adoption of IMTA is a challenge, given the present management
approach of aquaculture companies in Canada, as well as the current policy
and regulatory environment (both provincially and federally, in the case of
Canada). This appears to be limiting IMTA adoption in Canada. The
IMTA concept is new in the western world and will require a new
approach and an understanding of how aquaculture farms operate and
interact with ecosystems. By way of comparison, agriculture still needs
reforms after centuries of evolving practices. Recognizing that the major
player in the New Brunswick aquaculture industry (representing approxi-
mately 85% of the operations) is not developing IMTA at a commercial
scale and that the only other player is only observing, it is easy to reach
the conclusion that industry adoption of IMTA is hesitant.
AQUACULTURE ECONOMICS & MANAGEMENT 17
It should also be made clear that the initial configuration of the hypo-
thetical site considered in this study would generate a very small value of
production for mussels and kelps (6.8% of revenues), compared to an over-
whelming value of salmon production (93.2% of revenues). Should IMTA
be implemented at a larger scale, mussel and kelp production could cer-
tainly increase and so might their contribution to the total revenue of a
company or region. In our view, this is the future of IMTA, to be imple-
mented within an integrated coastal area management approach, beyond
the restrictive limits of existing salmon sites. Furthermore, since salmon
production has declined in recent years in New Brunswick, crop diversifica-
tion could provide economic stability and be an incentive for industry
development, making IMTA a more attractive practice in the future.
Funding
We greatly appreciate the support this work received from the Atlantic Canada
Opportunities Agency –Atlantic Innovation Fund and the Natural Sciences and
Engineering Research Council of Canada (NSERC) strategic Canadian Integrated Multi-
Trophic Aquaculture Network (CIMTAN), in collaboration with its partners, Fisheries and
Oceans Canada, the University of New Brunswick, the New Brunswick Research and
Productivity Council, Cooke Aquaculture Inc., Kyuquot SEAfoods Ltd., Marine Harvest
Canada Ltd., and Grieg Seafood BC Ltd.
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