Sink or Swim: Managing the Financial Risks of the Aquaculture Industry
01-16-2015 in Aquaculture
For anyone entering a new industry like Iowa aquaculture, the opportunities are great, but it’s vital to ask some key questions first.
“Do your homework,” said Allen Patten, a vice president with Farm Credit Services of America, who spoke at the 2014 Iowa Aquaculture Conference. “If you can answer these key questions, you’ll probably be good to invest.”
- Where is my existing operation today, in terms of production, labor, and finances? Does the operation just involve you? Perhaps you already have all the work you can handle. Maybe you have a son or daughter wanting to return to the farm. Aquaculture could offer an opportunity for him or her to get started.
- Is my existing operation profitable? A new farming enterprise won’t save a current business that’s struggling, Patten said.
- Am I in a position to take on additional risk? Talk to your lender first. Also, realize there’s nothing wrong with re-amortizing loans, if necessary, Patten noted.
- Do I have adequate cash/liquidity/working capital to invest in this new venture? Remember that fixed costs are often your biggest costs. Also, look into contracts for both the grower and the processor, Patten said. Pay attention to the length of the contract, and determine whether the contract guarantees a positive cash flow.
- Can I accept the risks that go along with a start-up industry? Unlike other livestock markets which are already established, aquaculture markets may need to be created, Patten said. The lack of fish processing capacity in Iowa can also be viewed as a risk, he added.
- What’s my contingency plan if this venture doesn’t work? If an aquaculture operation doesn’t pan out, determine ahead of time whether you can absorb the losses and/or additional debt in your existing operation.
Iowans have successfully navigated new industries before, from integrated swine operations to ethanol plants. While aquaculture is still its infancy at the venture capital stage, the future is bright, Patten said. “It’s a good time to be involved in aquaculture in Iowa, especially if you do your due diligence.”
To watch the video from the Iowa Aquaculture Conference, visit www.supportfarmers.com/aquaculture.
About the Coalition to Support Iowa’s Farmers
The Coalition to Support Iowa’s Farmers has helped more than 2,800 livestock and poultry farm families over the past 10 years successfully and responsibly grow their farms. CSIF helps families interpret rules and regulations, site new livestock and poultry barns, enhance relationships with neighbors, and implement best management practices for livestock and poultry farmers across the state of Iowa at no charge. For more information, call 800-932-2436 or visit www.supportfarmers.com.
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