Finding that Ideal Location for your Vertical Farm | Aquaculture Economics
In the previous blog post, we have discussed how Recirculating Aquaculture Systems are used to farm mud crabs. One of the most popular questions from our course attendees are ‘where should I set up my mud crab farm?’. Upsides of being near the coast as compared to an urban area include easy access to seawater. While some operators prefer to be located near the urban areas and close to the client their serve. Very often, the optimum location will be based on one of these several factors that we will be discussing today in this blogpost.
Body 1- Rental Cost versus Selling Price
The first point of consideration is to evaluate the cost associated with the rental. The rental cost can be a substantial component of the operating cost for your business. This is exceptionally true for places like Singapore, Jakarta, Surabaya, etc. The closer you position your farm to the end consumer, the higher you will have to compete with other businesses. Nevertheless, being close to consumers has its own benefits. The first advantage includes being able to sell your crabs directly to end consumers. The mud crab trade is traditionally a business-to-business (B2B) trade, it is only with recent advancement in the RAS technology that seafood distributors are tapping into the business-to-consumer (B2C) market. Being in the heart of the city increases the visibility of your farm, and enhances the overall consumer experience. This is evident as many crab themed restaurants have expressed interest in setting up a farm right beside their current business.
Body 2- Distribution Cost, Volume and CAPEX for RAS facility
For operators that plan to cater to an export market to Singapore, Hong Kong, and China, and do not intend to supply to the domestic market it might be better to set-up near the coast. Operators targeting the export market would often require volumes (300-500kg/day) to bring down the associated freight cost. Therefore, they are also commonly located near the coast and rely on the natural seawater on their production site. Positioning your farm away from the coast would translate to a higher need to recirculate the water. Although frequent water changes can be done to maintain water quality, very often it is not economical to do so. Hence, operators would have to invest a RAS facility to bring down future operating cost. However, most operators find it hard to come up with the capital cost needed for the RAS facility. Financial institutions are also reluctant to provide financing for RAS facility due to the high risk of failure. Nevertheless, RAS technology is usually used down the distribution lines (holding and trading centers) for businesses that specialized in the export market.
Body 3- Manpower Cost versus Selling Price
An important aspect to consider is the corresponding labor or manpower cost. Manpower cost can be much higher in urban areas causing difficulty for businesses in obtaining profitability. A particular example is Singapore, where labor costs are much higher than in Malaysia or Indonesia. Despite the mud crab selling price is much higher, operators might struggle due to the high labor cost requirement. For example, vertical farms producing soft shell crabs are very sensitive to labor cost, and crabs need to be monitored 24/7 and harvested before the shell hardens. This is not surprising as the major exporting countries for soft shell crabs are Myanmar and Bangladesh (both with low labor cost). Therefore, it is crucial that farms located in urban areas to focus on investing and improving the productivity of the farm.
Body 4- Foreign threats and wild supply
The last point of considerations when selecting a location for the farm is the presence of the competition. Competitors can be both foreign and domestic sources of crabs. Locations with high demand for mud crabs would often be supplied by more than a single country. For example, Hong Kong imports mud crabs from a multitude of countries including Indonesia, Philippines, Vietnam, Bangladesh, etc. Prices are often determined by the relationship between supply and demand. Note that locations like Bangladesh and Sri Lanka are not able to produce all year round due to weather patterns. Domestic threats can also originate from other farms and also wild-caught crabs from the wild. Places with plenty of wild crabs will dominate the local pricing, resulting in low profitability for aquaculture.
There are multiple factors to consider before setting up your farm. Some of these include selling price, rental cost, labor cost, and competitors. Finding the optimal locations would be depending on balancing short term and long term goals, and the overall strategy the company is set out to accomplish.