Regardless of the aquatic species an aquaculture venture produces, there are significant risks to su...
The economics of recirculating aquaculture systems
Recirculating Aquaculture Systems (RAS) have become part of the global aquaculture landscape. Announcements of new, planned investments in large-scale RAS in countries around the world appear frequently in the aquaculture news media. Yet RAS, as a viable production system for aquaculture businesses, are not new. Blue Ridge Aquaculture Inc. (USA), for example, has been in continuous business for more than 30 years and is a clear pioneer and success story of a profitable, large-scale RAS farm. A few RAS farms have operated successfully in the United States for more than 15 years on a much smaller scale. Salmon smolt production in RAS has further emerged as a profitable sector in the salmon supply chain (Bjorndal & Tusvik, 2017). Less well publicized are other fish farming businesses that have incorporated RAS into their overall pond-based farming operations. In some cases, the RAS is used to grow fingerlings over the winter to a larger size for stocking into ponds in the spring to reach harvest size earlier in the year and extend the sales period for their crops. Other farms have installed RAS to produce specialty fish species that are sold at lower quantities but have high value in the market. Thus, there are proven examples of the profitability of RAS in global aquaculture.
What are new are the substantial investments in turn-key RAS facilities planned or proposed to operate on very large scales. While there are clear examples of profitable RAS-based businesses, many of the news stories continue to refer to the “unproven economics” of RAS. This editorial will attempt to break down what is known about the economics of RAS.
The press and those seeking venture capital for large RAS investments tout many advantages of RAS and often that RAS are the “future” of aquaculture. Chief among these claims is that RAS are more environmentally sustainable than other aquaculture production systems, and that a RAS facility can be located anywhere. Such claims are key to successful recruitment of venture capital, particularly the Environmental, Social, and Governance (ESG) capital that has been targeted by many RAS startup ventures.
Economics provides a lens through which to examine these claims. While economists use monetary values as a way to standardize discussion of relative quantities of inputs and outputs, at its most fundamental level, economics is “the study of scarcity, the study of how people use resources and respond to incentives…” (American Economic Association, 2023). After all, if a producer uses resources very efficiently, then the costs per unit of fish, shellfish, or shrimp associated with that use will be lower than if resources are used less efficiently. Thus, production costs per kg of aquaculture product are closely associated with the efficiency of resource use.
Are RAS more efficient than pond or raceway production of aquaculture crops? In terms of land, yes. RAS produce more kg of fish or shrimp per ha of land than pond or raceway production. Feed efficiencies also appear to be greater in RAS than in outdoor production systems because indoor production offers the opportunity for better control over temperature and water quality parameters year-round. Outdoor production is subject to fluctuating seasonal temperatures, losses to predatory birds and other animals, and greater challenges related to effective biosecurity measures in open environments. Individual ponds also exhibit a great deal of variability from one pond to the next even when treated in the same manner, with commonly measured coefficients of variation of 20% for key production parameters (Shell, 1983). Such variation results from ponds being plankton-based ecosystems that develop different plankton blooms in adjacent ponds and also because those blooms change over the production season.
RAS use resources other than land and feed less efficiently than other production systems. Energy use in RAS is high, although it is also variable (Badiola et al., 2018). Much of the relative energy use (and, hence, its cost) is related to the need for heating and cooling to maintain water temperatures in an optimal range for that specific species. Raising a tropical animal, such as tilapia, in northern climates will likely require more heating than raising tilapia in RAS in warmer climates. Similarly, raising a coldwater animal like salmon in a warm climate will likely require greater cooling in the building than raising salmon in a more northern climate. Thus, the climates of various locations will affect costs and, to some degree, limit where RAS can be located to be able to operate in an efficient and profitable manner.
Discussions of RAS frequently focus on the recirculating aspect of water use in the production tanks. Biofiltration technologies have become more efficient over time and have created the ability to recycle high percentages of the water used to produce fish/shrimp in RAS. Nevertheless, it has become clear that the total water use requirement of a large-scale RAS facility is quite high. Media reports and permitting applications for proposed RAS facilities have requested millions of liters of water (15–20 million liters/day) to be pumped into the facility daily with the same amount to be discharged daily. RAS facilities use water other than that used exclusively in growout, for purging off flavors, quarantining animals brought in from the outside, cleaning, processing, and when problems occur in the facility that require tanks to be emptied and refilled. The substantial water volumes required for large-scale RAS mean that RAS facilities cannot be located just anywhere—they must be located where there is access to the necessary volumes and quality of water required and where an acceptable (to the relevant regulatory authority) discharge system is either available or could be constructed.
RAS also discharge wastes, mostly in the form of sludge. While ongoing research seeks ways to utilize and recycle the sludge produced in RAS, most commercial RAS facilities in practice discharge sludge in traditional ways, often to a publicly owned or on-site treatment facility. Sludge disposal costs can be substantial and have contributed to the demise of RAS businesses.
RAS are also quite capital and labor-intensive. While not environmental resources, capital and labor are essential factors of production that are used intensively in RAS and account for some of the greatest costs in RAS production.
What is the economic bottom line for RAS? The answer is, of course, that it depends. The few long-standing RAS businesses have successfully developed and sustained business models over time that are profitable. The failure rate of RAS, however, is quite high. Comparisons of the costs, profitability, and resource-use efficiency across various production systems in the United States perhaps shed light on some key aspects and drivers of cost and profitability of aquaculture production in RAS as compared with that in ponds and raceways (Engle et al., 2020, 2021). Other than land and feed efficiencies, intensive pond production of catfish (the most widely raised finfish species in ponds in the United States) uses capital, labor/management, water, and energy, capital resources much more efficiently, and at lower cost than RAS. Yield (kg/ha harvested from ponds and kg/m3 harvested from RAS) is a major driver of costs in aquaculture because of the relatively high fixed costs associated with the facilities. The Engle et al. (2020, 2021) studies used average yield values reported in the research literature from commercial farm datasets where possible. Overall, the RAS models were not profitable when all costs were accounted for. Substantial increases in yields of RAS over those used in the Engle et al. (2020, 2021) analyses would be necessary to make more efficient use of energy, water, capital, and labor resources to reduce costs to a profitable level. Assuming that buyers will pay a premium price, especially for a business that projects high volumes of production, is not realistic. A few small-scale startup farms may be able to charge a premium price for a while, but only until other farms enter the sector with increased supply that drives market prices back to average levels.
Very high yields require high stocking densities, of course. Efforts have been made by animal rights groups to limit stocking densities of fish in net pens; yet stocking densities in RAS likely will need to be much higher than those in net pens for RAS to be profitable.
Are RAS profitable? Some clearly are, but many others have failed. As with any business venture, a key “resource” is the entrepreneurial ability of the owner to make correct choices with respect to the overall business model (i.e., scope, scale, engineering, species, targeted markets, specific products). Equally important is the skill of the manager who must make many decisions every day; the successful businesses are those with managers who make the correct decisions. High-intensity production systems like RAS require continuously high efficiencies in the use of the inputs that contribute the most to the per-kg cost of the product.
The key obstacle and challenge to the economic success of RAS is the need to increase the efficiency of use especially of capital (the greatest cost driver in RAS) and labor/management (the third greatest cost driver in RAS). Feed use in RAS is currently more efficient than in other production systems, but capital and labor/management are currently used less efficiently in RAS than in other production systems. The key technological development necessary to improve the economics of RAS is to increase the average (not the maximum ever achieved) harvested biomass per cubic meter of tank growout volume. Increased kg produced per cubic meter of tank production volume will reduce the capital and labor/management costs per kg of product sold. RAS can be profitable on a variety of scales if adequate attention is paid to the productivity of use of the capital invested in the tanks (that includes the associated filtration systems) and the use of labor/management by achieving greater harvested biomasses of product per kg of tank growout volume.
Is RAS the future of aquaculture? Terrestrial agriculture has diversified into indoor greenhouse and hydroponic production of various crops, but such diversification has complemented, not replaced, open field production of produce, grain crops, and livestock. Similarly, RAS is already part of the aquaculture landscape and will undoubtedly continue to be. Nevertheless, it is a highly intensive form of production that uses capital, labor, energy, water, and management in such an intensive manner that there is little room for incorrect decisions and mishaps when addressing the inevitable challenges that arise when raising a living aquatic organism. Research is needed to identify economically optimal yields, management strategies, scope, and scale of RAS as well as on more traditional pond, raceway, and net pen production of aquatic crops to provide comprehensive guidance to aquaculture producers and investors.
The Journal of the World Aquaculture Society welcomes research that focuses on commercial-scale production management strategies accompanied by detailed economic analyses to offer guidance to commercial aquaculture producers for all production systems.
- American Economic Association. (2023). What is economics? https://www.aeaweb.org/resources/students/what-is-economics
- Badiola, M., Basurko, O., Piedrahita, R., Hundley, P., & Mendiola, D. (2018). Energy use in recirculating aquaculture systems (RAS): A review. Aquacultural Engineering, 81, 57–70.
- Bjorndal, T., & Tusvik, A. (2017). Land-based farming: Economic analysis (Working Paper Series No. 1/2017). Department of International Business, Norwegian University of Science and Technology.
- Engle, C. R., Kumar, G., & van Senten, J. (2020). Cost drivers and profitability of U.S. pond, raceway, and RAS aquaculture. Journal of the World Aquaculture Society, 51(4), 847–873. https://doi.org/10.1002/JWAS.12706
- Engle, C. R., Kumar, G., & van Senten, J. (2021). Resource use efficiency in U.S. aquaculture: Farm-level comparisons across fish species and production systems. Aquaculture Environment Interactions, 13, 259–275. https://doi.org/10.3354/aei00405
- Shell, E. W. (1983). Fish Farming Research. Alabama Agricultural Experiment Station, Auburn University.
About Carole R. Engle
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