1 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n
2 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n TAB L E O F C ON T E N T S BUSINESS PLAN Introduction 3 Executive summary 4 Business Idea Business Domain Sales Organization Growth Potential of the Market Management Team Production Capacities Key Figures Product description 7 Fishmeal production process Products output Industry overview 9 Global production Global fishmeal output El Niño Current industry situation Major findings Market analysis 13 Global trading Fishmeal and fish oil prices Fishmeal consumption Pork industry of China Potential of the fishmeal consumption by pork industry Aquaculture Major findings Fish resources 20 Menhaden Major findings Competition 23 Indirect Competition Company overview 25 Company structure and management Company strategy 26 Vision SWOT Analysis Strength Weakness Opportunities Threads Strategic goals Production 28 Fishing Technology Purse seining Vessels Fishing season Fish processing Production equipment Staffing Needs Depreciation Cost price Financial statements (basic) 32 Cash Flow, $ Profits and Losses, $ Financial statements (active fishing) 35 Cash Flow, $ Profits and Losses, $ Estimated financial indicators 38
3 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n I N T R ODU C T I ON Regardless of the situation in the global economy, the growth of world population provides a steady growth in demand for food. At that, the limited resources available to the humanity force people to use the most effective means for food production. One of the significant means of achieving this goal is to use biological resources of the world ocean for the production of efficient feeds for farm animals. The most common ingredients for these kind of feeds is fishmeal and its coproduct fish oil. The amount of consumption of these products is very large. About 25-30% of landed fish are than processed into fishmeal and fish oil. World demand for fishmeal and fish oil is growing steadily for more than 30 years, despite the fact that a number of major producing countries is decreasing production from time to time due to the reduction of the resource base. This business plan describes the project of the production and international trading of fishmeal. The goal of the project is organizing the efficient production of fishmeal in the United States. Company plans to deliver produced fishmeal to the market of the Republic of China, where it will be added to the feeds for pork and aquaculture industry. Produced fish oil will be delivered for processing for human consumption. Fishmeal business is based on three main components (Figure 1): • Availability of a feedstock (fish); • Efficiency of production processes; • Access to capacious market. This plan contains the business analysis through internal and external environment. Competition analysis is used to decide the important factors and what can be delivered by the company. This is supported by the projected financial statement for the first 5 years. Introduct ion Figure 1. Business background
4 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Execut ive summar y EXECUTIVE SUMMARY BUSINESS IDEA Business idea of the project is to increase the performance of Company’s fishmeal international trading. Calculations show that it is possible to significantly improve profitability of the business, if Company owns the process from fishing to fishmeal delivery to the clients. The plan is to organize a plant with fullcycle production of the fishmeal and fish oil. Raw materials for the plant considered menhaden fish which Company is going to harvest with its own vessels. BUSINESS DOMAIN Company plant will be located in Louisiana, USA. Location in Louisiana allows to achieve a significant reduction in production costs, due to the short run of the ships and lower natural gas prices. Company will sell the Fishmeal to the Chinese market, that is big enough and where it has strong positions. SALES ORGANIZATION Company already sells fish meal in the Chinese market. For that purpose, it uses a wholesale firm in Hong Kong and a fishmeal terminal in Shenzhen, China. Sales are organized either via major Chinese traders or directly to the Chinese agricultural companies. GROWTH POTENTIAL OF THE MARKET For today Chinese fish meal market size is about 1,4 million MT ($1,3 billion) with 450.000 MT internal production and 1.050.000 MT import. An estimated additional demand is 1 million MT. MANAGEMENT TEAM Team of the project has an experience dozens years’ experience in global fishmeal industry in China, Europe and USA. Figure 2. Business domain
5 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Execut ive summar y PRODUCTION CAPACITIES Plan of developing production capacities of the company provides annual increase in the number of seiner and the number of production lines. Projected development dynamics is presented in Figure 3. By 2020 company plans to own 12 vessels with projected landing of 3000 MT of fish per day and 3 fishmeal production lines, able to produce 2250 MT of fishmeal per day. Figure 3. Strategic Development Plan
6 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n РЕЗЮМЕ KEY FIGURES The projected sales and revenues are presented in the tables 1-2: Table 2. Sales revenue Table 3. Estimated financial indicators Table 4. Sources and use of funds Execut ive summar y Sources of funds 2016 2017 2018 2019 2020 2021 Investor funding $ 33000000 2000000 Loans $ 34000000 Operation profit $ 20000000 4000000 35000000 23000000 13000000 TOTAL $ 33000000 22000000 38000000 35000000 23000000 13000000 Use of funds Buildings $ 10000000 5500000 2000000 3500000 Equipment $ 8500000 2000000 9000000 6000000 Vessels $ 11000000 11500000 24000000 22500000 20000000 10000000 Fishing and Productions supplies and the airplanes $ 500000 500000 500000 Other expenses $ 3000000 2500000 2500000 3000000 3000000 3000000 TOTAL $ 33000000 22000000 38000000 35000000 23000000 13000000 2017 2018 2019 2020 2021 Fishmeal, mt 15 015 20 020 40 040 60 060 80 080 Fish oil, mt 7 508 10 010 20 020 30 030 40 040 2017 2018 2019 2020 2021 Fishmeal, $ 21 021 000 28 028 000 56 056 000 84 084 000 112 112 000 Fish oil, $ 13 513 500 18 018 000 36 036 000 54 054 000 72 072 000 Total, $ 34 534 500 46 046 000 92 092 000 138 138 000 184 184 000 NPV, $ 75 109 672 NCF, $ 123 425 353 IRR, % 46,62% Payback period, months 45 Projected profit, $ 123 938 233
7 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Product descr ipt ion P R ODU C T D E S C R I P T I ON Fishmeal is a brown powder (see Figure 4) obtained after cooking, press drying and squeezing fresh raw fish. It is produced mainly from small pelagic species. Pelagic species are ocean fish that live in the upper sea levels. Most pelagic species are considerably fattier than other fish species. Historically, landings of fish have been around 90 million tons p.a. and about 1/4 of this has been converted into fishmeal and fish oil. Fishmeal contains typically 60 to 72 per cent protein, 10 to 20 per cent ash, 5 to 12 per cent fat and has a high content of the fatty acids, more commonly referred to as omega-3. Fishmeal in its basic form has been produced for centuries and usage has varied from production of fertilizers to salmon feed. Nowadays, fishmeal is used primarily in feed production. Fish oil can be used directly in a purified form (nutraceuticals) in a wide range of foods. Production of fish oil in the future is not expected to change. Oilier fish are expected to be processed for direct human use, thus reducing that available for fishmeal and fish oil production Fishmeal and fish oil production has become a very thriving industry as both fishmeal and fish oil prices have raised. Figure 4. Fishmeal
8 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Product descr ipt ion FISHMEAL PRODUCTION PROCESS The illustration of fishmeal and fish oil industry value chain is presented at figure 5. Figure 5. Fishmeal value chain The production process can roughly be described in three steps: 1. Fishing and landing raw materials 2. Inspecting, cleaning and cooking fish at about 95 ° Celsius. This process helps sterilize the fish as well as separate out proteins and oils. 3. Squeezing the cooked fish to free most of the remaining liquids, then drying the material. Dried material – this is a ready to sell fishmeal. PRODUCTS OUTPUT The effectiveness of the processing of fish into fish meal is enhanced by the associated production of fish oil. After processing of raw materials, we have following output of the production: about 25% fish meal and 12.5% fish oil. Fish oil is directed for the purification for human consumption and fish meal is sold as a finished product. With less output of fish oil, it is more expensive that helps to increase overall profitability of the production.
9 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Industr y over view I NDU S T RY OV E RV I EW GLOBAL PRODUCTION Global production of fishmeal is concentrated around a few top producers; top ten manufacturers are making approximately 80 per cent of the global production. Today Peru is the largest producer, Chile the second, and then Thailand, China, EU etc. The species used in production vary from region to region, but generally speaking it consists of small, bony, pelagic fish that has little or no commercial value as fish for direct consumption (FAO 1986). It is estimated that about 90 per cent of the fish species used to make fishmeal is “presently unmarketable in large quantities as human food” (Bose et.al 1991). Figure 7. The largest fishmeal producers
10 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Industr y over view The global fishmeal output has reduced from 7 million metric tons on 1994 to 4.1 million metric tons on 2014 (Index Mundi). Figure 7. The largest fishmeal producers Figure 9. Fishmeal production in US and China The decrease in production comes amid a growth in the main sectors that consume fishmeal (aquaculture and animal’s food). The main contribution to this decline have brought Peru and Chile (see Figure 8). At the same time, fishmeal production in US and China show the gradual growth (see Figure 9). Partially Peruvian production decrease was caused by overfishing and unsustainable fishery management, but the large deviations are mainly due to the El Niño phenomena. 0 1000 2000 3000 4000 5000 6000 7000 8000 Fish Meal Production by Year (1000 MT) World Chili Peru Линейная (World)
11 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Industr y over view EL NIÑO The El Niño is a disruption of the oceanatmosphere system in the Tropical Pacific having important consequences for weather and climate around the globe. A mild El Niño occurs every 2 to 7 years and typically lasts from nine months to two years. Major El Niño events (major meaning long-lasting and/or highly influential) have on average occurred every 26 years6 (NOAA 2011). In normal conditions, winds in the South Pacific push warm water towards Australia and Asia. When warm water is pushed away from the coast of South America, and it is replaced with water from the deep of the ocean. This water is cold and nutrient rich. This process is called upwelling and it fuels the large schools of fish present around the eastern Pacific. During El Niño years this nutritious process can collapse and the fish is driven deeper and away from the shorelines of South America. This drives anchovy to cooler and deeper seawater or south closer to the shore, where industrial fishing is not permitted. Therefore, it becomes harder to catch fish and landings reduces significantly. The decrease of the production of fishmeal in the world under the influence of El Nino is well seen in Figure 10. Figure 10. El Niño impact to Global Fishmeal production The production in Chile and Peru simultaneously fell while the production in USA and China continued slightly growing. This reduces their competitiveness in of the fishmeal markets. R E C A P :
12 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Industr y over view CURRENT INDUSTRY SITUATION In 2015 the global supply of fishmeal and fish oil could return to the level at 5 million metric tons, and fish oil at 1m metric tons (IFFO). In 2014 fishmeal production was down 11.5% to 4.1m over 2013 (see Figure 8), while the fish oil output reached 843.000 MT, down 7.5% year-on-year. Excluding the two main producing regions -- Peru and Scandinavia -- a slight production improvement is expected this year in the rest of the world, driven by positive Atlantic menhaden quota expectations in the US and good prospects for African output (IFFO). But the situation in whole depends on Peru, the biggest fishmeal producer in the world, capable to change the landscape of the industry. Recent assessments from Peru’s marine institute, Imarpe, are interpreted as a positive sign for anchovy fishing in 2015. US, Africa to up output production for this year is expected to improve slightly over 2014 (IFFO). China is expected to have similar production as 2014, sawing output down 10% to near 440.000 MT (Index Mundi). Lower volumes are linked to overfishing and to a new policy implemented by the Chinese government to improve the quality of fishmeal (IFFO). Thailand, Vietnam and India have recently boosted their fishmeal production, and a similar output as 2014 is expected for 2015 (IFFO). MAJOR FINDINGS • Top ten manufacturers are making 80 % of the global production. • The situation in industry depends on Peru. • Global fishmeal output has reduced due to the El Niño phenomena. • El Niño decreases the competitiveness of Peru in the fishmeal market. Other countries may successfully compete with Peru. R E C A P :
13 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Market analysis MARK E T ANA LYS I S GLOBAL TRADING Like global production of fishmeal, global consumption is to large extent concentrated around some key players. China is by far the greatest consumer, with a fishmeal consumption level ranging in between 1.6 and 2.0 million metric tons (MMT) annually (see Figure 9). Japan then follows with a consumption of about 0.7 MMT, Thailand with about 0.4 MMT and Norway has around 0.35 MMT annually. China has been the main driver for the increasing consumption concentration, as they have gone from consuming 3 per cent of world fishmeal production in 1985 to nearly 40 per cent in 2007. As China imports around 1 million MT fishmeal annually (around 1/3 of total world trade) their demand is a significant factor in the forming of fishmeal prices. Figure 11. China fishmeal consumption (1000 MT) Source: Index Mundi
14 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n 0 500 1000 1500 2000 2500 3000 Oct 2005 Jan 2006 Apr 2006 Jul 2006 Oct 2006 Jan 2007 Apr 2007 Jul 2007 Oct 2007 Jan 2008 Apr 2008 Jul 2008 Oct 2008 Jan 2009 Apr 2009 Jul 2009 Oct 2009 Jan 2010 Apr 2010 Jul 2010 Oct 2010 Jan 2011 Apr 2011 Jul 2011 Oct 2011 Jan 2012 Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Fish Meal Price by Month ($) Market analysis FISHMEAL AND FISH OIL PRICES Fishmeal prices trend (see Figure 12) is showing progressive growth from year to year. Figure 12. Fish Meal Price by Month ($/MT) Increasing global supply of fishmeal and fish oil raw material relative to 2014 now is starting to impact prices, but they remain strong by historical standards (Omega Protein, August 2015). According to a Lux Research study, fishmeal prices have quadrupled since 2000 and still rise at a 10% annual rate. The fishmeal alternative - soy meal is also becoming more expensive sources of protein. For decades people were benchmarking the two commodities, but fishmeal is now no longer correlated to soybean meal. Changing trends in the aquaculture market and the possible future scarcity of fishmeal means that instead of being priced like a commodity, the market could soon see it priced as a strategic ingredient vital for fish. Therefore, the fishmeal prices will behave more like fish oil prices do farming (Rabobank, Global Outlook on Aquaculture Leadership, 2015). FISHMEAL CONSUMPTION Fishmeal and fish oil are essential ingredients in feed for terrestrial animals like chicken and pigs, as well as for fish and shrimp. High-value carnivorous fish in particular need feed with a high fishmeal content. Other species, particularly cold water species such as salmon, also need fish oil. The structure of fish meal consumption has differed significantly (see Figure 13) from the 60’s to the present time. As one may see, the main consumers of the fishmeal became the aquaculture farms. The second industry using fishmeal is pork production. Figure 13. Fishmeal consumption structure Source: IFFO 2012 Source: Index Mundi
15 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Both industries are growing fast in China – company major market. PORK INDUSTRY OF CHINA Pigs have been at the centre of Chinese culture, cuisine and family life for thousands of years. But pork consumption grew In the mid-1970s an average Chinese citizen ate an average of 8 kilograms of pork a year. Today, each person in China eats about 39 kilograms of pork a year, while Americans eat about 27 kilograms. Because of this, production of pork in China is growing steadily over the years. In 2014 Chinese pork production was 56,700 thousand MT (see Figure 14). Figure 14. Pork production by countries (1000 MT) Market analysis That is more than 51% of the world pork output. So, the Chinese market became the biggest one in the World. The growth rate in production of pork in China have been stable since 1975 (see Figure 15) up to 2015. But over the last 18 months, China’s pork industry has experienced one of the largest culls on record, the results of which are just now being felt globally. In 2015 there was a big drop of the Chinese pigs herd that have an impact to the entire global pork market. For 2015, Chinese pork production is forecast to reduce by 3.7 million tonnes (6.5 percent), to 53 million tonnes. Longer-term forecasts suggest China will continue contribute the greatest share of the increase in global pork production but in 2015 the country is had to satisfy growing demand from imports. Chinese demand from imported pork is expected to expand during the rest of this year and on into 2016. According to the Rabobank report, a 1.9 million tonnes Chinese supply gap implies a 600,000 tonnes increase of pork imports above the 1.3 million tonnes imported in 2014. At present importing pork in China is more profitable than produce it domestically The matter is that Chinese pig farms are notoriously inefficient, unsafe and environmentally damaging. Chinese production costs are at least double those in the U.S. because of high feed costs and disease problems (Des Moines Register, Feeding China). Therefore, the Chinese companies started two big improving programs: • At the urging of their government, they have launched a global buying of pork production. Figure 15. China pork Production by Year (1000 MT) R E C A P : 0 10000 20000 30000 40000 50000 60000 70000 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
16 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Market analysis Using of fishmeal to improve the quality of pigs feed solves simultaneously both problems - reduces the need for feed and enables the production of more healthy pigs. POTENTIAL OF THE FISHMEAL CONSUMPTION BY PORK INDUSTRY Potential of the fishmeal consumption by pork industry To assess the potential demand for fishmeal from the Chinese pork industry The following data were used: • Existing pig population in China; • Average feed consumption per 1 pig for its average lifetime; • Recommended share of fishmeal / fish oil in effective animal feeds; • As well as the types of pig farms operating in China. Pork production in China is produced by three categories of farms (The Economist): • Backyard farms; • Specialized households; • Commercial farms. • There started a massive wave of consolidation that is swallowing up smaller farmers. Their main reason is to get an access to agricultural technologies and to improve them in Chinese pork industry. The Chinese government had signaled its strong desire for overseas agriculture. It had unveiled its five-year plan, which amounts to the Communist Party’s roadmap for the country’s economy. A major focus of this plan: buying up overseas farmland and foreign food companies. By the end of 2012, the Chinese owned $900 million in U.S. farmland, and by the end of 2014 the Chinese stake raised to nearly $1.4 billion. PIGS FEED China is very sensitive about wanting to produce its own pork. But it has a big problem in the industry - the pig’s feed. However, it is hardly self-sufficient, because it relies very much on imported feed China once grew most of the soybeans it needed, and in the mid-1990s, it began importing huge amounts from South America and the United States. Another major feed source — Chinesegrown corn — is two or three times more expensive than on world markets, because of government price supports. The Chinese are also growing concerned with the environmental and health costs of more pork production (U.S. Department of Agriculture). Pigs in China are primarily on the east coast, where Shang Hai Farm operates. The area has the world’s highest concentration of pigs and there is a danger of pig’s diseases. R E C A P :
17 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Market analysis While there is no strict definition of the three types of farms, backyard farms usually raise less than 50 pigs at one time, specialized farms raise 50 to 3,000 pigs and commercial farms raise more than 3,000 pigs in inventory. Figure 16 shows that by 2010, half of the pork were produced by specialized farms, and about 25% - of large-scale commercial farms. If we accept that big commercial farms use the efficient pig feeds and some of specialized households too, then we can assume that about 30% of the pork is produced using them. Than we use some industry standards to calculate annual feed intake by pigs in China. According to Garth Pig Stockmanship Standards, 22-week pig average weight is 110 kg and it consumes for that period about ~255 kg of feed. Rowett Research Institute argues that an inclusion of 5 to 7.5% fishmeal in the diet acts as ‘nutritional insurance’ against many pig’s diseases (Fishmeal Information Network). Relying on these data we can calculate the potential demand of the fishmeal by Chinese pork industry (see Table 5). Figure 16. Types of the pork production farms So, we can make an assessment about consumption of feeds. Table 5. Fishmeal demand by Chinese pork industry (1000 MT) R E C A P : Pork consumption in China per year (1000 MT) 57 425 Pork consumption in China per year (kg) 57 425 000 000 Avg. pig weight (kg) 110 Number of produced pigs 522 045 455 Efficient feeds use share in pork production 30% Big farm's pigs 156 613 636 Avg. meal consumption per pig (kg) 255 Fish meal share in pig meal 7% Fish meal potential demand (kg) 2 795 553 409 Fish meal potential demand (1000 MT) 2 796 China Fishmeal production (1000 MT) 450 Fishmeal import potential (1000 MT) 2 346
18 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Aquaculture continues to be the fastest growing animal food-producing sector and to outpace population growth. It supplies more that 50 percent of all seafood produced for human consumption – that percentage has been and will continue to rise. The traditional fisheries are producing near their maximum capacity. The future increases in seafood production must come largely from aquaculture. Global aquaculture demand was 69,230 thousand MT in 2013 and is expected to reach 80,400 thousand MT by 2020. The aquaculture industry turnover is expected to reach $202.96 billion by 2020 (Grand View Research). China is the largest market for aquaculture, accounting for about 53% of global market share, valued at USD 77,934.8 million in 2013. The market is expected to show rapid growth due to favorable climatic conditions for aqua farming, availability of resources and labor. Asia Pacific (excluding China) was the second largest market for aquaculture with market demand of 17.965.2 kilo tons in 2013, and is estimated to grow with a CAGR of 2.1% from 2014 to 2020 due to ideal climatic conditions and technological innovation in this region. Aquaculture is no different from any other terrestrial farming activity in that production is totally dependent upon the provision and supply of nutrient inputs. Feed inputs may include the use of industrially compounded aquafeeds, farm-made aquafeeds, or the use of natural food organisms of high nutrient value. Therefore, fishmeal and fish oil are quiet necessary for aquaculture feed industry, with demand growing at 8% annually. The forecast of thee demand for fish meal is that it will nearly double by 2025, creating a yearly shortage for over one million tons (Lux Research). AQUACULTURE Figure 17. Aquaculture farm Market analysis So, the fishmeal import potential in pork production industry in China is 2,34 million MT, while current import amount is 1 million MT. R E C A P : But the supplies of these ingredients are finite. Sustainable production from well managed fisheries had a ceiling of about 5 million МТ of fishmeal and 1 million MT of fish oil per annum. The could face a shortfall of fishmeal and fish oil for feed as early as 2016, and demand could outpace fishmeal supply by up to 16 million metric tons in 2025 (Lux Research).
19 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n These major findings support the conclusion that if someone can produce an additional amount of fishmeal and fish oil, he should take them to China to make a good profit. Market analysis • The main consumers of the fishmeal are pork and aquaculture farms. • China is the largest pork market with 51% of the world pork production. • China is the largest market for aquaculture with 53% of world market share. • China imports around 1 million MT fishmeal. • Fishmeal shortage in Chinese pork industry in China is 1,34 million MT. • World fishmeal prices have quadrupled since 2000. • Since 2016 a shortfall of fishmeal and fish oil is expected. • In 2025 the expected outpace of fishmeal supply by demand could be up to 16 million MT. MAJOR FINDINGS R E C A P :
20 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Fish resources FISH RESOURCES MENHADEN Raw material for the projected fishmeal production are Menhaden, the small coastal fish. These fish are a key source of omega-3 and omga-6 fatty acids, nutrients shown to be essential for regular and healthy body functions and growth in both humans and animals. Omega-3s also help reduce inflammation and lower the risk of serious, prevalent chronic diseases such as heart disease. Menhaden is primarily reduced into fish meal, fish oil, and used for livestock feed and human consumption. Menhaden oil has been marketed as edible oil for many years in Europe, and was approved for human consumption in the United States in 1997. In the Gulf, 98 percent of the catch goes to processing and 2 percent to bait (NOAA). Menhaden migrates in large schools along both the Atlantic and Gulf coasts of North America (see Figure 16). The Atlantic menhaden is one of the most abundant species of finfish in estuarine and coastal Atlantic waters. The species is found primarily in nearshore waters from Nova Scotia to central Florida, but can be found in deeper water in winter. Gulf menhaden range from Mexico across the western and northern Gulf of Mexico to Florida. Atlantic and Gulf menhaden both grow rapidly. Atlantic menhaden mature at 3 years, when they are about 25 centimeters long and weigh about .2 kilograms. In contrast to the Atlantic species, Gulf menhaden reach sexual maturity in their second year and are shorterlived. Animals older than 4 years are rare, though they have been found up to 6 years old. They reach lengths of 20 to 23 centimeters. GULF MENHADEN LANDINGS The majority of the catches and landings for Gulf menhaden occur in Louisiana (90%) and Mississippi (Gulf States Marine Fisheries Commission). Landings of gulf menhaden (see Figure 18) for reduction in 2014 totaled 391,854 MT (1,289 million standard fish). This is down 21% from total landings in 2013 (497,503 MT), and down 23% from the previous 5-year mean (505,262 MT).\ The decrease is tired with consolidation of processing companies, so there are now many fewer menhaden fishing vessels and reduction plants than in past years. The corporate consolidation and economics of menhaden processing plants have brought their number from thirteen to four. Now there are only two companies operating in the in the Gulf fishery: Omega Protein, Inc. and Daybrook Fisheries. Figure 18. The Gulf menhaden fishery Figure 19. Gulf Menhaden landings (1000 MT)
21 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Fish resources MENHADEN STOCK The overall population of Atlantic menhaden has generally increased in recent years, but some parts of the population are decreasing for reasons that are not yet understood. Managers in the region are focused on better understanding the population and ecosystem dynamics. In contrast, Gulf menhaden have fluctuated without a consistent trend. Data on Gulf menhaden have been collected for many years. The stock was first formally assessed in 1982, and updated every five years thereafter. In the end of 2013 the Gulf States Marine Fisheries Commission (GSMFC) has completed a comprehensive, three-year stock assessment of the Gulf menhaden population and found that the stock is healthy and sustainable at current harvest levels. Since the completion of the assessment, the GSMFC has approved the adoption of new reference points, which were put in place to measure the rate of harvest and to ensure the continued health of the population. The reference points were set to be equivalent to the total harvest at fishing mortality levels of 35% for the spawning potential ratio (SPR) and 30% SPR, respectively. The same are results of Atlantic Menhaden benchmark. The revised reference points are based on historical performance of the population during the time frame 19602012, a period during which the Technical Committee considers the population to have been sustainably fished. Fishing mortality rates have hovered Figure 20. Atlantic Menhaden Fishing Mortality around the revised overfishing target (38%) through the 1990s. In 2003, fishing mortality dropped below the revised target and was estimated to be 22% in 2013 (the latest year in the assessment). That means that fishing mortality has been decreasing throughout the history of the fishery, and is now 42% below the target. This indicates that current Gulf menhaden are more than able to sustain themselves and that current levels of harvest in the commercial fishery are not harmful to the population Fishery managers also do not consider Gulf menhaden to be overfished. The main management in the Gulf of Mexico has been on addressing the economic consequences of the consolidation of the industry (IFFO 2015). Additional Gulf Menhaden landing potential. According to NOAA Forecast for the 2014 Gulf and Atlantic Menhaden Purse-Seine Fisheries, Gulf Menhaden coastwise age-2 fish (73%) outnumbered age-1 fish (25%) by a wide margin (see Table 6).
22 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Fish resources Using this data, we can estimate an average fish weight as 0,1 kg. The total population for Gulf menhaden at the beginning of 2004 (prior to the 2005 hurricanes) was estimated to be about 36.3 billion fish or 3630 thousand MT. The landings associated with the 30% SPR would be about 700 thousand MT. For reference, landings of Gulf menhaden in 2014 were 391 thousand MT. That means that it is possible to land the additional 300 thousand MT of Menhaden. MAJOR FINDINGS • Raw material for the fishmeal production are Menhaden; • Gulf menhaden range from Mexico to Florida. The majority of the landings for occur in Louisiana; • Menhaden population remains healthy and overfishing is not occurring; • Menhaden are able to sustain themselves, so current levels of harvest in the commercial fishery are not harmful to the population; • Fishery managers do not consider Gulf menhaden to be overfished; • The main management of Menhaden fishing depends only on the economic consequences; • There is a possibility of landing at least 300 thousand MT of gulf menhaden. The Menhaden population allows Company to achieve by 2020 the target level of catches. Table 6. Percent age composition, estimated total Year Age-0 Age-1 Age-2 Est. total number of fish caught in billions Landings (1000 MT) 2013 <1% 25% 73% 4.54 497.5 2012 <1% 31% 66% 6.78 578.4 R E C A P :
23 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Compet i t ion COMPANY COMPETITIVE ADVANTAGE IN THE CHINESE MARKET COMPETITION A feature of fishmeal trading in China is that nearly all its volume is imported by five largest Chinese traders. Because of the degree of monopolization, they receive a disproportionately high margins. The significant advantage of Company in compare to other fishmeal suppliers is that it managed to establish its own sales in China. The direct sale of fishmeal to agricultural companies is much more cost-effective business. The main problem in this business is to organize transportation of fishmeal in the port and logistics in China. Company has solved this challenge by creating an office in Shenzhen - Shenzhen Agro Feed Service Limited and by implementing fishmeal terminal project at the port of Shenzhen. Figure 21. Fishmeal Terminal An important factor of using Terminal is a risk reduction. Maintaining this terminal Company will be able to maintain ownership of the fishmeal until it is sold into local Chinese market. This eliminates the risk associated with Letter of Credit discrepancies and reduces cargo costs. Another meaning factor is excluding the local traders (see above) and increasing gross margins And the third terminal advantage is a price control. Fish meal inventory in terminal in China gives company a flexibility in choosing a moment of selling. Company can hold the hold inventory if prices are too low. TERMINAL ADVANTAGES
24 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Figure 22. Feed comparison The trial results demonstrate that fishmeal (added at only 5%) gave superior growth and lower feed conversion ratios than the vegetable protein sources, although the fermentation process did seem to improve the performance of the plant proteins. The research also showed that the super fishmeal gave a better performance than the average quality fishmeal, producing the heaviest and healthiest pigs on the lowest feed conversion ratio. Finally, piglets on super fishmeal also had a good balance of intestinal microflora, which will have contributed to their heavy weights and good health making them ideal for ongrowing. Agricultural companies can rise their productivity if they use fishmeal instead of other feeds. This results mean that fishmeal has a significant competition advantage. As Chinese agricultural companies are very big ones, just few contracts are enough to sell huge amounts of fishmeal. Therefore, Company fishmeal transaction costs are much lower than any other competitor’s. Fish meal and oil compete in the marketplace with vegetable meal and oil. The most common of alternative sources of protein soybean or linseed meal, as well as fermented products from these two plant meals. Recent study (2015) commissioned by the International Fishmeal & Fish Oil Organization at the China Agricultural University compared the effect of a number of different dietary protein sources on the performance of young piglets. TRANSACTION COSTS INDIRECTCOMPETITION: FISHMEALCOMPARISONWITHOTHER TYPES OF ANIMAL FEED R E C A P :
25 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Compet i t ion Company over view C OMPANY OV E RV I EW Protein Company is a commodity trading firm with expertise in feed ingredients (par excellence fishmeal and fish oil) over 25 years. Company has many years of experience in the fishmeal business: sourcing, logistics, document preparation, sales and marketing. CORPORATE STRUCTURE AND MANAGEMENT Supreme governing body of the Company is the Board of Directors (BOD). BOD will consist of the President, Vice President of Operation and a number outside directors. Board of Directors meeting will be held at least once a quarter, solving all the most important issues of the company.
26 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Company strategy C OMPANY S T RA T E GY VISION We will create a large trader in China, based on the region with large stocks of fish, a relatively low level of competition for it and effective business environment in the US. STRATEGIC CHALLENGE At the time of this business plan the company has reached maximum efficiency in its trading business. The results of the gap-analysis (see Figure 23) demonstrate that a further increase in profitability is possible if Company control all stages of production and sale of fishmeal, including - fishing and processing. Figure 23. Strategic Development Plan Therefore Company needs to have its own production in Louisiana and fishing in the Mexican Gulf. See page 5
27 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Company strategy SWOT ANALYSIS STRENGTH • Own fishing fleet • Modern seiners with short turnover – lower costs and more fish landing • Wide experience of management team in fishmeal trading • To-day presence in China • Lower prices for gas and the fuel in Louisiana WEAKNESS • Long distance from target market • Higher salaries OPPORTUNITIES • Direct sales in China bypassing local traders • Animals meal production • Fish oil refinery for human consumption THREADS • Fish resources shortage • Fishing quota reducing • Nuclear war The list of opportunities is wider than considered in this business plan. The main strategic task for today - is to develop business in China. The obvious weakness of the company - is relatively high salaries of personnel. But company has a solution, how to reduce this factor influence. R E C A P :
28 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Product ion PRODUCTION Fishmeal production consists from two stages: fishing and fish processing. Location of the plant in Louisiana is beneficial for both of them. For fishing – because of presence of the Menhaden main population at the coast of Louisiana, decreasing the total cost of landing. For the production – because cost of gas and electricity in Louisiana is lower than on the average over the USA (see Table 7). Table 7. Advantages of Louisiana FISHING TECHNOLOGY PURSE SEINING Menhaden are harvested with the help of purse seines. A purse seine is a large wall of netting deployed around an entire area or school of fish (see Figure 20). The seine has floats along the top line with a lead line threaded through rings along the bottom. Once a school of fish is located, a skiff encircles the school with the net. The lead line is then pulled in, «pursing» the net closed on the bottom, preventing fish from escaping by swimming downward. The catch is harvested by either hauling the net aboard or bringing it alongside the vessel. Purse seines can reach more than 2,000 m in length and 200 m in depth, varying in size according to the vessel, mesh size, and target species. Figure 24. A purse seining Finding a school of fish is one of the most difficult steps of this fishing technique and include: • Natural cues such as a congregation of seabirds, ruffling of surface water and/or fast moving groups of dolphins, • Airplanes scanning the water for natural cues from the air to direct boats toward schooling fish, and • Using radar fish finders to help identify the exact location and size of a school. Louisiana U.S. Average Natural Gas $ 3.22 /thousand cu ft. $ 4.40 /thousand cu ft. Electricity 5.23 cents/kWh 6.98 cents/kWh
29 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n VESSELS Company plans to operate with following vessels Vessels’ type: purse seiners Manufacturer: Model: Displacement: Crew: Operating range: Fishing equipment: The total number of vessels by 2020 will be 11 units. Product ion FISHING SEASON Season of Menhaden fishing in Mexican Gulf starts on the third week of April and finishes at the end of October. Fishing season length is about 6 months. Seiners’ average turnaround forecast is 48H, estimated harvesting of one seiner is 250 MT per day or 5500 MT per month per seiner. Company has 2 scenarios of fishing: • 6 months x 22 working days • 6 months x 30 working days, double crew salary What scenario to follow will depend on economic consideration and the fishing quotas. FISH PROCESSING PRODUCTION EQUIPMENT Company is going to use 3 fish plants production lines with productivity 30T/H. The proposed equipment supplier will be an internationally renowned company Haarslev Industries. This is a dedicated process technology company, providing powerful solutions for the processing of animal by-products. It has supplied more than 100 preassembled fish meal plant. Due to this fact, Haarslev Industries got an experience and developed a number of know-how. Therefore, its’s plants are the most effective solution for effective and profitable fishmeal production. The main production plots of the plant are presented on the Figure 24 (for more detailed Haarslev proposal see Appendix 1). Supplier delivers and mounts the equipment on terms a turnkey basis. Time from the order to the start of plants’ work is from 4 to 6 months. The purchase of equipment will occur simultaneously with the increase in the number of vessels to ensure consistency of performance of fishing and processing. Schedule of equipment acquisition is presented in Figure 26. Figure 25. Main production plots
30 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Product ion DEPRECIATION Depreciation is calculated using the linear method. Lifetime of buildings vessels and airplanes assumed to be 20 years, of equipment - 10 years. Depreciation has been calculated based on the useful life of fixed assets The amount of annual depreciation presented in Table 9. Table 9. Depreciation Figure 26. Equipment acquisition STAFFING NEEDS At the beginning of 2016 Company will hire the staff of the central office and part of the production staff. Then, simultaneously with the acquisition of additional equipment and vessels, the number of production personnel will increase. Changes of staff are presented in Table 8 (see more detailed data in Appendix 2). Table 8. Changes of staff v 2017 2018 2019 2020 Administrative personal 21 21 21 21 Production personal 126 160 201 227 2 016 2 017 2 018 2 019 2 020 2 021 Buildings, $ 525 000 781 250 1 018 750 1 050 000 1 050 000 Equipment, $ 708 333 950 000 1 229 167 2 000 000 2 550 000 2 550 000 Vessels, $ 120 833 597 916 1 225 000 2 418 750 3 533 333 4 491 666 Fishing and Productions supplies and the air planes, $ 2 083 27 083 52 083 75 000 75 000 75 000 TOTAL, $ 831 250 2 100 000 3 287 500 5 512 500 7 208 333 8 166 666
31 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n COST PRICE Calculation of the cost price of fish meal is presented in Table 9. The initial data for the calculations include direct and general costs, depreciation, wages and other costs. The average cost of fish meal is 960-1000 dollars per ton. Table 10. Cost price by years Product ion Name 2017 2018 2019 2020 2020 Other costs per year, $ Salary per year, $ 4 569 000 5 626 500 6 624 000 7 852 500 7 852 500 General costs per year, $ 1 282 000 1 616 000 3 232 000 4 848 000 6 464 000 Depreciation per year, $ 2 100 000 3 287 500 5 512 500 7 208 333 8 166 666 Total other costs per year, $ 7 951 000 10 530 000 15 368 500 19 908 833 22 483 166, Sales, mt Fishmeal, mt 15 015 20 020 40 040 60 060 80 080 Other costs per unit, $ Salary per year, $ 304,30 281,04 165,43 130,74 98,06 General costs per year, $ 85,38 80,72 80,72 80,72 80,72 Depreciation per year, $ 139,86 164,21 137,67 120,02 101,98 Total other costs per year, $ 529,54 525,97 383,83 331,48 280,76 Direct costs per unit, $ Fishing exp. per unit, $ 314,90 314,90 314,90 314,90 314,90 Electricity per unit, $ 40,14 40,14 40,14 40,14 40,14 Gas per unit, $ 34,44 34,44 34,44 34,44 34,44 Water per unit, $ 0,42 0,42 0,42 0,42 0,42 Stcik waters per unit, $ 2,39 2,39 2,39 2,39 2,39 Mashinery maintainence per unit, $ 41,80 41,80 41,80 41,80 41,80 Total direct costs per unit, $ 434,10 434,10 434,10 434,10 434,10 Cost price per unit, $ Fishmeal, mt 963,64 960,07 817,93 765,58 714,86
32 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n F I NANC I A L S TA T EME N T S ( BA S I C ) Financial statements (basic)
33 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Financial statements (basic) CASH FLOW, $ Name 1 year 2 year 3 year 4 year 5 year 6 year BEGINNING CASH 0,00 2 000 000,00 2 165 512,52 23 471 370,67 14 218 864,89 58 215 644,97 OPERATIONS Revenue 0,00 34 534 500,00 46 046 000,00 92 092 000,00 138 138 000,00 184 184 000,00 Direct costs 0,00 -6 517 987,48 -8 690 649,97 -17 381 299,94 -26 071 949,90 -34 762 599,87 Salary 0,00 -4 569 000,00 -5 626 500,00 -6 624 000,00 -7 852 500,00 -7 852 500,00 General costs 0,00 -1 282 000,00 -1 616 000,00 -3 232 000,00 -4 848 000,00 -6 464 000,00 Taxes 0,00 0,00 -4 806 991,88 -8 513 872,51 -19 512 103,36 -31 255 192,53 Cash flows from operations 0,00 22 165 512,52 25 305 858,15 56 340 827,55 56 339 160,89 103 849 707,59 INVESTMENTS 0,00 Вuildings -10 000 000,00 -5 500 000,00 -2 000 000,00 -3 500 000,00 0,00 0,00 Production lines -20 000 000,00 -14 000 000,00 -33 500 000,00 -28 500 000,00 -20 000 000,00 -10 000 000,00 Other expences -3 000 000,00 -2 500 000,00 -2 500 000,00 -3 000 000,00 -3 000 000,00 -3 000 000,00 Cash flows from investments -33 000 000,00 -22 000 000,00 -38 000 000,00 -35 000 000,00 -23 000 000,00 -13 000 000,00 FINANCIALS Investor funding 35 000 000,00 0,00 0,00 0,00 0,00 0,00 Loans 0,00 0,00 34 000 000,00 0,00 0,00 0,00 Loans repayment 0,00 0,00 0,00 -30 000 000,00 -13 000 000,00 0,00 Payment of interest on loans 0,00 0,00 0,00 -593 333,33 143 333,33 360 000,00 Cash flows from financinals 35 000 000,00 0,00 34 000 000,00 -30 593 333,33 -12 856 666,67 360 000,00 Changes in Cash 2 000 000,00 165 512,52 21 305 858,15 -9 252 505,78 43 996 780,07 44 035 946,74 ENDING CASH 2 000 000,00 2 165 512,52 23 471 370,67 14 218 864,89 58 215 644,97 102 251 591,71
34 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Financial statements (basic) PROFITS AND LOSSES, $ Name 1 year 2 year 3 year 4 year 5 year 6 year Gross proceeds 0,00 34 534 500,00 46 046 000,00 92 092 000,00 138 138 000,00 184 184 000,00 Materials 0,00 6 517 987,48 8 690 649,97 17 381 299,94 26 071 949,90 34 762 599,87 Gross profit 0,00 28 016 512,52 37 355 350,03 74 710 700,06 112 066 050,10 149 421 400,13 Salary 0,00 4 569 000,00 5 626 500,00 6 624 000,00 7 852 500,00 7 852 500,00 General costs 0,00 1 282 000,00 1 616 000,00 3 232 000,00 4 848 000,00 6 464 000,00 Depreciation 831 250,00 2 100 000,00 3 287 500,00 5 512 500,00 7 208 333,33 8 166 666,67 Total costs 831 250,00 7 951 000,00 10 530 000,00 15 368 500,00 19 908 833,33 22 483 166,67 Profit from sales -831 250,00 20 065 512,52 26 825 350,03 59 342 200,06 92 157 216,76 126 938 233,46 Interest 0,00 0,00 0,00 593 333,33 -143 333,33 -360 000,00 Other costs 3 000 000,00 2 500 000,00 2 500 000,00 3 000 000,00 3 000 000,00 3 000 000,00 Profit before tax -3 831 250,00 17 565 512,52 24 325 350,03 55 748 866,73 89 300 550,10 124 298 233,46 Income tax 0,00 0,00 4 806 991,88 8 513 872,51 19 512 103,36 31 255 192,53 Net profit -3 831 250,00 17 565 512,52 19 518 358,15 47 234 994,22 69 788 446,74 93 043 040,93 The profit on an accrual basis -3 831 250,00 13 734 262,52 33 252 620,67 80 487 614,89 150 276 061,63 243 319 102,56 EBITDA -3 000 000,00 19 665 512,52 27 612 850,03 61 854 700,06 96 365 550,10 132 104 900,13 EBIT -3 831 250,00 17 565 512,52 24 325 350,03 56 342 200,06 89 157 216,76 123 938 233,46
35 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Financial statements (act ive f ishing) F I NANC I A L S TA T EME N T S ( A C T I V E F I SH I NG )
36 B u s i n e s s p l a n | F i s h m e a l a n d f i s h o i l p r o d u c t i o n Financial statements (act ive f ishing) CASH FLOW, $ Name 1 year 2 year 3 year 4 year 5 year 6 year BEGINNING CASH 0,00 2 000 000,00 8 625 835,26 36 749 844,10 45 985 123,34 116 419 759,80 OPERATIONS Revenue 0,00 47 092 500,00 62 790 000,00 125 580 000,00 188 370 000,00 251 160 000,00 Direct costs 0,00 -8 888 164,74 -11 850 886,32 -23 701 772,64 -35 552 658,96 -47 403 545,28 Salary 0,00 -8 296 500,00 -10 131 000,00 -12 126 000,00 -14 583 000,00 -14 583 000,00 General costs 0,00 -1 282 000,00 -1 616 000,00 -3 232 000,00 -4 848 000,00 -6 464 000,00 Taxes 0,00 0,00 -7 068 104,84 -11 691 614,79 -27 095 037,91 -43 162 469,36 Cash flows from operations 0,00 28 625 835,26 32 124 008,84 74 828 612,57 74 826 945,91 139 546 985,36 INVESTMENTS 0,00 Вuildings -10 000 000,00 -5 500 000,00 -2 000 000,00 -3 500 000,00 0,00 0,00 Production lines -20 000 000,00 -14 000 000,00 -33 500 000,00 -28 500 000,00 -20 000 000,00 -10 000 000,00 Other expences -3 000 000,00 -2 500 000,00 -2 500 000,00 -3 000 000,00 -3 000 000,00 -3 000 000,00 Cash flows from investments -33 000 000,00 -22 000 000,00 -38 000 000,00 -35 000 000,00 -23 000 000,00 -13 000 000,00 FINANCIALS Investor funding 35 000 000,00 0,00 0,00 0,00 0,00 0,00 Loans 0,00 0,00 34 000 000,00 0,00 0,00 0,00 Loans repayment 0,00 0,00 0,00 -30 000 000,00 -13 000 000,00 0,00 Payment of interest on loans 0,00 0,00 0,00 -593 333,33 143 333,33 360 000,00 Cash flows from financinals 35 000 000,00 0,00 34 000 000,00 -30 593 333,33 -12 856 666,67 360 000,00 Changes in Cash 2 000 000,00 6 625 835,26 28 124 008,84 9 235 279,24 70 434 636,46 70 473 803,13 ENDING CASH 2 000 000,00 8 625 835,26 36 749 844,10 45 985 123,34 116 419 759,80 186 893 562,93
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