Risk Evaluation

Pallisade @Risk software used to optimise Integrated Multi Trophic Aquaculture (IMTA)

Aquaculture is a high risk business. Land based aquaculture is no exception but it can lessen some risks compared to other forms of aquaculture.

Some of the risks for aquaculture in NZ are:

The biology of most species is not well understood (compared to sheep, cattle and chickens)
Farming operations often rely on and are exposed to the natural elements (temperature fluctuations, storms and other catastrophic events such as earthquake or tsunami)
Disease risk, prevention and/or cure are poorly understood for most species
Sustainable (environmental) management may be difficult to achieve
Long culture periods until harvest (1 – 5 years)
Delicate larval and juvenile stages with some species
Poorly understood nutritional requirements
No specialist feed manufacturers in New Zealand
Few highly trained and/or experienced farm managers exist in New Zealand
Few fish vets and others with specialist aquaculture skills are limited
Very few experts in intensive RAS production
Currency fluctuation and exposure to exchange rates for exporters
Food safety (seafood can be a risky food to consume)
Loss of social licence
Environmental risks (e.g. pollution, algae blooms etc)
Complex mechanical and electronic equipment are susceptible to breakdowns (in RAS systems the fish are 100% reliant on the systems to maintain survival)
Reliance on the supply of services such as electricity
Loss of markets
Competition from lower priced suppliers of the same or alternative seafood

Many of these risks can be explored manually by manipulation of the assumptions used in the generic models. FCR and selling price should be studied in detail to appreciate the power that these two factors have over profitability. If these two factors work either positively or negatively together, the effects are significant and they will “make or break” the business.

NPFL suggest the use of the Excel add-on "@Risk" software (http://www.palisade.com/risk/) in the evaluation of aquaculture opportunities and we recommend this powerful tool to potential investors. This software is used worldwide in many industries and is highly regarded in aquaculture assessments. Its ability to run complex sensitivity analysis sets it apart from other solutions.

If potential aquaculture developers wish to further analyse their proposed development with "@Risk" software – they will need to take their results (their version of the model) to an organisation with expertise in the application and use of "@Risk" methods. Cawthron Institute in Nelson (http://www.cawthron.org.nz/) is one organisation that has experience with running "@Risk" software to analyse risks and sensitivities in aquaculture operations.

An example of the use of Pallisade "@Risk" software in Integrated multi-trophic aquaculture can be found at the following link.

Reid Environment Aquaculture Assessment

Another form of evaluation used to assess risk is PESTLE analysis (http://pestleanalysis.com/). PESTLE is a strategic framework for understanding external influences on a business or industry. By understanding these external environments, organizations can maximize the opportunities and minimize the threats to the organization.

The PESTLE analysis answers 6 key questions:

Political - What are the political factors that are likely to affect the business?
Economic - What are the economic factors that will affect the business?
Sociological - What cultural aspects are likely to affect the business?
Technological - What technological changes may affect the business?
Legal - What current and impending legislation will affect the business?
Environmental - What are the environmental considerations that may affect the business?

PESTLE analysis – risk and opportunity evaluation based on 6 key factors

Information on how to perform a PESTLE (or PESTEL) analysis is provided at the following links.