Title: Profitability analysis of abalone farming in Port Nolloth, in the Northern Cape Province, South Africa

Author(s): Adeleen Cloete
Final project
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The abalone industry in South Africa is known as one of the largest in the world. The country produced 1000 tons in 2008 (DEAT, 2008). Most of the abalone farms are located in the Western Cape Province due to the suitable environmental conditions and established infrastructure. The growth of abalone aquaculture is expected to continue. However, access to suitable coastal land and the dependence on wild harvest of seaweed may restrict further development around main nodes of abalone farming. The government has proposed the development of the Namaqualand Mariculture Park (NMP) in the Northern Cape province of South Africa. The NMP concept involves the development of complementary marine aquaculture activities sharing common infrastructure, where access to coastal land and good quality seawater is guaranteed. The running costs of the Mariculture Park will be met by charging the tenant aquaculture operations a monthly rent. The NMP could support a diverse number of mariculture operations but for the short term only an abalone land-based grow-out farm would be established. The current project evaluated the feasibility of abalone farming as the first aquaculture venture to be established in the NMP. In order to do this, a 120 ton production model was developed and the results used as input for the profitability model. The results from the production model estimated that 70.000 spat needs to be purchased monthly to sustain the 120 tonne annual production of the farm. The main result from the profitability model, the Net Present Value (NPV) for the two cash flow series was negative R 37 million and negative R 30 million, respectively. The Internal Rate of Return was less than the Marginal Attractive Rate assumed for the current project, indicating that abalone farming with the current assumptions is not a profitable venture. Sensitivity analysis indicated that the abalone farm is most sensitive to variations in the sales price and the quantity of abalone sold. This is important as revenue earned must cover the cost incurred by production. Relating this to the assumptions used for the current project, dried abalone requires larger animals than those usually grown on the majority of abalone farms producing live animals. Abalone farming is capital intensive and the longer production period for the current study leads to even higher production costs. High production costs have been cited as one of the main reasons for the poor economic performance of abalone aquaculture. The models can now be used to explore alternative production strategies taking into account variables that have a noticeable effect on profitability of abalone farming.

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