The Economic Evaluation of a Closed Containment System
For Salmon Aquaculture in British Columbia

Clara Pui KiNg
B.A., University ofBritish Columbia, 2004

Project Submitted In Partial Fulfillment Of
The Requirements for The Degree Of
Master of Business Administration

UNIVERSITY OF NORTHERN
BRITISH COLUMBIA

LIBRARY

Prince George, BC

The University Of Northern British Columbia
April2008
© Clara Ng, 2008

Table of Contents

Executive Summary .................................................................................................... 4
List of Tables ............................................................................................................... 7
List of Figures .............................................................................................................. 8
Acknowledgements .................................................................................................... 9
Introduction ............................................................................................................... 10
Background ................................................................................................................ 12
History ........ .. ..... .... .. .. ....... ...... ............ ............................... ... ...... .............................. 12
Industry: Economic Impacts and Prospects of the BC Salmon Industry ............... ...... 14

Problem Statement: ................................................................................................... 16
Importance of the study .. ........ ........ ...... .. .. ... .... ................... .... .... .... ......... ........ ........ .. 16
Purpose of this paper ...... ............................. ... ....... .. .. ....... .. ... .......... .. ...... .................. 17

Literature Review ...................................................................................................... 18
Conclusion of critique of reviewed literature: ..... ......... ....... .. ........... .. .... .... ........ ..... ... 25

Evaluation of Various Methods: ............................................................................. 27
1) Open-Net Pens (Current Practice) .. .. ............... ............. .... ... .. .. ............ ............. ..... 28
2) Ocean - Based Closed Confinement Flow Thorough Systems (Flexible Walls) ...... 29
3) Land Based Closed Containment ... .... ........ .... .......... ..... .... ..... ....... .. ... ........ ........... 34
4) Ocean-Based Closed Containment Overview ............... ...... ................ ............... .. .. 39

Methodology .............................................................................................................. 41
Overview .. ............... ........ ........ ............ ...... .......... ........................ .... ........... .............. 41

Ocean-Based Closed Containment Costs ............................................................... 42
2

Factors Affecting Cost of Closed Containment ..................................................... 44
Location ... ................ .. ....... ... ..... .. ...... ....... ... ............ .. .... ................. ...... .... .......... ... .... 44
Production levels and fish density ... ................ ............. .... .... .... .... ........ ........ ...... ...... . 45
Energy Consumption .. ................. ...... .......... ..................... .... ..... ... ...... ........... ............ 46
Economies of Scale ........ .... ... .... .... ........ ........ .. ..... ...... ... ... ...... .. ......... .. .......... .... ........ 4 7
Environment ................. ... ...... ........ ... .............. ........ ...... ... .......................... ............ ... 50
Other Costs .. ... .................... ........ ...... ...... .................... ..... ....... ............................... ... 51

Results ........................................................................................................................ 53
Conclusion ................................................................................................................. 54
Observations ....................................... ....... ..... .. ........... .... ... .... .... .... ..... ..... ............. ... 54
Scope of Study/Lessons Learned .................................... .. .... ........... ...... ............... ..... 57
Recommendations ...... ................. ........ .......... .......... ...... ... ..... ......... .......... ..... ......... ... 59

Literature Cites .......................................................................................................... 60

3

Executive Summary
There has been substantial pressure from environmental groups as well as the
British Columbia Government to move towards a sustainable and environmental
way of salmon fish farming. The current method of open net fish farming, where
no barrier is created between the farmed salmon and the environment has been
argued to be hazardous to the environment. In May 2007, the legislature's
sustainable aquaculture committee stated that there is "serious or irreversible
harm" in the current practice of salmon fish farming. The report recommended a
"rapid, phased transition" away from the current practice to a closed
containment method of salmon fish farming.

Several closed containment methods attempted in the past have not been
economically feasible. The ones that I will discuss in this paper are the closed
containment method with flexible walls and land based closed containment. The
closed containment with flexible walls method gives little confidence to users.
The land-based closed containment method is limited due to high costs and the
scarcity of land. This paper will discuss and evaluate the feasibility of the new
suggested method of salmon fish farming which is the ocean-based closed
containment method. From my findings, the ocean-based closed containment
method is approximately three times higher in cost than the current method of
open-net fish farming. However, the long term cost reduction effects which
includes economies of scale and advances in knowledge and farming technique
using this new method have still yet to be determined.

4

The methodology that I have chosen to use for this analysis is secondary research
from published papers, journals, articles, government reports and past farm data.
The key literature that I have reviewed for this paper is the full report from the
British Columbia Ministry of Agriculture, Food and Fisheries, June 2003.
Performance Evaluation of a Pilot Scale Land-Based Salmon Farm, Final Report
to the Special Committee on Sustainable Aquaculture, (May 2007) as well as
several other key published papers on salmon farming.

The result of my research has found that the other attempted techniques, which
include land-based closed containment method and the flexible walls closed
containment method, are high in costs and do not give user confidence. The
ocean-based closed containment method is roughly three times the cost of the
open-net pens farming technique.

This paper attempts to provide and cope

with the uncertainty of the costs that adds difficulty to the real world industrial
location problems.

While there may be many possible variations to this

framework, my paper explores the very basic requirement of closed containment
which is the location, fish feed, energy, economies of scale and environmental
impacts. Although an attempt has been made in this research to provide an
analysis of the costs of the ocean-based closed containment, a more thorough
analysis is still necessary to provide an accurate picture of the actual costs in the
long run of the method.

To date, the ocean-based closed containment method is regarded as a viable
option, however, due to the limitations of data and the time constraint of this
project, a thorough analysis of a real life commercial scale ocean-based salmon

5

farm could not be provided. The results of this paper can be used to assist with
the future evaluations of the long-term effects of the ocean-based closed
containment method of salmon fish farming technique.

6

List of Tables

Table 1: Cost of Net Pen System vs. SARGO System ..... .... ............. ... .............. ....... 34
Table 2: Advantages of Using Land Based Fish Farms .. ........ ...... ... ...... ............ ... ... 35
Table 3: Performance Evaluation for a Pilot Scale Land-Based Salmon Farm,
Ministry of Agriculture Food and Fisheries, June 2003 ... ....... .... ..... .......... 37
Table 4: Land Based Fish Farm vs. Net Pen Farm .. ....... ...... .................................. .. 39
Table 5: 1995 data from SRAC Publication No.456 ........ ............ ........ .... ...... ........... 48
Table 6: Statistics Canada .... ............ .. .......... .......................................... .. 65

7

List of Figures
Figure 1: Flow through systems with solid walls .. .... ....... ...... ........ ....... ....... .... ... .... 30
Figure 2: Schematic drawing of Future SEA Technologies' system ............................... 32

Figure 3: SARGO Sample .......... ........... ............. ................................. ............... .... ... . 33
Figure 4: Cost Factors for Land Based Closed Containment ........ .... ............... ....... 38
Figure 5: Closed Containment. ...................................................................................... 40

Figure 6: Closed Containment Costs .... ........ .................. ......... .. .... ....... ......... .... ....... 43

8

Acknowledgements
I would like to thank my supervisors Prof. Theo van der Pol and Dr. Scott McKinley for
their expert knowledge, insightful criticisms and patient encouragement which aided in
the writing of this paper in innumerable ways. I would like to thank my loving family for
providing me constant encouragements and with the opportunity to gain this tremendous
education. Finally, I would like to thank the authors referenced of which without whom,
none of this discussion could have taken place.

9

Introduction
British Columbia Aquaculture has been one of the fastest growing food
production activities in the world. One of the newest and fastest growing types
of aquaculture is salmon farming. British Columbia is the world's fourth largest
farmed salmon producing region, fourth to Norway, Chile and the UK. The
current practice in salmon farming is primarily open pen salmon farms. Net
pens range in size but are generally approximately 30m2 in width. Simply put,
nets are placed into the water and the salmon are farmed inside the nets. There
are many social, economical and environmental issues associated with the use of
open net fish farms and will be further discussed in this paper. An alternative
method is Closed Containment method, which is defined as either a land or a
floating barrier technology that ensures no contact between wild and farmed fish
with minimal release of waste into the marine environment.

In a meeting by the BC legislature committee held in Victoria, BC, it was argued

that the current fish farming practice is too risky since it creates no barrier
between the farmed salmon and the environment. The legislature results stated
that the current fish farming practices (open net fish farms) are simply too risky
to continue and innovation is needed to move all fish farms into a closedcontainment method.

(The Canadian Press, May 16, 2007 issue) .

The

legislature's sustainable aquaculture committee says the risk of "serious or
irreversible harm" to wild salmon, particularly if they are hit with sea lice
infestations in the vicinity of fish farms, makes it urgent for government to force
the industry to overhaul its farming practices. The report recommends a "rapid,

10

phased transition" away from conventional open-pen sea farming to closed
containment pens that provide an impenetrable biological barrier between wild
and farmed salmon. (The Vancouver Sun, May 17, 2007) 1

The BC government and the industry will begin immediately to fund the
development of the technology within three years, and allow the industry
another two years for their transition.

It has been argued that the commercial scale land-based closed containment farm
were significantly higher in cost than the current open-net pen practice. My
research paper is to investigate, compare and contrast how much more costly the
closed containments are relative to the open nets. In this research paper, I will
briefly discuss the problems associated with that of the open net fish farming
technique, using literature searches to support and explain such problems. I will
then compare the two methods, and discuss the key issues pertaining to the
closed containment versus the open net method. Lastly, I will provide a cost
analysis of implementing the closed containment as an alternate method to fish
farming and determine and conclude on my argument of the best method of
salmon fish farming available.

A goal of this report is to expand and deepen the current public understanding
about the potential impacts of open net fish farming technique versus the oceanbased closed containment method.

This will be done through examining,

evaluating and accessing the secondary information available through literature
1

http ://www.canada.com/vancouversun/story.html ?id=47bffed4-2ce5-4316-904a-03fl41 b79679&k=791

11

searches. As well, the paper will explore alternative methods of salmon fish
farming such as land based closed containment as well as flow through systems.
A cost benefit analysis for the ocean-based closed containment will be completed
for a thorough evaluation of the viability of the new technique.

I hypothesize that the closed containment is initially more costly than the open
net fish farming technique because of the set up costs. It is my research topic to
find out how feasible the land-based as compared to the ocean-based closed
containments are and if possible, how much more expensive these alternatives
are as methods of salmon fish farming. My aim is that my analysis will include
data that permits a discussion of potential environmental impacts and economies
of scale.

Background
History
In a global context, the fish populations are rapidly collapsing because of overharvesting. As well, this effect is also a result of the dramatic increase in demand
and consumption of fish protein.

Furthermore, there has been a rapid

degradation of marine ecosystems due to changes in ocean temperatures, which
has resulted in a negative effect to fish stocks. There has been considerable
discussion to develop and adopt technologies that can deliver best practices to
minimize further impacts to marine ecosystems and therefore meet the evergrowing demand for seafood.

British Columbia is fortunate to have an

environment that has the potential to produce a large quantity of cultured
salmon. In addition, British Columbia, because of the location, has great

12

opportunities for increasing aquaculture production through the adoption of
state-of-the-art technologies.

The salmon industry in BC is divided into three major sectors, aquaculture,
commercial fishing and sport fishing. Salmon farming in British Columbia has
grown dramatically in the past two decades. In the years 1982 to 2005, BC
salmon farming production rose substantially, overtaking the wild salmon
harvest, producing at 70,600 tones or 73% of BC' s combined harvest of wild and
farmed salmon. The average landed price in 2005 was $1.30 per kg for wild
salmon and $4.50 per kg for farmed salmon. 2

Salmon farming began in the 1970s with small local farms, which started on the
Sunshine Coast producing Coho and Chinook salmon.

In the 1980s, large

international corporations bought out the local farms and started farming
Atlantic salmon. The fish farming production was at 27,000 tones in 1995 with
Atlantic salmon accounting for 67% of the total production.

In 1995, the

provincial government placed a memorandum for all new fish farm licenses and
conducted an environmental impact assessment review.

The price trends of the BC farmed salmon had experienced a number of price
changes in the past two decades.

2

Final Report to the Special Committee on Sustainable Aquaculture, May 2007

13

•

1987-1991 - Prices fell from higher levels first associated with the new
product with the increase in BC production

•

1990s -With Japanese's sluggish economy and reduced production costs,
there was a downward push in the farmed salmon prices

•

2000-2002 - With global production there was a leading drop in world
prices

•

2004 - Present- Prices have rebounded with higher US market demands

Industry: Economic Impacts and Prospects of the BC Salmon
Industry
Aside from being the fourth largest farmed salmon producer in the world, British
Columbia's farmed salmon is also the province' s largest agricultural export.
Salmon farming accounts for $371 million in direct output and contributed $134
million to provincial GDP in 2005. Firstly, the industry also provided 1,500 fulltime equivalent jobs. 3 Wild salmon accounts for $216 million in direct output
and $67 million in GDP. As well, it provides approximately 1,600 full-time
equivalent jobs. Lastly, salmon sport fishing accounts for $231 million in output
and contributes $116 million to provincial GDP and 2,280 full-time equivalent
jobs. 4

British Columbia's salmon farming industry nearly doubled in size from 1997 to
2005. This includes both production output and output value. The figures for

3

Final Report to the Special Committee on Sustainable Aquaculture, May 2007
MMK Consulting Data produced on behalf of BC Legislative Assembly's Special Committee on
Sustainable Aquaculture

4

14

2006 show a more than 15% increase in volume over 2005. In wild commercial
salmon, data shows a significant decline from 1997 to 2005. The output values
show a decrease of more than 30%. Lastly, in salmon sport fishing, the economic
indicators have also shown an overall decline in fishing activity since 1997. The
salmon farming industry's economic prospects are assessed as strong in the short
to medium term.

15

Problem Statement:
Importance of the study
British Columbia wild salmon's health as well as fish farm's impacts to the
environment had been an issue on the rise for the BC parliament. A Special
Committee on Sustainable Aquaculture was called in 2005 to review the current
state of the aquaculture in BC.

The result of the review was published in the

Final Report to the Parliament in May 2007 where it suggested that a "rapid,
phased transition" to ocean-based closed containment beginning immediately
after the release of the report. Within three years, the ocean-based closed
containment must be developed and in two years after that, the industry must
transition to this method.

The long term cost of the ocean-based closed

containment of salmon fish farming is still yet to be determined although
legislature has requested that all fish farms be transitioned to this method in five
years. As well, the committee recommended that the provincial and federal
government along with the salmon aquaculture industry must finance and
conduct a full size commercial scale ocean-based fish farm.

Lastly, the

committee recommended that the provincial government provides incentives to
the aquaculture industry for the transition to this technology. Suggestions to
help with the financing of the transition includes possible tax credits, training
credits, incentives to support technology transition and incentives on training of
new technology.

16

Purpose of this paper
The purpose of this paper is to use information from various sources including
literature reviews, government data and industry analysis to provide and
analyze the costs of different methods of salmon farming, in particular, a
concentration on the ocean-based closed containment method of salmon farming.
It is not the intent of this paper, to give a complete analysis of the ocean based

closed containment method. A complete analysis would include factoring in cost
benefits from all sources such as environment, fish feed, and fish health. This
paper is an attempt to provide a first step to an analysis to the feasibility of the
ocean-based closed containment method of salmon fish farming in British
Columbia through researching secondary data, pilot fish farms, government
published papers and data available from salmon fishing publications.

17

Literature Review
The literature review indicated that there has not been sufficient research and
analyses performed on closed containment salmon fish farming technique.
Particularly, there have not been many published papers on the proper economic
analysis comparing the cost of open-net cages to a closed tank system. The
definition of a "proper analysis" includes factoring the disease outbreaks, algae
blooms, secondary income generated from waste collection, fish feed, economies
of scale, economic value per fish, and social impacts. The viability of the
implementation, long term economies of scale, environmental cost savings from
social impacts of the environmentally safer method of the ocean-based closed
containment technology into a viable commercial operation is still yet unknown.
My research was to focus on the cost of implementing, maintaining and
sustaining the ocean-based closed containment method of salmon farming
through an analysis of closed containment salmon aquaculture tanks and
comparing that to the open net fish farms.

From my literature review I found there had only been very few implementation
projects performed in the past decade for closed containment method of salmon
fish farming. In an article by Pendleton, in 2005 titled "Closing in on
Environmentally Sound Salmon Aquaculture: A Fresh Look at the Economics of
Closed Tank Systems", Pendleton described in detail on one of the three closed
containment projects.

Two out of the three closed containment projects

performed were by private fish farming corporations in which no data were
released to the public. I was able to gather the full report on the British Columbia
Ministry of Agriculture, Food and Fisheries. June 2003. Performance Evaluation
18

of a Pilot Scale Land-Based Salmon Farm, in which I will further discuss and
provide critical key methods and my insights on the report. Another key report
relevant to my research paper was the Final Report of the Special Committee on
Sustainable Aquaculture for the Third Session of the Thirty-Eighth Parliament,
which reported the committee's activities from November 2005-May 2007
(Volume One & Two). Volume one of the reports provided the economic trends,
economic impacts, economics prospects with recommendations to Parliament.
Furthermore, Volume two provided the prospects of the BC salmon industry.
Because of the timelines of this report, it was especially relevant to my research
paper on closed containment and on salmon fish farming, particularly in British
Columbia. Other key literatures that I found to be relevant were literature that
provided information on the impacts the open net fish farms that include factors
such as sea lice, fish health and fish escapes. As well, the literature also provided
key information on the salmon production in BC and the industry growth
globally.

In my literature review, I will discuss a few key studies that were particularly
useful to my topic of costs.

These studies include: pilot studies of closed

containment reports, government issued documents as well as academic journals
that have performed research in the past ten years on the open net fish farms. I
will then conclude with the review of each of literature and describe in detail
why I think some information may have been neglected or why the research
done on the topic is so minimal.

19

A request for proposal by the Ministry of Agriculture, Food and Fisheries in the
summer of 2000 was granted in June 2003 to Agrimarine's for a proposal to
renew an existing land-based salmon farm in Cedar.

The Ministry of

Agriculture, Food and Fisheries wanted to attract public interest and investments
to test and experiment the new technology.

The land-based closed containment method used in this study was the
implementation of eight 18-foot deep concrete tanks, holding 750,000 liters of
seawater.

The results of this pilot project found that the average cost of

production across all the three tested species which included Coho, Chinook and
Atlantic was roughly $5.02 per pound (Table 1). 5 The feed conversion rate was at
1.2. It was found that the performance of the Coho in the land based system
tanks was comparable to those of the Atlantic salmon in the open nets. It is
important to note that the price derived from this project did not include the cost
of boxes or transportation from the processor to the distributors. It would be
estimated that the cost of transportation would be $0.15 per pound, and
distributor price at $3.40. The price of Coho in 2002 was around $2.24. The
rental cost of the four tanks was $97,880. The original cost for the site was
$1 million for the land and $7 million for construction. In 1997, it was estimated
that the capital costs for 1000 tonnes land-based facility were roughly $21 to $27
million with full water re-use systems. Depreciating this over 20 years would
result in an annual cost of $1 - $2 million. This is roughly 10 to 20 times the rental

5

Performance Evaluation for a Pilot Scale Land-Based Salmon Farm, Ministry of Agriculture Food and
Fisheries, June 2003

20

fee. The key result of this study was that the land-based closed containment,
given the current re-circulation method, is not a feasible method of salmon fish
farming.

A shortcoming of this report was that the project indicated that a land-based
closed containment of salmon fish farming was most likely not economically
viable although the project did not have significant data on the improvements in
economies of scale, reduced oxygen costs and improved techniques over the
years. Accurate inventory and cost accounting are also key factors in reducing
costs of production. Nevertheless, the project given the high cost of capital
expenditure and the scarcity of land required to implement the new land based
facility is not economically viable for fish farming.

In evaluating the current method of open-net fish farms, a key publication that I
found useful and relevant was the Nash, Colin E. 2000. Aquaculture risk
management and marine mammal interactions in the Pacific Northwest.
Aquaculture 183, (3-4). Nash expands on the key business risks to open net fish

farms. One of which is the production lost to the marine mammals because of
direct predation. The second is the lost production in the fish due to the loss in
body weight. The loss in fish feed through the nets due to the poor feed
conversion efficiency whereby predators or other fishes are able to feed on the
fish feed. Lastly, Nash also evaluates the loss of production in the form of fish
escape through holes in the net pen walls. The three key issues as mentioned by

21

Nash, would all be prevented by a closed containment method of salmon fish
farming.
"In the sea lion season in Puget Sound, for example, one farm lost 86,000
salmon in 1996 through bites alone (not escapees through holes), and
another 114,000 fish in 1997. The farm later went into receivership. In
Canada, salmon losses from predation mortality and escapes due to
predator net damage accounted for nearly 200,000 fish in 1989 (Ruggeberg
and Booth, 1989), or 1% of total production. By 1996, total predation costs
were estimated as high as C$10 million (EAO, 1997). In Tasmania,
Australia, 235 attacks by male fur seals were recorded in 4 months on 15
farms producing Atlantic salmon and rainbow trout, and one farm lost
more than A $500,000 of fish in 1 year (Pemberton and Shaughnessy,
1993)." 6
The key methodology u sed in Nash's research was using past data from open net
fish farms. My main critique of this research was that the data are not relevant
enough as the industry, as well as cost has dramatically changed since then. Cost
of selling as well as the cost of production had increased since then. The latest
data in the report were in the 1990s.

A very relevant report submitted to Coastal Alliance for Aquaculture authored
by L. Pendleton on the economics of closed tank systems provided a muchneeded insight to my research paper. The article highlights the lack of a proper
analysis of closed containment system of salmon fish farming. Pendleton argues
that the closed tank can prevent the transmission of such disease parasites, waste
and fish escapes but have higher capital costs which have discouraged a wide
scale adoption of this technology. Pendleton questions whether the closed
containment method of salmon aquaculture is:
6

Nash, Colin E. [Reprint author]. 2000. Aquaculture risk management and marine
mammal interactions in the Pacific Northwest. Aquaculture 183, (3-4).

22

1. Financially viable or profitable

2. Financially competitive with current net-pen technology
3. Economically superior from society's perspective 7

Of the three open net systems, the article concentrated on the data that were only
available for Future SEA Technologies and Mariculture Systems. The article's
key findings found that the pilot projects fall short of providing long term
financial and economic impact of the closed containment systems.

By using

small scales to evaluate the cost, it does not put into account the economies of
scale and efficiency in techniques or the economic value of environmental and
social impacts, and long term financial returns. The article argues that results
from the projects have been presented in dollars per kg of fish produced when
the results should really show the marginal cost for each additional output. As
well, it argues that the cost must be provided in units that reflect the inputs in
which the costs are associated with. In time horizons, it argues that the existing
reports only focuses on short term and in order to properly analyze the cost of
the closed containment, a long term (15-20 years) analysis is required. With this
closed containment technology being so recent, it is difficult to properly compare
it with the full matured open net pen technology. The environmental costs and
environment factors such as government taxes, subsidies, impact on disease
outbreak and waste management should also be put into consideration when
examining the closed containment method of salmon fish farming.

7

Pendleton, L. 2005. Closing in on Environmentally Sound Salmon Aquaculture: A
Fresh Look at the Economics of Closed Tank Systems.

23

Pendleton argues that: "Such an analysis would:
•

Determine whether closed tank aquaculture would be likely to produce
"normal" or better financial returns for potential investors;

•

Examine the degree to which closed tank aquaculture would represent a
sound economic investment from society's perspective, including an
analysis of the potential "savings" to society if closed tank can overcome
many of the environmental concerns posed by net-pen aquaculture; and,

•

Determine if there are market failures that have prevented the adoption of
closed tank systems." 8

I agree with Pendleton's argument that sufficient research has not been
completed to date for a thorough analysis of the closed containment method.
Since the technology is still relatively new, economies of scale and increased
efficiency due to increased knowledge of the method is still yet to be determined.
The long-term efficiencies and benefits of the method still remain to be
demonstrated.

In evaluating the energy consumption of the closed containment versus other
systems, there has been limited literature completed to date. In my literature
review up to 2007, there had been less than 10 published studies on the energy
requirement of aquaculture systems, of which only three dealt with salmon
producing systems (Folke, 1988; Pitcher, 1977; Tyedmers, 2000). My review of
8

Pendleton, L. 2005. Closing in on Environmentally Sound Salmon Aquaculture: A
Fresh Look at the Economics of Closed Tank Systems.

24

the literature indicated that there has not been one single standard approach in
evaluating the energy use, which is useful for comparisons between the methods.

Conclusion of critique of reviewed literature:
To date, there have been minimal publicly available reports that are recent and
relevant to the studies on fish farming using the closed containment method,
particularly in British Columbia. There has been no published literature to
provide relevant financial data on a commercial size ocean-based closed
containment salmon fish farming.

One conclusion that can be drawn from the lack of literature is that the closed
containment technology is still a relatively new technology. The long term
positive or negative effect of the closed containment method is still not known.
Only smaller pilot projects have been completed to date of which none can
provide data on the long-term effects of the methods.

A second conclusion that I argue is that if the method of closed containment
method is proved to be more financially feasible and effective in the long run for
salmon fish farms, it could force the open net pens to adopt the closed
containment method at costs to the fish farms. Many of the private research
done by farm companies, if any, may not have been released to the public as to
avoid the unwanted set up and implementation costs of the closed containment

25

methods. Since the legislation was only passed in July 2007, the release of such
private research may not have been made to the public yet.

The following research paper will focus on the key elements for implementing
the closed containment method of salmon fish farming as well as providing an
estimated cost of the implementing, sustaining and maintaining the closed
containment method. In addition I will attempt to provide suggestions to
potential savings that would result from using the new method. With that
information I will explore which of the closed containment methods could be a
better method of salmon fish farming as opposed to the current open net pen
method.

26

Evaluation of Various Methods:
I have identified four methods of salmon fish farming which may be feasible in
British Columbia. They are listed as per each of the four subheadings headings:
1) net pens
2) land-based flow through
3) ocean-based floating flow through and recycle (or partial recycle)
4) ocean-based closed containment.

It is found that net pens are harmful to the environment and the water.

Alternatively, flow through systems do not give enough user confidence due to
the use of fabric bags. It is argued that these bags can easily break causing the
farmed salmon to be exposed to the outside environment. As well, with the
higher costs compared to open nets, the flow through systems may not be the
best solution to creating a barrier between the farmed salmon and the outside
environment. The land-based closed containment is argued to be expensive due
to high land and energy costs. The option of ocean-based closed containment is
the most recommended and is seen to be the most viable and economic option of
salmon fish farming . Each of the four above-mentioned methods will be
discussed in the subsections further below.

27

1) Open-Net Pens (Current Practice)
Currently, British Columbia's salmon farming uses open net pens. Each net pen
ranges in size and there are generally 12 pens per site which can hold up to
thousands of fishes. The open-net pen fish farms are generally 30m2 in width
and can hold up to twelve pens per sites. There are currently 130 farm sites in
BC and 60-80 are stocked at any given time.

Open pen net farms are essentially nets that are placed into the water to farm
fish. In net pen farming, water is being flown through with natural water
currents with no human intervention. However, issues arise with infection of the
natural water and the environment, since there is no barrier between the farmed
salmon and the environment. It is estimated that net pens are roughly three
times cheaper than that of the closed containment methods.

The most commonly used netting material is a flexible nylon since it is relatively
inexpensive and can be treated with chemicals against anti-fouling. Some other
types of netting material include rigid plastic, galvanized or plastic coated steel.

The current open-net pen salmon farms, as currently operated have raised many
concerns about the impact to the marine environment such as fish waste, salmon
escapes and sea lice. Problems associated with open-net-cage salmon farming
include: 9

•
9

Sea lice and disease from farmed salmon threaten wild stocks.
http :1/www. davidsuzuki .org/Oceans/Aquaculture/Salmon/defau It.asp

28

•

Pollution from farms contaminates surrounding waters.

•

Drugs, including antibiotics, are required to keep farmed fish healthy.

•

Escapes of farmed fish (alien species) threaten native wild fish.

•

Net loss: Farmed fish are fed pellets made from other fish, depleting other
fish species on a global scale.

A recent meeting by the BC legislature committee held in Victoria, BC stated
that the current fish farming practices (open net fish farms) are simply too risky
to continue and innovation is needed to move all fish farms into a new, oceanbased-containment method. (The Canadian Press, May 16, 2007 issue). The BC
government and the industry will begin immediately to fund the development of
the technology so that within three years, the industry can take another two
years to transition. Hence, the current industry's method of open net pen
method of salmon fish farmed must be phased out and the key issue currently is
to find the most feasible way to farm salmon fish.

2) Ocean -Based Closed Confinement Flow Through Systems
(Flexible Walls)
There have been several companies that have developed the closed containment
method of ocean based salmon fish farming. The alternatives to open net pen
include, closed confinement flow through systems in the water where bags are
placed in the water to farm the salmon instead of in open net pens. Another is
the land-based closed containment where the salmon are farmed on land in
closed containments.

29

The companies that have developed closed containment methods include
Procean AS (Norway), FutureSEA Technologies (Canada) which developed a
flexible membrane while, Mariculture Systems (USA) developed a HDPE rigidwalled floating tank system. (Figure 1).

Figure 1: Flow through systems with solid walls 10

L

A flow through system allows for water, either pumped or gravity fed, to flow
through the fish tanks and then is pumped to flow waste. The water is typically
fully saturated with oxygen; where the fish will reduce this level before the water
is discharging. This method is often referred to as "one time" use of the water.
Some methods of land-based closed containment and ocean-based closed
containment use the method of flow through either through one time use or
partial recycle systems where secondary methods of water treatment are
implemented to extend the water usage. Because flow through systems are
essentially fabric bags where water is pumped through, there is a perceived lack

10

Source: www .sargo.net

30

in strength in the fabric material which causes lack of confidence in this method.
Fabric can tear and break, resulting in potential escapes of farmed salmon.

Another operating concept is a floating flow through containment system but
with solid walls and floor instead of fabric bags, also called a rigid flow through
system (Figure 2). This system was developed by Future SEA Technologies
where water is being pumped into the bags and the shapes of the bags are
maintained. Figure 2 represents a 15 meter in diameter by 11 meters deep
sample which has a total rearing volume of 2,000 cubic meters. The rigid walls
increase resistance to marine attacks and have better confinement characteristics.
The waste is concentrated and stored where it will be disposed weekly.
However, because these methods have walls, it is necessary to pump water
through the system to provide dissolved oxygen and remove metabolic waste
(Colt, 1991; Colt and Tomasso, 2001). Energy is one of the high cost drivers in this
particular method of salmon fish farming.

31

Figure 2: Schematic drawing of Future SEA Technologies' system

The sidewall of each reservoir is a rigid cylindrical tank fabricated from a
minimum 5 I 16" thick sheets of solid High Density Polyethylene HDPE. The
standard reservoirs are 18.5-meters (62.75 feet) inside diameter by 10.75-meters
(35.3 feet) deep at the sidewall, with 9.3-meters (29.6 feet) below the waterline.
The recycle system separates the solid wastes from water. The solids can be
pumped to land based collection pit/ pond which, when dried, can be sold as
fertilizer. One tank has a rearing volume of each tank is 2500 cubic meters. Each
tank is capable of producing 125 metric tons of fish per grow-out cycle. The
system as specified above has not yet been tested though opportunities for such

32

testing are being sought. Its project operating and financial performance is as per
below (Table 1) 11
Figure 3: SARGO Sample

Optlonai~Jat:::===:=::::;..

Cover

r IOVertlow I

,....

11

lank

Wall

www.sargo.net

33

Table 1: Cost of Net Pen System vs. SARGO System

Assumption
Size- Pens, Reservoirs (meters)
Volume- Pens, Reservoirs (m3)
Loading Density@ Harvest (Kg/m3)
Number Required@ 440 Metric Tons per Year
Total Installed Cost for System
Production Cost per Pound - Smolts
Production Cost per Pound - Feed
Production Cost per Pound - Labor
Production Cost per Pound - Other
Total Cost per Pound
Cost Advantage per Pound of Fish

NetPen
System
15 X 15 X 6
1,800
10
40
$2,000,000.00
$0.24
$0.68
$0.36
$0.22
$1.50
-0-

SARGO Flow
Through
System
18.5 Dia. x 10
2,500
50
4
$1,700,000.00
$0.17
$0.57
$0.09
$0.21
$1.04
$0.46

3) Land Based Closed Containment
Land based closed containment systems are essentially large concrete cylinders
that are placed above water and on the land. Inside, the systems are used to farm
salmon. It is argued that these land based containments are high in costs because
of scarcity of land as well as high energy costs. For this method, enough land has
to be available at the correct elevation above sea level and be of close proximity
to the ocean. The land-based closed containment farms are significantly higher in
cost than the current net pen practice. As well, this method could create a
number of significant environmental impacts such as massive increase in the use
of energy and the waste disposal. This type of fish farming system is very
similar to the flow through closed containment systems but located on land. It
allows for better access and control of rearing tanks, but requires a significant
increase in pumping power. This requires a standby power system that must be
mandatory on-site to ensure fish's survival.

34

The land based closed containment method reduces risks associated with the
industry's current system of open-net pens. With this method, there is virtually
zero risk associated with sea lice and exposure to the marine environment. As
well, as compared to the current method, it allows for a much greater number of
stocking densities and faster growth rates . The faster growth rate of the
monitored salmon allows for a faster turnover in production of salmons which
reduces costs and allows for a greater number of production per year with the
same initial set up costs. In addition, a land-based closed containment can
reduce food consumption because of the greater monitoring of the fish feed.
Other advantages also include pollution control and cost in harvesting. Since
this method is on land it can reduce the costs of transportation and delivery. The
advantages to the land based closed containment is summarized as per table
below in Table 2.

Table 2: Advantages of Using Land Based Fish Farms
Advantages Of Using Land Based Fish Farms
1. Greatly reduce risks: Reduces mortality, stress and disease level and very
little risk of foul weather damage
2. Much higher stocking densities are achieved
3. Much faster growth than net pens
4. Lower food consumption
5. Reduced cost of harvesting I slaughtering and packaging
6. Elaborate pollution control is an integral part of the system
7. Complete separation of cultured and wild environments, minimizing risk
of an accident to zero

35

A pilot project in an attempt to determine the cost of land-based closed
containment fish farming was the AgriMarine's proposal. AgriMarine proposed
to renew operations at a pre-existing land-based salmon farm in Cedar, B.C. The
facility was initially built for the production of farmed salmon by Hagensborg
Resources in the 1980's. The site was an eight 18ft deep concrete tanks with each
tank holding 750m3 (750,000 liters) of seawater. The project's results found that
the cost of production for this site across all three species was $5.02 per pound.
According the AgriMarine, the price that the fish was received was $3.25 per
pound, which did not include transportation or distributor costs. The result of
this project concluded that the cost of farming the salmon exceeds the cost that
the market is willing to purchase at.

This project resulted in data to further

argue that producing farmed salmon, particularly at this site, is not an
economically viable option.

Table 3 represents the data from the above project, which shows the cost of
production for Chinook and Coho salmon. The price that was received was
much less than the cost to produce and in the case of the Chinook, the cost
greatly exceeds the selling price.

36

Table 3: Performance Evaluation for a Pilot Scale Land-Based Salmon Farm, Ministry of
Agriculture Food and Fisheries, June 2003

Species
Total number of smolts
Ponding weight (grams)
Total pieces at harvest
Total pounds at harvest
Total harvest weight
Cost of production
Cost Factors
Farm labor
Feed
Oxygen
Hydro
Farm rental

R&D

Head Office
Total

Chinook
21000.00
142.00
7400.00
25513.00
3.45
$ 12.81

Coho
25220.00
18.00
21792.00
102760.00
4.72
$ 3.70

189,239
166,179
47,465
56,839
97,880
55,852
82,592
$696,046

A comparison between the cost of the land based closed containment systems
versus the open pen net farms is below (Table 4). From the cost analysis, it is
almost certain that the cost of the land based systems is much higher than the net
pen farm systems and that the land based fish farming technique is not an
economically feasible option given the current technology at that time. The data
in Table 4 show the initial operating capital for a land-based fish farm is much
greater than that of the open net pen farm systems. In order to set up the land-

based fish farm, an initial set up, construction and operating capital totals to
$10,800,000 compared to the net pen farm system of$ 1,500,000. However, the
table shows that the annual gross profits are higher for the land based fish farm.
Not only are the set up costs higher, the value of land also varies and since the
location of the site must be near water, the costs of the site are typically
extremely high and the land is rare and valuable. If this method was to be used

37

over a longer period of time, the annual profits might be able to offset the initial
set up costs.
Figure 4: Cost Factors for Land Based Closed Containment

Cost Factors: Land Based Closed Containment

12%

I o Farm labor

1

• Feed
o Oxygen
o Hydro
14%

• Fam rental

o R&D
• Head Office

In conclusion, land based systems of closed containment systems for salmon do
not appear to be economically viable given the technology method at the time of
the project in June 2003. Nevertheless, land-based closed containment system is
the only method that minimizes the risk of an accident of exposing the farmed
salmon to the marine environment to close to zero.

The table below represents the cost of the pilot project of the land-based closed
containment versus the current method of net pen farm system. The return on
investment is close to 100%, which makes it seem a viable method. The initial set
up cost is extremely high as compared to the net pen farm systems. It would be
burdensome for a fish farm to have to finance $10,000,000 to set up this new
method. However, it would be possible for fish farms, if the government was to

38

subsidize some of the set up costs to take away some of the financial burden
from the fish farms.
Table 4: Land Based Fish Farm vs. Net Pen Farm

LAND BASED FISH FARM
800m3
20 Tanks- Diameter 12m x
4mhigh
(Diameter 39 ft x 13 ft high)

Cost
Construction and Set up $
8,000,000.00
Costs

$

2,800,000.00
Initial Operating Capital
Annual Gross Production
845000 kg
Annual
Revenue
at
$10,562,000.00
$12.50/kg
Annual Production Cost: $
2,560,000.00
$3.035/kg
$
Annual Gross Profits
8,002,000.00

NET PEN FARM SYSTEM
800m3
14 sq. nets (12xl2x4m
depth
(39x39x14ft.depth)

Cost
Construction and Set up $
Costs
960,000.00

$

Initial Operating Capital
540,000.00
Annual Gross Production
120000kg
Annual
Revenue
at
$1,500,000.00
$12.50/kg
Annual Production Cost: $
360,000.00
$3.035/kg

Annual Gross Profits

$1,140,000.00

4) Ocean-Based Closed Containment Overview
Since land and energy for the land-based closed containment method of salmon
fish farming are rare and high in cost, another option is to bring the fish farm
closer to the water. We have seen that the flexible bags in the water to create
barrier results in low user confidence, a suggested solution may be the oceanbased closed containment method where the salmon can be farmed in the closed
containments inside the ocean. The close proximity can allow for cheaper
pumping energy costs and circumvents the scarcity of land, an issue associated
with land-based fish farming.

39

Ocean-based closed containment are defined as a floating barrier technology that
has no contact between wild and farmed fish which results in minimal waste
released into the environment. These tanks float in the water, similar to the open
net cages but use less energy than the land-based system. They do require inputs
of energy for water pumping in order to have proper oxygenation. Currently, all
commercial closed containment systems are operating to sell high priced and
niche products. These include salmon smolts, Tilapia, hybrid striped bass and
turbot. The system for low priced markets such as salmon still remains to be
determined. The following sections will be an analysis of the cost of the closed
containment and parameters in which the cost was derived.

A visual sample of the closed containment is shown below.

The diagram

represents concrete tanks with oxygen circulation systems that are placed into
the ocean to farm salmon. Within each tank, a number of salmon depending on
the size of the tanks can be farmed. The concrete creates a barrier between the
outside environment and the farmed salmon.

Figure 5: Closed Containment

40

Methodology
The method that I have chosen to use for this paper is to review secondary data
sources. I have researched and gathered some data samples from fish farms with
data on the cost to produce salmon and the price that it can be sold at. As well, I
have included suggestions to other factors that could influence the cost of this
method. A chart for the justification for reduction in costs due to economies of
scale has also been included in this section.

Overview
This section describes the assessment of the costs and benefits of the ocean based
closed containment method. A closed containment method creates a barrier
between the wild and the farmed salmon while reducing the high land and
energy costs associated with land-based closed containments. Although, the
land-based closed containment method has been proven with the technology
available at the time not feasible due to high set up costs, the ocean-based closed
containment method's feasibility is still yet to be determined. Research has
shown that salmon fish can grow more effectively in closed containments as
oppose to open net pens. It is further argued that in terms of rate of growth,
production per unit of rearing capacity, and food conversion efficiency, closed
containments are noticeably more efficient. The following will evaluate some of
the factors affecting cost of the ocean-based closed containment method of
salmon fish farming.

41

Ocean-Based Closed Containment Costs
A sample data of a closed containment method of salmon fish farming was
derived from 1995 numbers (Figure 5) . The farm was closed shortly after
opening due to the high cost of production at£ 4.10 versus the selling price of
£ 3.80. As well, the full breakdown of the production costs was not provided in
the data.

From the data provided, the cost of the production was higher than the cost of
selling price and hence, the method was considered not viable at that time.
Furthermore, there was no government legislation to enforce the use of closed
containment fish farms. However, in the analysis, the sample fish farm did not
use economies of scale to reduce the production costs nor were any other cost
factors such as environment, environmental impacts from fish farming, included
in their calculations of costs and selling price. From the data, it would seem that
the fish farm was not viable, however, I would argue that given more time, the
cost could have been significantly reduced because of the greater gain in
knowledge of farming techniques using new methods, the economies of scale
and the reduction in fish feed being wasted due to the closed containment. Since
the highest cost drivers are site and labor for fish farms, if labor can be kept
consistent with the current practice (i.e.: use the same amount of labor hours
with increased skilled farm employees) the costs may be comparable to the
current open-net pens in the long run.

An example of an attempt to pilot the use of the new closed containments would

be floating fiber-glass tanks in the 'Middle Bay Sustainable Aquaculture
42

Initiative' where a land based closed containment system is to be tested. The
research is a proposal to implement a large-scale evaluation of the floating
through system. It proposed to use solid walled tanks instead of fabric bags.
This project initially proposed to use concrete tanks but the cost and weight was
not justifiable. Four rearing tanks were constructed (7.5 m deep x 30 m diameter,
5500 m3 in volume). The project will be located north of Campbell River and has
received $1.2 million in funding from Gordon and Betty Moore Foundation and
will receive $2.4 million from the Canadian government. The first tank will be
constructed using FRP (fiberglass re-enforced plastic) and will be expected to
launch in February 2008.
Figure 6: Closed Containment Costsu

Sample Cost of Closed Containment Method (1995)
Species produced
System volume
Annual production
Max. potential production
Total water exchange (system
volumes I hour)
Total new (makeup) water per hour
Makeup water pump head
Pumping energy
Method of re-oxygenation

Atlantic
2640 m3 T4400 m2)
100 tonnes
120 tonnes
0.5
1250 m3/hr (350L/s)
18m
(350x18x1000) (102000x0.7) = 88kW
Aeration 140m3/min= 36kW
(88 +36)X24x365 = 1086240
~ p.a.;
9kW-h per kg@ £0.07 per unit= £0.63
per kg
Average 25 kg7m2 = 42 kg7m3
30 months
0.8:1 Guveniles) to 1.6:1 (Adults)
22%
* £ 4.10 per Kg live weight 13

Energy per kg fish produced
Normal maximum stocking density
Time to market size
FCR
Average mortality to market size
Production Cost
Selling Price (live-weight before
processing)
£ 3.80 per Kg live weight
12

Numbers derived from Golden Sea Produce, Fish Farm in Scotland

13

Sunday, December 31, 1995: I British Pound = 2.11718 Canadian Dollar

43

Factors Affecting Cost of Closed Containment
Location
Location is a key cost factor in evaluating whether the closed containment
method of salmon fish farming is viable. In order to find a suitable location,
there has to be substantial and suitable amounts of water supply. In a closed
containment, extensive amounts of water have to be pumped into the systems.
Pumping head is a major consideration since the site must be close to water to
conserve energy. A closer location to the water allows for reduction in energy
costs used for pumping. Upon deciding on a location for implementing the
closed containment fish farm, key cost drivers that are important with regards to
the location of fish farms are 14
•

Logistics (i.e.: access to shipping fish to market, or processing plants)

•

Availability and transport costs of key supplies such as fish feed

•

Employees and nature of vicinity where they are located

•

Location of key services (i.e.: maintenance)
Distance to markets

•

Availability of liquid oxygen

The factors as they are listed above can greatly reduce the cost of production per
fish if a suitable location is found . A shorter distance of shipping fish to the
market and processing plants can greatly reduce delivery and transportation
14

J.Ritchlin, 2006 . Testimony to the Special Committee on Sustainable Aquaculture in Minutes and
Hansard. http ://ww .leg.be.ca/CMT/3 8thparllsession-2/awuacul ture/hansard/W 60607p.htm(2of 98)
[10/ 1112007 8:52A:04AM]

44

costs. As well, if the location selected has enough human and fish farming
resources, it can also reduce these costs for the fish farms. Being able to hire
skilled employees to manage, oversee and maintain the fish farms in a location
where there is sufficient supply of skilled labor can reduce the labor costs of
hiring and training. Furthermore, in choosing a site location or an ocean-based
closed containment, waves, energy and wind data will also have to be factored in
before selecting a site. Weather is unpredictable and hence, a very close
monitoring of the waves and wind data will be necessary and evaluation for a
longer time period in order to select the appropriate location of the ocean-based
site. All these factors that are associated to location, which includes consultation
fees and time spent on locating a site is important in deriving the true cost of
implementing the ocean-based closed containment method since these factors
can determine the higher initial set up costs.

Production levels and fish density
Upon reviewing the published literature of salmon fish farming worldwide, little
to none of the fish farms was able to grow at levels of l,OOOmt or more in British
Columbia. In recent data of fish farms, between years 1980- 1990's, the levels
were normally 500mt per year or less. Reasons for this could be because large
fish farms are rare since it has only become more recent that studies show
economies of scale can drive costs down. Another reason would be the scarcity
of land where only a limited amount of land was available for the fish farms.
Lastly, fish farmers have been conservative as a large scale fish farm has a high
fixed cost of capital. The question arises whether closed containments can allow

45

for higher volumes of fish to be farmed at one time since it can allow for higher
stocking densities and higher output per unit of system volume.

One of the claims for the closed containment method as being more efficient
would be the less feed wastage since feed is fed directly to the fishes with none
being wasted into the water. Fish feed accounts for 50% of the cost of production
in fish farms. Even a 0.1 feed conversion ratio (FCR) improvement is significant
to fish farms. This could significantly offset the other costs of closed containment
system. Recent studies in BC farms have indicated FCR below 1.2:1, which is
impressive. It is also argued that the closed containment can allow for a faster
fish growth due to temperature regulation. Currently, typical time to grow
smolts to an average of 5.5 kg (salmon demands in BC to be at least 3kg of above)
is 22 to 23 months. If the growth can be accelerated, more fish can be produced in
shorter periods of time, which can also offset the cost of the closed containments
initial set up costs.

Energy Consumption
Energy demand to run a fish farm is a key factor to the many failures in closed
containment fish farms. With the ocean-based closed containments, the tide and
the pumping head distances can be reduced to allow for floating through
systems. The pumping heads can be kept at a minimum distance to reduce
energy costs. However, there is a risk associated with ocean based in that
concrete tanks can overturn in bad weather and therefore allowing fish and
disease escapes.

46

A draft paper produced for Department of Fisheries and Oceans attempted to do
an analysis to compare the resource and energy consumption of Atlantic salmon
facility producing 2,500 metric tonnes /cycle. Data was derived from five
different types of production systems, which included the open-net pen farms;
land based closed containment as well as the closed systems with flexible and
rigid walls. The results found that the open-net pen farms used the least amount
of energy whereas the land-based closed containment method used the greatest
amount of energy. However, the land based system's energy usage and cost can
be substantially reduced if re-circulation technologies are employed. The oceanbased closed containment in terms of energy usage fell in the middle which can
lead analysts to believe that the ocean-based method can be a better method than
land-based closed containment method in terms of energy usage. The oceanbased method option's energy consumption is yet to be determined but the
energy is almost for certain less than that of the land-based closed containment.
However, it is arguable that land based systems can be a viable options if recirculation technologies were used.

Economies of Scale
The following is an attempt to represent the cost savings through economies of
scale (Table 5). Economies of scale are defined as a reduction in the long-run
average and marginal costs due to an increase in size of an operating unit. 15 In
the case of fish farming, the cost of producing one fish can be reduced if greater
number of fishes is being farmed at the same time. Table 5 represents fish tanks
(Tank A and Tank B) of different stock size and volume that are being compared

47

against one another. The A1-A4 is the production stage for fish that remain
within the same tank. As can be seen, the feed cost is reduced significantly and
the feed conversion is improved as volumes in production increase. Through
economies of scale, the cost to produce salmon in an ocean-based closed
containment method can be reduced with time and hence, could justify for the
higher initial costs of farming.

In a closed containment method, high density

fish rearing is possible because it allows for a more controlled rearing
environment. In the 1995 data as per Table 5, as the size of the stocks increased,
the survival rates and feed conversion rates increased. As well, the feed cost
reduced. These are high cost savings for fish farms. With the reduction in
mortality rates, there will be a greater amount of production and hence, more
fish can be sold at the same time.
Table 5: 1995 Data from SRAC Publication No.456

Operating Parameters Per Production Unit
Growout tank
Al
TankA TankB
Water volume,
gallons
1500
Size stocked
(grams)
1
Size harvested
(grams)
15
Survival rate
85%
Feed cost, per
pound
$0.52
Feed
conversion
1

15

A2

A3

A4

4000

15000

15000

15000

15000

15

30

135

250

385

60
99%

135
99%

250
99%

385
99%

567
99%

$0.21

$0.21

$0.21

$0.21

1.3

1.6

1.6

1.6

$
1.1

0.38

http://www.businessdictionary.com!definition/ economies-of-scale.html

48

In an ideal situation, the fish density, in theory, should not exceed the levels
where the growth of the fish is compromised. In my literature review, I have
found information that show the maximum loading density and how high the
density in fish tanks can be without limiting the optimal fish growth. At a high
rearing density, it is important to review and compare the water quality which
includes the oxygen demands of the salmon as well as carbon dioxide and
ammonia levels in the water.

The results found that the mean TGC (thermal growth coefficient) in a number of
Atlantic salmon post-smolts studies is 2.7. This growth rate should be attainable
in commercial size closed containment systems where the water quality can be
controlled. The TGC can be used to estimate growth of Atlantic salmon within
the temperature range between 4 and 14 oc which results in 2.3 for the industry's
current open net pen system. The result is that the TGC of the closed
containment is higher than that of the current industry practice. It is further
argued that the closed containment can maintain a food conversion ratio of close
to 1, whereas the ratio of current open net pens is 1.26 in the current commercial
farms.

As this is not a scientific paper but rather a business and cost analysis paper, a
further literature search and analysis on the fish conversion, oxygen levels and
water quality will be required in order to provide a more thorough analysis for
the results and justifications for limits on optimal fish growth using the closed
containment method. Such in depth research is beyond the scope of this paper

49

and the data on fish conversion, oxygen levels and water quality is found in the
publications presented here.

Environment
Advocates of the closed containments argue that the closed containment method
of salmon fish farming pose less risk to the environment than open net pens since
the environmental impacts of the closed containments are internalized. Closed
containment means that the environments of the farmed fish are being contained
within the systems. As well, it can reduce the fish diseases since it can be
contained in the closed containments whereas in open nets the environments of
the wild and farmed fishes have no barrier. This raises the question: how can
one evaluate the cost of environmental impacts in financial terms? One simple
suggestion is to do a cost benefit analysis of the investment if it was to be
performed versus if it was not to be performed. Furthermore, the levels of C02
and nitrate levels can also be quantified. Another cost that would be difficult to
quantify would be the public image of farmed fish polluting the environment,
which may result in a decrease of purchases from the consumers.

From my literature review, I was able to find some preliminary data for total
nitrogen and phosphorus levels per cycle. It is found that net pens produce
124,000 (kg/ cycle) of nitrogen and 51,000 (kg/ cycle of phosphorus. The close
containment produces 98,000-106,000 (kg I cycle) of nitrogen and 32,000-35,000
(kg/ cycle) of phosphorus. The closed containments produce significantly lower
levels of nitrogen and phosphorus levels per cycle. Health perception of farmed
fish is also a consideration when evaluating the systems.
50

These issues in relation to the environment are often difficult to quantify but can
bear significant costs to the fish farms.

A closed containment method can

mitigate these costs to the environment which could potentially have high
impacts to the net income of the farms.

Since many benefits such as

environmental improvements can not be determined using actual dollar figures,
the environment impacts should nonetheless also be factored into the equation of
evaluating the benefits of the ocean-based versus the land-based closed
containment method. Land-based closed containment has close to zero risk of
affecting the water but ocean-based still bear high risks as the farming is still in
the waters. Because these potential pollution and environmental improvements,
which could be factored into cost reduction, can only be justifiable in the long
term, the actual costs or benefits are yet to be determined. An equation involving
environmental impacts and or improvement should be included in evaluating
the benefits of the different types of methods.

Other Costs
Other costs that are also extremely relevant for a thorough analysis of the oceanbased containment method include recirculation savings/ costs, depreciation,
finance and staffing. The recirculation of water and the degrees of water reuse
can also affect the cost of the land and ocean-based closed containment method.
If better techniques can be found where waste can be picked up with new

systems designs, it could also potentially reduce costs. A more sophisticated
technology is still waiting to be developed.

51

Other cost factors not yet mentioned in this paper are of the depreciation and
financing costs. With land-based fish farms, land is required to be depreciated
over time. However, with the ocean-based technology, should the ocean also be
depreciated? If so, how should it be evaluated? The opportunity cost of putting
in the initial investment for the new method versus other potential business
opportunities is also a cost factor that should be evaluated when deciding on the
initial investment of ocean-based closed containment method of salmon fish
farming.

Lastly, the staffing costs to run the new technology would also be much greater
than in the open-net fish farms as practiced in the industry today. Having skilled
employees who are able to operate the closed containment will take much more
training than that the current open-net pens method. Not only would it take
time, it would take a lot of training in order to have trained the staff at their full
efficiency levels. How should the cost of training, education and the time it takes
for staff to "get the ball rolling" be evaluated?

Although I do not have answers nor literature reviews that have evaluated the
questions that I have posed, I think that it is important to include discussion
regarding these key cost factors for a more thorough analysis of the evaluation of
the ocean-based closed containment method of salmon fish farming.

52

Results
Of the data that have been found and published on the cost and the viability of
the closed containment method, none have proven that the closed containment
method is a viable option. It is certain that the initial cost of the concrete oceanbased closed containment is significantly higher than the open net fish farming
technique. There have been proposals such as the one from AgriMarine for a
$1 million dollar grant for research that was submitted to granting agencies
(Federal Western Economic Diversification) to research on the cost of the closed
containment method.

However, the grant request was rejected. Without

government funding it would be very difficult for a private company to fund
such a large scale research project as the initial set up costs are very high and the
return on investment is yet to be determined.

Research still needs to be done to determine the long-term viability of the oceanbased closed containment, which should include all aspects such as the
environmental savings, production level, fish feed and economies of scale. So
far, the pilot projects that have been completed to date have not been able to
come up with concrete numbers to justify for the sustainability of the method of
salmon fish farming. It is still three times higher than that of the open net pens.

Commercial scale trials in British Columbia are still at the implementation stages.
Perhaps, once it is up and running the economic and environmental benefits can
be more closely studied and documented for determining the viability of the
ocean-based closed containment method. A large scale project over a prolonged
period of time would be invaluable to further establish viability of the methods.

53

Conclusion
Observations
Upon reviewing the literature, it quickly became apparent that no such large
scale models of ocean-based, closed containment for salmon farming method
over a prolonged period of time exist. A prolonged period of time would be
fifteen to twenty years.

Researchers and fish farmers have attempted land-based closed containment
method but have found that given the technology at the time, the costs greatly
exceed the possible selling price of the salmon. It was then quickly regarded as
not a viable way of salmon farming without further research for a prolonged
period of time and advances in technology such as re-circulations. As noted in
the methods of salmon farming, that while pilot models make reasonable
research projects, they do not capture the characteristics of real-world cost
problems.

I have provided the initial analysis for the ocean-based closed containment
method of salmon fish farming which attempts to cope with the uncertainty of
the costs that adds difficulty to the real world industrial location problems.
While there may be many possible variations to this framework, the very basic
requirement of closed containment is the location, fish feed, energy, economies of
scale and environmental impacts. Although an attempt has been made in this
research to provide an analysis of the costs of the ocean-based closed

54

containment, a more thorough analysis is still necessary to provide an accurate
picture of the actual costs in the long run of the method.

The cost of the ocean-based closed containment method of salmon farming is
estimated to be three times that of the open-net fish farming technique.
Although the cost of a closed containment method is higher, it is a better option
of fish farming as compared to the current method of open net farms . An oceanbased closed containment method minimizes the exposure between wild and
farmed salmon.

Ocean-based closed containment method, although it can minimize many risks
as compared to the current method, it does not completely eliminate the risks to
the water and surrounding environment. Key problems associated with ocean
based closed containment method include location and weather. The oceanbased closed containment will have to be positioned in urban areas to be
connected to the electrical grid. As well, the containments in the water would be
perceived as unsightly. In addition, risks in changing harsh weather conditions
could potentially affect the containments resulting in risks of failures for the
method, which would expose potential harm to the environment.

The land-based closed containment method, although argued to be higher in
initial set up costs would be the best available option that can completely
separate the farmed salmon and the natural marine environment. It is the only
method that has the least risk of fish escapes and disease transfers. As well, if a
re-circulation technology is to be utilized, the land based system could be

55

potentially be proven to be a cheaper or comparable method to farm salmon as
opposed to the ocean based closed containment.

Until a better, less costly method can be found to farm salmon in a closed
containment, I would argue that the best option is still the land-based
containment method. Only this method has close to zero risk of fish escapes and
disease transfer in addition to completely separating the farmed and wild
salmon. It would be arguable that the land-based closed containment may be
higher in cost than the ocean-based method. However, I am convinced that
consumers would be willing to pay the slight price premium knowing that in the
land-based closed containment, there is zero risk (as opposed to ocean-based) of
fish disease, fish escapes and weather accidents that would potentially harm the
environment.

56

Scope of Study/Lessons Learned
Since the model of ocean-based closed containment method of salmon fish
farming has not been operated on a commercial scale, the benefits of the method
in the long run are still yet to be determined. It is not feasible for this project,
given the time and financial restraints, to compile a complete and thorough
study of the cost of the ocean-based closed containment for a commercial sized
farm. A thorough analysis would require various first sources of participation,
which may include aquaculture scientists, architects and would require the fish
farming industry to become involved in the research process from start to finish.

From the research to date, it is found that we can be certain that the closed
containment systems reduce operating and environment risks as compared to the
industry's open-net farming since it actively manages the pumping versus the
open-net which is passive management. Passive management is the attempt to
fix the situation after problems occur. In this ocean-based closed containment,
farms are actively reducing the environmental risk by avoiding the waste and
reducing the waste in the first place.

In addition to environmental waste, the

current proposed method will reduce risks such as phytoplankton blooms,
predators, low D02 and fish diseases exchanged between farmed and wild
salmon.

From the research completed for this paper, it is found that failure on fish farms
through utilizing other methods can be broadly segmented into equipment
failures, water related failures, management failures and biological failures. In
the past three decades, there have been many fish farms that have attempted to
57

use alternate methods of salmon fish farming such as land based closed
containment and flow through systems, of which none were successful. Given
the financial and environmental risk involved with ocean-based closed
containment, I would argue that land-based closed containment is currently the
most promising alternative to open net. However, the fish farm will have to go
through a very steep learning curve in order to gain competence, experience and
an understanding in order to increase performance and thus, reduce costs. The
main reason for many of the system failures in the past is that without a
continuous flow of water or supplemental oxygen, there is a great risk of
suffocating the fish. With better understanding of why other land-based fish
farms have failed, and better monitoring of the currently operating fish farms,
the odds of the land-based containment method being successful will be greatly
increased.

58

Recommendations
My recommendations for the switch between open-net fish farming to landbased closed containment of salmon fish farming is as follows:

1. Government subsidizes larger amounts of grant funding to have a

commercial size closed containment fish farms, including land based
closed containment method, with re-circulation technology built for
testing.
2. Analysis of this method for 5-10 years (longer term), even if the costs of
production is higher in the first few years of the implementation.
3. An analysis of the benefits of reduction in environmental impacts as well
as public negative perception of current practice.
4. Analysis of the cost reduction of economies of scale in production.
5. Further research on other alternative methods of salmon farming which
should include scientists, industry and government participation.
6. An analysis that contain key financial data that would present the inputs
and deliver key financial results such as production, profits and loss over
long term, financing costs, loss in opportunity costs and internal rates of
return.

59

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64

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