FreshMarket AquaFarm, Holyoke, MA

BUSINESS PLAN

Robert C. Biagi, Director
FreshMarket AquaFarm
401 Main St.
Holyoke, MA 01040

Statement of Purpose

FreshMarket AquaFarm's primary purpose is the direct marketing of live tilapia (a white fish) to specific ethnic markets within urban communities. These markets are primarily Asian, Latino, and African, and the customers are already familiar with the product and its handling. This is a relatively new approach to marketing this product, and is being used for several reasons. These are:

1) tilapia is becoming a lower priced commodity product, with
numerous sources around the country as well as imports. Wholesale prices are steadily decreasing over time, due to product supplies. Some tilapia is currently very low priced (lower than production costs here), although the quality is variable. The sale of a fresh, live fish guarantees product freshness, and is in fact a different product than either whole fish or fillets, and is
therefore not in competition with these products.

2) tilapia sales face competition from numerous other fish
products, most of which are fillets and purchased through
supermarkets. Tilapia fillets are rarely competitive with farmed
salmon or seafood such as cod. Again, live fish are a different
product, and can be marketed as such. Further, they are marketed to a different customer base.

3) live fish are primarily sought by those ethnic groups that are
familiar with tilapia. These are primarily southeast Asians, Latin
Americans, Africans and Caribbean Islanders. Although these are the primary consumers of live tilapia, neither market has been specifically targeted with live product,

4) the sale of live product in urban areas provides an economic
opportunity for those involved. For example, the addition of a
live tank in an existing retail food market is an opportunity for
that market location, but also provides an outlet for the farmed product that would not otherwise exist. FreshMarket AquaFarm has the technology to provide fresh, purged tilapia, live, delivered to order. This is a unique distribution channel for an otherwise unavailable product (live fish). Substantial market opportunities exist within different demographic zones, evidenced by the fact that over 120 million pounds of tilapia are consumed in the U.S. each year. This volume increases annually, and provides numerous employment opportunities.
At the same time, tilapia is not a high profile product like
salmon, and the standard supermarket outlets (observable to all) are not the main distribution channels. Given that a customer base exists, the opportunity is to provide the live product directly to the consumer.

Table of Contents
A. The business.

Description of the business
Facilities and Equipment
Business overview
Market analysis
Marketing program
Competition
Market Strategy
Management and Personnel
Uses of Capital
Risk Factors
Summary

B. Financial Data.

Financial data and discussion
14
Budget
16
Long Term Decisions
17
Situation and Outlook
18
Appendix A: Infrastructure developmental
Appendix B: Budgets and cash flow projections
C. Supporting Documents
Copy of license agreement for facility
The Business: FreshMarket AquaFarm

Description of the Business
FreshMarket AquaFarm is a new business that was created
because of multiple opportunities in the marketplace. The business ("the company") perceived the opportunity in direct marketing live fish to specific ethnic populations that already were familiar with live tilapia. The concept is the result of an economic development effort through Nueva Esperanza, Inc., located in Holyoke. The company has access to live farm raised tilapia, and technical support. and other consultants. This is an excellent product, in a marketing environment in which demand exceeds the available supply. The major strength of the business is an extensive coalition network throughout several urban communities, including many unrelated ethnic communities. The business is managed by Dr. Robert Biagi, whose experience in community organization and
communications is directly applicable to community outreach and direct marketing.

The concept of direct marketing live fish served several
functions, (increased sales of tilapia, economic development in
urban zones with few other economic opportunities, accessing a
narrow niche market for tilapia that is not yet being targeted, and a modular holding tank setup which can be replicated throughout the region as soon as market opportunities are identified). Thus, if the model could be proven in one location (Holyoke/Springfield), it would justify expansion to other neighborhoods. Since the ethnic market is already familiar with the product, the problem is getting the live product to the market in sufficient quantity to be profitable. Rather than create new retail locations (although one is under development), existing retail food outlets have been targeted to determine their interest in installing holding tank facilities. The outlook is favorable since demand for live tilapia continues to outpace supplies, even though production has increased dramatically in each of the past five years.

Location
The business is currently located in Holyoke, MA, as an
economic development effort of Nueva Esperanza, Inc., a community development corporation, in cooperation with Northeast Utilities. Holyoke is adjacent to Springfield, MA, and is at the crossroads of I-91 and I-90. This provides access, within 30 minutes, to a number of urban markets with a large ethnic population. These include Hartford, CT., Worcester, MA., Albany, NY., and the Northampton/Amherst area. The site is only 90 minutes to Boston or Providence.

The business licenses a commercial building from Northeast
Utilities (Holyoke Water Power Co.). The Riverside Power
Generating Station is .25 miles north of the intersection of
Appleton and Water Streets in Holyoke. The area is in an
industrial zoned site, and bordered by the Connecticut River.
The site is very urban/industrial. Similar underutilized or even
abandoned sites exist in many urban areas.

The site slopes gradually southeast towards the river, with an
almost vertical slope on the bank. Access to the site is paved.
Surface drainage is into the Connecticut River. Soil type is
predominantly mixed fill, including rubble, coal, and coal ash
mixed with sand. This layer extends downwards up to 27 feet. The surface layer is coarse gravel. Activity on the site does not
affect any neighboring lots. The site has approximately 9,000
square feet of fenced property outside of the building which can
also be used for storage or production.

The production site is located in a steel quonset style
building constructed in 1943. The building has a concrete floor
and foundation, and is 120' x 41' x 20' high. The office is 600
square feet in an adjacent building. The building is licensed
through Northeast Utilities. The business owns and runs a
recirculating aquaculture system installed in the building, which
occupies about 2500 square feet. The building is currently
partitioned in half for the initial phase of production (for heat
conservation). Production facilities can be expanded into the
remainder of the building.

The site has a number of advantages. It has frontage on a
large open street, excellent access by any size vehicle, with
Adequate parking even for a semi-trailer. The 12,000 square foot
yard is fenced, and vehicles can also be parked in the yard. The
site is zoned industrial, and is surrounded by the canal, the
Connecticut River, and industrial buildings. Although there are no immediate neighbors, the site is easy walking access to two
residential neighborhoods.

The business is in the process of developing a delivery route
between Springfield, Holyoke, Northampton, and Worcester and Hartford, which would provide live fish throughout this region to satellite locations that are equipped to handle and sell the product. For the most part these are existing retail food establishments (primarily smaller markets) that serve an ethnic clientele. Note that these are interested cooperators, since each site also stands to benefit from increased sales.

Facilities

The license arrangement with Northeast Utilities is very
reasonable, but the building was not originally designed for fish
culture and some retrofitting was required. A copy of the license
agreement is included in section C. There exist considerable
heating and electrical costs which are necessary for continuous
operation. The 20' high ceiling is not conducive to heat
conservation, so the building was heavily insulated with urethane foam. The retrofitting took some additional time, but the building is now set up. One of the culture tanks is shown in Figure 1.

The business has to be run at a level which is large enough to
compensate for the overhead costs. The business is in Phase I of development, and the building has approximately 1500 square feet not yet being used for fish production or for filtration, and
expansion into this area would substantially increase capacity.
The building is partitioned in half at this time for insulative
purposes, and further expansion is possible. A description of
possible facilities improvements is included in Appendix A.
These improvements are not immediately necessary, but are viewed as part of the next phase of development in which a greater carrying capacity will be required.

The recirculating production system ("the system") was
designed as a holding facility for purging and holding fish. This
means that fish are put into clean filtered water, without feed,
for 48-96 hours to remove off-flavors which may exist. These
flavors may exist in fish grown under very high densities, even
though the fish can be grown well under crowded conditions. In
this system, the amount of organic loading is minimal, since the
fish are not being fed. The amount of filtration needed to operate
the system is minimal, with the exception of tanks in which fish
are being fed for growout. The business received considerable
assistance from Diamond Water Filtration Co., in Holyoke, which provided filters and design assistance. However, the system is not equipped with a high biomass biofilter, since the amount of organic loading was expected to be low.

In the event of a decline in water quality caused by fish
wastes, water can be changed when this group of fish is sold. Note that the fish are only in the system temporarily for purging, and are then sold, whereas in the production system the water quality must be maintained for months. The average holding time here is two to five days. If water quality declined, the tank can be refilled with clean water prior to receiving the next batch of fish. Fish are currently being held at lower than capacity
densities, and gradually sold. Fish are replaced as needed.

There are numerous variations on aquaculture systems, some of
which could be adopted here in order to increase the carrying
capacity of the system. This is especially important if the fish are going to be fed, or if they are going to be held for any length of time for additional growout. There are costs related to increasing capacity, but they would be justified if market demand is above a certain level. The primary value is in having control over larger volumes of product. Market share, however, is a more critical item at this time, and the limited cash flow resources of the company should be focused on increasing
sales. At the same time, it would be beneficial to build a
biofilter for each of the existing holding tanks, allowing for
increased capacity. This protects somewhat against mortalities
which can occur from water quality decline, and will save
considerably on time required to bring small loads of fish into the system. Tanks could be stocked to capacity, and would not have to be restocked immediately.

Equipment:

In addition to the recirculating system, the business operates
a transport vehicle equipped with aerated fish hauling tanks. In
this way live fish are transported from a breeding farm to the
facility, where they can be purged. Purged fish can then be
transported live to the final market destination. The business
currently uses a live tank in a pickup truck. This is an industry
standard and is the lowest cost way to move fish.

Pickup trucks are relatively inexpensive and live tanks are
custom sized to fit into the truck bed. Aeration is accomplished
by 12V tank aerators powered from the truck battery. A hauling
system with a larger capacity would be beneficial to the business when dealing with large orders, e.g. allowing for the transport of 500-1000 pounds at a time. This would require a trailer or larger truck, equipped with aeration and increased tank capacity. Water weighs 8 pounds/gallon, thus a tank with a 500 gallon capacity would weigh two tons, more than the average pick-up could carry.

Business overview:

The business is well set up to hold and deliver live and fresh
(iced) fish. High quality tilapia product is being grown by
a partner, and the business is set up as a distribution
channel and a secondary grower. The U.S. consumption of
tilapia has increased dramatically every year since 1995.
Production has also increased, but not at a pace to keep up with consumption. 80% of production is sold as live product, the
availability of which (in the Northeast) is very limited when
compared to demand. The market situation is favorable, and should continue to improve on the same trend.

The business is in a position to capitalize on the strong
demand, since it has access to an excellent product, a way to hold for grow-out as well as purge (clean) the product, and a way to deliver the product live to the customer. The business serves several intermediary functions, all of which add value to the product. The business is also in a position to research the viability of other product lines currently not available.

Although there is a lot of imported product (tilapia is the
third largest imported aquaculture item after shrimp and salmon), this product is frozen, and is not competitive with live, or ultra-fresh (harvested to order and delivered same day) products. At the same time, this product is viewed to some extent as a competitive product, even though it is not comparable. The imported frozen product is competitive in situations where no other options exist, which, in the Northeast, if often the case. Buyer's would prefer fresh fish over frozen, especially if (a) they had confidence in and knowledge of product quality and (b) the product was competitively priced.

Fish from crowded tanks with poor water quality often taste
murky or muddy, but this can be removed in a matter of days by
purging the fish in clean water without feed. Purged fish command a higher price because of the removal of off-flavors. The company provides live purged fish, which are marketed to distinguish this product from any processed tilapia product. There are some advantages in that there are no processing costs, or loss in weight due to processing loss. At the same time, there are additional costs in terms of moving live fish around in large hauling tanks.

One large wholesale account provides operating cash flow while
other markets are being developed. A second wholesale account is also being sought. Direct marketing a higher end product is the long term goal, and two products have been identified that have good market acceptance as well as higher value. Income projections for established wholesale accounts are fairly accurate (although low return per pound), and do exceed initial estimates. "Average" retail purchasing per customer, however, is variable, and may not be as high as the 3#/customer estimate made in earlier plans. This will also be variable over time, as some weeks will be better than others. However, the business can meet operating costs (without salary) on one wholesale account, which provides stability (regardless of temporary retail trends). The net gain/lb is lower than retail, but the return per unit effort is greater since this account can be provided for very efficiently. Maximum returns are from high end, very narrowly defined niche markets for specialty items, and this will be the marketing focus.

Market Analysis
The market analysis is based on actual market data for tilapia
consumption in the U.S. from 1996-present, in addition to market research in the Holyoke/Springfield area in 1998-2000. There are several factors of interest:

* the consumption of tilapia has increased each year since
1995. Tilapia is the third largest imported aquaculture product by weight, behind shrimp and salmon. Consumption is now over 120 million pounds per year.

* the live market dominated sales from domestic farms.
Prices for live fish have also increased steadily. Processed fish
accounted for only 20% of domestic sales from 1998-2000.

* tilapia are the fastest growing aquaculture species in the
U.S. Over 112 million pounds were consumed in 1998. At the same time, more than 90% of consumers surveyed had never tried them. This reflects a strong demand, in a narrow niche, which is predominantly ethnic.

The market analysis is based on the following assumptions.

1. There exist ethnic consumers that are familiar with tilapia.
These people are for the most part recent (first generation)
immigrants from countries where tilapia are common. The fish are preferred live, since this guarantees freshness. These cultures prefer the live fish. This group also knows how to handle and prepare live fish. Handling is otherwise an obstacle when attempting to sell whole fish to Americans that are used to buying fillets. The approach would be to market directly to ethnic neighborhoods, relying upon direct marketing and existing retail food markets (equipped to handle the live fish). The business would provide the technical support as well as sourcing the equipment in order for live holding tanks to be installed in these establishments. The market approach also requires a close
proximity to a consumer group (targeting specific neighborhoods), and then word of mouth to increase sales.

2. The ethnic market has not been specifically targeted as yet,
although they are the primary consumer of live tilapia. Sales of
live tilapia are low because there is no availability of live
product. Preliminary market tests, done by bringing a live-haul
truck to different neighborhoods confirmed the interest in the live
product. Fish are also salable fresh on ice, delivered same day,
as long as the consumer is confident about the source and
freshness.

3. If the live product could be efficiently distributed to
satellite retail locations that were equipped to handle live fish
(sufficiently sized tanks with aeration), the product would sell.
This has been proven with trout, lobster, and a number of other
products in supermarkets. The satellite locations must have the
following characteristics:

*existing retail license and site,

*there must be an adequate local population so that there is

*enough volume to justify the expense of setting up the
holding tanks at the location, and good parking and access

*not competing with another satellite location or other
tilapia market

The business is targeting this approach for a portion of
sales, since it would involve only the delivery to these holding
sites, rather than much more numerous direct market sales. These accounts would be more stable, and are needed to anchor some portion of the business.

4. A distribution system which could handle the target volume
could be made up of as many satellite locations as needed. By
satellite locations, we refer to facilities with a holding system,
as well as regular consistent customers, such as restaurants, which may be in the iced fish market. The limiting factor is the
efficiency of transportation of the product, which is limited by
trucking. The company holds and moves live fish, but the company also moves ultra-fresh (iced) fish that has been harvested to order. The iced product is much easier to handle, and is often preferred by the customer (freshness being the main criteria; live fish are often preferred because freshness is guaranteed and not for other reasons). Although the company is involved in establishing markets, and assisting in the setup of holding facilities, once these are set up, the sole function would be in distribution. The company is a distribution channel.

If a route is established, for example, between Springfield
and Worcester, any number of stops could be added to the route with a minimum of extra cost. The infrastructure costs are the live-haul truck and the holding facilities at FreshMarket, both of which already exist. These could also be expanded as needed.

Marketing Program
At this time, the business is developing a regional marketing
program to encompass the geographic triangle between Hartford, CT, Worcester, MA and Springfield/Holyoke. The business has a good product (fresh, live, purged tilapia, also harvested to order, whole fish on ice). The business has identified a market with a strong demand (primarily Asian and African immigrants familiar with tilapia), and has a method for transporting and holding the product (live
haul truck, and recirculating facility). The business has done
some excellent market research (determining acceptance and interest
in the product at various locations through direct marketing).

The business will focus on specific geographic zones which can
be efficiently serviced in one delivery day. Small, isolated
markets may or may not be practical, depending on their location
and accessibility. A portion of the marketing effort is targeted
at restaurants and smaller markets, to establish a core group of
regular stable accounts. These in turn help to define the
marketing zones, which can then be serviced since the delivery
vehicle will be in that area on a regular basis anyway.

The business has one substantial wholesale account which will
cover operating costs and a large portion of salary. This provides
some stability to the company, as direct market sales are variable
over time and require much more in terms of travel and logistical
effort. This account can be serviced in approximately 12 hours per
week.

Competition and Market Strategy
The competition in the marketplace on one hand is all fish
products, as well as similarly priced protein products, such as
poultry. Competitors, such as seafood markets and food markets
that handle fish, may or may not be actual competitors. Most do
not service the actual demands of the market. Even though seafood markets and distributors exist, live tilapia is not generally available, and is one reason this approach is being used. This means that a number of existing distributors would be competitors if they had live tilapia to move, but they do not have a consistent supply.

The product being sold is a live, farm-raised, guaranteed
fresh, purged, tilapia. First generation immigrants that are
accustomed to tilapia already know this product, and will pay a
premium for it. This consumer group probably is not buying tilapia in any other form at this time (e.g. fillets). The attractiveness of the product in this case is that it is live and fresh.

A fresh (iced) product can also be sold, as long as the
message is clear that these are harvested to order, iced, and
delivered that day. These are whole fish, on ice. Their value is
largely in freshness and delivery, since the age of fish at
supermarkets, for example, is variable. There is no processing
involved.

The market strategy is to sell directly to one (or two) large
wholesale accounts in order to cover most operating expenses.
Direct market accounts are established by identifying likely
neighborhoods, obtaining local acceptance and permits for being
there as a vendor, and bringing the live fish directly to the site
using a live-haul truck, retailing directly out of the truck as a
marketing test method. If fish are not sold, they are simply
brought back to the holding facility. This allows word to spread
that fish are available for example, on Wednesday afternoons at a
certain spot. This is done for 3-4 weeks to determine whether or
not there is interest in the area. Existing retail establishments
are also sought out, to determine whether or not they would be
interested in having a small holding tank in their store. This is
low cost, and the retailer stands to benefit substantially. The
company then provides the delivery service for the retail site.

It is not the objective of the company to retail fish out of
the truck as a primary method of sales, although it can do so, but this is probably one of the best marketing methods to test a new area. It is also an efficient way to move product if the truck is going to be in the area anyway to deliver other accounts.
Experience during the past six months have shown the value of this approach, since all neighborhoods are different, and may not be what they seem. The goal of the company is to create a network of satellite holding tanks, in existing retail food markets in ethnic neighborhoods, which can be supplied using the live-haul truck. Direct marketing can occur along this established wholesale delivery route.

The potential for local competition exists, but has not yet
Occurred to any significant extent. For example, two small Latino markets sell small quantities of fish, both fried, and dried, but most customers to not go to these places specifically with the idea of buying fish. Shermerhorn's, a well known regional seafood market, moved out of the downtown area several years ago because it was not comfortable with the changing population. Many residents downtown did not even know where the new location was. Pat's Supermarket, a medium sized supermarket downtown sells a good deal of fish, and is willing to retail our ultra fresh product. Most of the fish sold locally is distributed through the Super Stop and Shop (Prospect Heights), or FoodMart (Springdale Shopping Center). People buy some fish in these stores, but a) freshness is variable or unknown, b) other fish products such as salmon may compete with tilapia, and c) the customers would rather buy fresh fish in the
neighborhood.

Outside of Holyoke, the largest competitors are Masse's
Seafood in Chicopee and Boston Seafood on Main St., Springfield, as well as a number of seafood distributors that move product from Boston or New Bedford. Bread and Circus supermarkets also move a large volume of fresh, locally grown tilapia. The larger supermarket chains do move large volumes of fish, and do influence the ethnic market. However, none of the competition even suggests a live, or highest quality (same day) iced fish. This can readily be argued as the highest quality product on the market.

The focus of the strategy is to emphasize "highest quality
live product", and deliver the product to a consumer group that
already is familiar with the product. In addition to highest
quality, the distribution method (direct sales) will be more
comfortable to many customers than the larger supermarkets.

The objective is to create loyal repeat customers, rather than
temporary new customers. Although the product is high quality, and desirable, there are a few other factors which should also be
included. For example, sales will increase with a seven day
availability of product. This is only possible through existing
retail sites with holding facilities, or through a well scheduled
truck delivery route.

A scheduled direct delivery route will be established, with at
least one consistent large wholesale buyer. The development of new accounts has an added benefit, in that all of the area between and around the accounts is potential retail territory, that is already being accessed by the delivery vehicle. Since the truck will be in the area anyway to make deliveries, this provides numerous other opportunities for added research and the development of new markets.

On the marketing side, the company provides a fresh, purged,
highest quality live fish directly to the customer, delivered to
order. Fine tuning the product is based on direct feedback from
customers. How does the customer describe the product? The
business has to not only respond to customer input, but has to have the time and ability to do so. A few larger "anchor" accounts allow this time and flexibility.

Management and Personnel
The project is being run by Dr. Robert Biagi, Director,
FreshMarket AquaFarm, Holyoke, MA, who has extensive experience in marketing seafood, as well as working with diverse community based groups in a variety of settings. Dr. Biagi is also a member of the Massachusetts Aquaculture Advisory Group, and the President for Finfish With the Massachusetts Aquaculture Association. At this
time, there are no other employees, although one part time employee would allow the business to handle increased sales volume.

Technical support is available (if needed) through the staff
At allied facilities, and through companies which provide equipment in Holyoke, both of which have assisted in the initial set up of the facility. The project has few technical limitations (simple holding tanks, and live hauling trucks). The project success will be dependant upon community networking and effective marketing within ethnic neighborhoods (i.e. the fish can be grown and delivered if there is a market). This requires not only an ability to communicate well, but an ability to build trust, partnerships, and acceptance in urban neighborhoods. These skills are critical in creating and maintaining a stable customer base.

The business would benefit from a part-time assistant manager.
This position will become necessary at some point in order to meet the projected marketing and delivery goals. It is recommended to hire such an individual immediately, with continuation based on performance. This will accelerate the marketing effort, and also improve logistical and facilities support.

Capital
The company has a working recirculating fish culture system in
place in Holyoke. Operating costs include the lease, electricity
for heat, pumps, and aeration, as well as the operation of the
live-haul truck to move fish from the facility to the eventual
retail locations. Operating costs also include salary. Fish are
purchased on consignment through an arrangement with the grower, so there are no costs for holding inventory, or for inventory that does not get sold, only for growout. This greatly improves cash flow.
Fish feed and miscellaneous supplies, hardware, and repairs, are a minor cost. The total target volume is 2000 pounds/wk (100,000 pounds/yr). This is not a large budget or a large operation, but is within thefeasibility for one or two people. In terms of economic
development, this is quickly reproducible in almost any setting
where there is a market.

There are two major equipment items which are under
consideration, pending market demand. These are (1) a larger
hauling truck or trailer, allowing for increased volumes to be
moved ($7500), and (2) expanded filtration in the facility,
allowing for increased holding capacity and production ($11,000).
The best use of effort, however, is in marketing the product that
is already available, using the existing equipment and facilities.
For example, if demand requires a sizable regular delivery that
cannot be made with the existing truck, then the additional
purchase of the trailer would be warranted. The estimated $18,000 in capital improvements would be warranted almost immediately if sales trends were consistently moving upwards. The addition of a part-time assistant manager, however, would still have priority over capital improvements.

Access to loans. As part of the development of this business
plan, several banks were contacted to determine the feasibility of their involvement as commercial lenders. In all cases, the banks gave positive feedback even though this is a new business with no historical cash flow data, based partly on existing market information, and partly on collateral. The CDFC-UIF Small Business Lending Scoring Application was also reviewed in this context, and exceeded the minimum requirements. This is partly due to several unique arrangements, including a) the availability of inventory on a consignment basis, b) a stable wholesale account which covers operating costs and allows the business to exist even under fluctuating conditions, and c) the quality and commitment of the management.

Risk Factors
The primary risk factor is the mortality of fish in the
system, or as a result of transport. System mortalities can occur within 24 hours, and result in a 100% loss of that batch. This can be avoided by having a sizable biofilter to buffer the system (Appendix A), or any number of backup and contingency devices in the building. At this time, the two most likely problems are loss of power (contingency is bottled oxygen, and/or a generator), and ammonia toxicity (contingency is a biofilter, ability to replace water with clean water, and the ability to move fish if problems are not immediately correctable). Note that ammonia does kill the fish (gills cannot function) but that this does not occur immediately.

The risk factors inherent in the system are modulated by the
fact that only a small batch is in the system at any one time. The system is a batch system, and the loss of an entire batch of 500 pounds can be absorbed by the business, as long as the reason for the mortality is known and is corrected. The installation of a biofilter, for example, would solve the ammonia problem.

The biofilter cost could be viewed as a risk avoidance measure
or insurance, as well as a capital improvement. One tank of oxygen should be on hand regardless, as this is not a high cost item. The tank is rented, and the company only pays for oxygen that it uses. Tanked oxygen can also be used to transport live fish in bags.

Other risk factors include inability to collect from various
accounts (always a potential problem), a new competitor which may start to provide live product within the distribution area (not
currently a problem, and not immediately an issue since the market demand is greater than the existing supply), and the mechanical breakdown of the delivery vehicle (a detail which could cost an entire load of fish, but which is not that serious in the overall picture, and requires only a solid contingency plan). The delivery vehicle has to be able to move the necessary volume in one trip, but a contingency plan should also be in effect. The contingency may be as simple as a rental truck or trailer. Another factor is consistant availability of product supply, and that is out of the company's control. The enhancement of the system and facility in order to grow some amount of product would be useful in maintaining a stable supply should this become an issue. However, this could be addressed if the problem arose.

Summary
Freshmarket Aquafarms has identified a market opportunity for
fresh live tilapia, targeting first generation immigrants from
southeast Asia, Latin America, and Africa, where this product is
familiar. Demand for live fish currently exceeds supply.
Freshmarket has the product and the ability to move the live
product safely to any location within 50 miles. The company seeks to direct market the highest quality (live) product, marketing on ultrafresh quality. No competitors exist with live product in this particular area.

In addition, the company will develop satellite retail
locations, by setting up holding facilities in existing retail food
markets, in ethnic neighborhoods that have been identified as
suitable for this approach. Direct marketing will initially be
done via the live-haul truck (retailing directly from the truck to
test the areas for market acceptance, and using this truck method primarily as a market research tool). An initial target volume of 2,000 lbs/wk is sought, using a regular delivery route between Springfield and Worcester, and combining one or two substantial wholesale accounts with the direct marketing approach.

Financial Data and Discussion
The project was initially developed through a grant from the
Urban Initiative Fund (MCDFC), and through the Economic Development Adminstration (EDA). These grants were for the initial set up, as well as enterprenurial training, both as a means for economicm development in lower income urban communities (Holyoke, MA). The project seeks to be self sustaining this year, but may seek additional capital for expansion purposes, through low cost government loans, or banks. Several banks have been contacted, and have expressed a favorable view towards lending. Venture capitalm has also been considered.

Historical data
Whereas this is a new business venture, with a new facility, there are no balance sheets or other data. The initial budget estimate that was developed in 1998 cannot be used because a portion of the initial operating budget was from grant funding, and a significant amount of the budget was for construction of the facility. These budgets are included in Appendix B. A projected balance sheet is provided, given an existing agreement with one buyer, as well as using the past twelve months of market testing information, which we feel are representative of the opportunity/reality facing the company. This information also allows a cash flow projection and profit/loss calculation, for three different scenarios. The target volume for the business is 2,000 pounds per week. Assuming the lowest return scenario with 100% wholesale distribution, this is $66,000/year, after the cost of fish has been deducted. This is still a viable budget, even though actual projections are much higher (due to some portion of sales being direct retail). For our purposes here, the market share is considered to be 100%, as there is no current competition with this product (live) in this region. Competition for market share in the region, however, could occur within days if someone took it on. Note that the product is in fact being sold in other parts of the country, and for this reason the market opportunity became obvious. Sales levels in the same marketplace, elsewhere in the country, are reflective of a consumption rate that would be adequate to run the business.

Operating costs for the company run approximately $41,000, not including salary. These are fixed costs, such as rent, delivery travel, supplies, and utilities. Although a salary can be
budgeted, the actual salary will be dependent upon sales volume, and/or other funding inputs such as grants, loans, or investment.

Three scenarios were evaluated (100% wholesale, 66%
wholesale/retail, and 50% wholesale, 33% retail, 17% specialty). Two others were rejected (100% retail, requires a retail site; and 100% specialty, will take too long to develop). The actual market strategy for the business is a combination of approaches, since there are different market sectors that can be serviced at the same time (wholesale, retail, direct, specialty).

These scenarios were evaluated because of an existing
wholesale account, which has expressed interest in up to 4,000
pounds/week, as well as the logistical limitations of 1-2 people
servicing a large number of accounts. The projected budget is
based on one wholesale account moving 50-66% of the product, and covering close to 100% of the overhead and operating costs, not including salaries and labor. The remainder of the product will be direct marketed, but through different avenues, potentially yielding variable returns. This includes a small sector as a very high end specialty product. The business must efficiently cover baseline costs (the wholesale account(s), and also have time to research and implement new market opportunities.

Three scenarios are outlined below. The initial market
strategy is very close to option 2, with the ongoing development of the specialty market, which will gradually shift the structure of
sales more towards option 3. Option 1 could be implemented (now), but does not achieve the long term goals.

1. WHOLESALE. After product costs, direct wholesale yields

$0.66/lb or, $1320/wk, or $66,000/yr. This provides for all overhead and operating costs, approximately $25,000 in salary, (as well as all product costs). This wholesale account has also expressed an interest in a greater volume of product.

Total yield $66,000, after product cost.

Net = 0.00 at $22,000 salary and labor.

2. WHOLESALE 66% of volume, yields $871.20/wk, or $43,560/yr.

This covers all overhead/operating expenses and product cost.
RETAIL 33% of volume, yields $960/wk, or $48,000,
which can be targeted towards salary and labor.

Total yield: $91,560

Net = 0.00 if $43,000 salary and labor.

3. MIXED. Wholesale 50%, retail 33%, speciality 17%.

Wholesale 50% of volume yields $660/wk, or $33,000/yr

Retail 33% of volume yields $500/wk, or $25,000/yr

Speciality 17% of volume yields $1250, or $62,500/yr

Total yield: $120,500.

Net = 0.00 if $68,000 in salaries and labor (inc. fringe).

Notes: in order to accomplish scenarios 2 or 3, or to
increase sales volume in any scenario above 2,000 lbs/week,
an additional employee will be needed.

Projected budget, January-December , 2001.Ä
(derived from 1998 initial development forecast).

Monthly
Yearly Total
Operating Expenses

Rent
3600
Phone/Office
2160
Utilities
4800
Advertising
3600
Water/Sewer
4800
Truck mileage
6000
Insurance
2150
Repairs
1800
Feed
1440
Trash removal
804

Travel
1800
Supplies and Misc.
1200
Consult/Dev.Asst.
3000
Sundry labor
4800

Total
41964

Salary/Wages * (depends on sales volume).
$40,000
Taxes/Insur/Fringe * (18.5%)
7,400
Total salaries/fringe
$47,400

Total operating costs: Á
$89,364

Income sources (yield after product cost)
Gross receipts-product cost = yield before operating costs.

Wholesale
($0.66/lb yield)
$43,560

Retail
($1.44/lb +)
$48,000

1731
$91,560

Product costs* target volume 100,000 lbs/yr @1.50 ($150,000).
*(product is provided on a contingency purchase basis).

Of the total operating expenses, some portion could be
considered to be flexible, but the target "baseline" operating
budget is about $42,000, or $800/week. This could be reduced by approximately $8,000. However, the business is not sustainable unless it can consistently provide significant volumes to its customers. Cutting corners may be counterproductive. The focus should be on capturing the market share. Note that these costs do not at all address salary requirements, but reflect the other operating costs in that location. Salary would be variable, depending on sales.

Long Term Decisions Requiring More Data
Freshmarket Aquafarms can proceed at this point in time by
servicing one or two wholesale accounts (under agreement for close to 2,000 pounds per week). This is not the most profitable avenue, but it can maintain the company by covering baseline costs. It also serves to move product for the grower, increase market awareness, and allows Freshmarket to exist while it pursues other market opportunities. If the sole function of the business is to handle these few accounts, for 12-18 months, for example, this could be considered as Phase I.

In order to do this, the company will need a live-haul truck
or trailer that can handle at a minimum 500 pounds of live product at a time, with no stress on the fish (i.e. adequately sized and equipped). This would entail four deliveries/2000 pounds, but two trips can be made in one day. The company would also need some degree of comfort in product availability. Additional costs to the company to implement this strategy will be about $7500, for the truck/trailer unit. This vehicle could also be used for direct sales, processing, and more efficient transport from the grower to the Holyoke facility. This purchase would save the company in labor time alone within 56 months.

The business structure would involve getting the fish from the
grower, maintaining the fish and the recirculating system, growout, and providing deliveries. The time line for this initial phase could be 6 - 12 months (before evaluation). The company would also simultaneously work on higher end direct marketing, and would be under less pressure when doing so. Smaller accounts would be very valuable under this scenario, when the same accounts would not be viable to maintain otherwise. These smaller accounts may require a special delivery time, at an out of the way location, or any number of variations which could interfere with other responsibilities.

Facility improvements are another item for discussion, as
$10,000-$14,000 could readily be spent on biofiltration, increasing system capacity and performance, and generating product. It is premature to engage in these expansions at this time, given the unknown description of the end market, and the target production volume. These improvements, however, could readily be implemented

as soon as a significant market opportunity was found.
The addition of greenhouse lighting, and a small recirculating
hydroponic loop for plant production could be installed, and
amortized within 18 months. This, however, is not immediately
necessary, and attention at this time should be focused on actual sales rather than on system mechanics, unless there are consistant mortality problems related to system water quality.

Situation and Outlook, 2000.
The market demand for live tilapia is strong, and is expected
to continue to increase as product availability (high quality
product) becomes more consistent. The company relies upon a
wholesale market for a portion of its distribution to generate a
stable source of cash flow, since the company does not have its own retail location. At the same time, the value of higher end sales is far greater than all of the other activities, and much of the market research is focused on these smaller but higher yielding markets. Note that smaller volumes are handled, smaller volumes have to be maintained in the tank system, smaller volumes can more easily be transported, etc. There is additional effort expended in the marketing area, but this time and effort is being expended already, and could be redirected into a more lucrative area.

Future market testing and sales efforts should be focused on
those higher end product lines that have been identified. This is
a slow process, due to the smaller number of customers. The market research is often time consuming and frustrating. However, even a small percentage of sales (10%) in this area would greatly improve the overall performance of the business.

The goals and objectives of the business will require an
assistant manager at some point. The goals cannot be met without additional personnel. It is likely that the immediate creation of a part-time position would be beneficial.

Appendix A. Infrastructure Development.
Freshmarket Aquafarms, Holyoke, MA
Recirculating System
Aspects of production related to business plan.

Freshmarket Aquafarms operates a recirculating aquaculture
system inside an industrial building leased from Northeast
Utilities. The system consists of fiberglass tanks, and several
filters. The system was initially designed as a purging system in
which fish would be held for 48-96 hours, with no feed, in order to remove off flavors before sale. The system would only have to
handle the metabolites from one batch of fish at a time, which
would decrease after the first day since no feed is being added.
After 72-96 hours, fish are ready to be moved out and sold. Fish
can be held for as long as three weeks without feed, but not
indefinitely. Weight loss occurs after about one week.

This section looks at possible enhancement of biofiltration
to evaluate the cost/benefit of improved water quality and enhanced production capacity. One aspect of this is risk avoidance (avoiding mortalities caused by water quality factors), as well as increased holding capacity. At this time, the system is handling the present loading rate. However, an increased stocking rate would be beneficial if sales volumes increase to projected levels.

The water source at the site is Holyoke City water, which is
not of the best quality but which is filtered with activated
carbon filters to remove chloramines. Each tank has a sand
filter which effectively removes particulates, but the system has
very little in terms of surface area for biofiltration or buffering
capacity. Although the water has some very fine suspended
particulates, turbidity is not out of the normal range for tilapia
culture. The holding capacity and chemical stability of the system could be increased with the addition of biofilters for each tank.

The first half of the building has approximately 3000 square
feet of floor space that is not currently in use (Phase I),
although fiberglass tanks have been purchased for this area. The building has an existing overhead cost, especially in heating, and may as well be used to the maximum. A biofilter could readily be made from one of the empty tanks, simply by filling it with media, using a lead keel airline on the bottom of the tank, and running one additional pump. If the biofilter tank is at a higher or lower elevation than the fish tank, than one direction of flow could be gravity fed. This simple biofilter is low cost and effective.

The lowest cost method is to put the biofilter tank lower than
the fish tank, and returning the water with a submersible pump in the biofilter tank. The biofilter could handle surface foam, as
well as the existing particulate loading, as long as it was well
aerated. Returning water should go through a packed column. A
Tsurimi 1/5 hp submersible waterfall pump only draws 2.7 amps, and would run 50 gpm at 12' of head. These retail around $275.

A compressor can provide adequate aeration. For the
biofilter, submerged airline on the bottom of the tank is the
lowest cost aeration method. Better aeration will be achieved
using a network of airstones, which create finer bubbles and
subsequently, more oxygen transfer into the water column. A six-way air fitting (a donut with one in-line and six outlet ports)
could be used with six stones. This would mean $150 in stones
instead of $30 in airline, but would be significantly more
effective.

A swirl separator is also a simple low cost way to handle some
level of suspended solids. This is not totally effective, but is
more effective than the current situation. These can be bought, or made from ModuTank conical plastic tanks (less than $500 total). The only requirement is a conical or pitched bottom with a center bottom drain. Even one of the existing tanks could be used as a settling tank.

A rotating drum filter is an attempt to handle all of these
problems. A $500 unit will help one tank, especially in terms of
suspended solids, and it will remove BOD and solids, but this is
still not an adequate biofilter. This is one component of a
system. For this application (since tilapia are tolerant of murky
water but not of ammonia) a biofilter should be installed if the
fish are going to be fed. Ammonia removal is the key item at this time.

Another treatment method would be to install a hydroponic tray
along the left hand wall. This would require supplemental
greenhouse lighting (could be attached to wall), and bench space. Plants could even be grown on the floor, in a shallow liner, in containers, if a lower cost method was desired. This would run via a gravity feed from one of the tanks, through the plant system, and returned via a small pump in a sump. The sump has to be of adequate size to handle the total volume which would gravity feed from the tank if the electricity were shut off. Using a surface drain from one of the large tanks, this would only be 250 gallons ($200 stock tank).

If plants in containers are used, these will occupy about 1
square foot each. A 60' x 4' space would hold 240 units, with a
value of $6.00 wholesale ($1440/crop). These are replaced when
they are moved. Three crops per year is conservative, but (a) an
existing market will take this amount of product at this price
($4300), and (b) this amortizes in slightly more than one year.
This is a primitive low cost method, but does not require a lot of
labor. This is not the way to maximize the income from plants, but is a combined water treatment and cost recovery system that is low cost and low labor. More income could be realized from plants, but this also requires more labor, and this is not the function of the business. The plants are of interest primarily as a water treatment method, with secondary cost recovery attributes.

Benefits here are (a) water treatment, (b) secondary crop, and
(c) supplemental full spectrum lighting in the building. Air
quality will also be better in the building. In the second year,
this could also supplement a part time seasonal employee, at for example, 16h/wk.

Budget: the above wish list could be purchased and installed
with a supplies and materials budget of $7500. Costs are related to surface area of biomedia as well as lighting. Some labor or subcontracting funds would also be needed ($2000). $10,000 could be used as a target budget.

Cost/benefit: This would allow the company to grow fish, and
hold them indefinitely on a maintenance diet. It would allow the
purchase of smaller fish, for a lower cost, and with better
availability, since the supply of 0.8 pound fish may be limited in
the future, whereas the supply of smaller fish is virtually
unlimited. It would also provide a separate cash flow item in
terms of plants for sale ($4300/year with a two to three year
amortization), as well as numerous other potentials with the plants if the labor was available.

Overhead costs would not change significantly. Marketing and
distribution costs would also not change. The existing system can hold these quantities of fish, but not if they are being fed for
increased growth. The system is designed as a purging system and does not have biofiltration set up for large quantities of feed.
The potential for losses caused by water quality problems exists in all systems. A system with adequate capacity is the best insurance against this problem.

Recommendation: The company does not have the available cash in order to increase capacity at this time, nor is there any immediate need to do so since the product is available on consignment. Further, these actions are focused on production, and not on sales. The focus at this time should be on market development and sales, with these improvements scheduled if and when a certain milepost in sales volume has been reached.

2. Purchase of larger hauling truck or trailer:

The existing method of transport is very economical but
inefficient, since the live tank can only hold about 200 pounds at
a time. If the target volume to be moved is 2,000 pounds per week, then a transport method is needed that, at a minimum, can move 500 pounds at a time.

This equipment is budgeted at $7500©10,000, including the
truck or trailer, as well as the tanks and aeration equipment. In
terms of the truck, this would mean a 14' or similarly sized cube
van. A trailer may also work, using the existing pickup truck as
the tow vehicle. Tanks and aeration are standard equipment and can be custom sized for any application. In order to handle these volumes consistently, this purchase is needed. In order to make the business grow, this is definitely needed. However, if a large portion of the business is moving fresh fish on ice, rather than live, the existing truck setup is adequate.

Recommendation: continued market research and market
development until March 31, 2000, comparing live product with fresh product on ice, as well as confirming the consistency of the wholesale live market in excess of 1000 pounds per week. Since this could be purchased and set up on short notice, the purchase could be based on sales levels. At the same time, by fresh product we mean harvested to order that day, iced, and delivered, but not live. By all standards, product quality would still be good if not exceptional, and the business could function by moving iced product, with only a small volume in live product. At this stage (1/3/00), the purchase of the truck/trailer may be premature, even though it will be a necessity of market development proceeds as planned.

3. Part-time assistant manager.

The company will need a second employee in order to reach its
marketing and distribution goals. This is due to logistical
complications inherent in maintaining a facility as well as a
distribution network. This would be an immediate asset to the
company, since the individual could assist in facility maintenance, some marketing, and some delivery.

Recommendation: fund a part time assistant (20 h/week)
for four months, with continuation (and eventual full time status)
based on sales. This is especially important because the facility
requires an almost daily inspection. This does not take an entire
day, and may take less than one hour, but is necessary to monitor the status of the system and the fish. For any one person, aquaculture means a seven day a week commitment to the business, at all times, which can become stressful and counterproductive.

The business is primarily a marketing and distribution network
for live tilapia. At the same time, the business also invests
heavily in facility maintenance, the transport of fish to the
facility, and on overhead costs, all of which are necessary to
hold and maintain the product, but none of which bear directly on marketing and distribution. The business is currently staff
limited, due to the number of different responsibilities inherent
in maintaining such a system.

Appendix B. Initial budget projections, 1998©1999.

2001 operating budget. Discussion.

The initial budget projections were based on a higher sales
volume than is currently being moved. The business will need to
expand slightly in order to meet these sales goals. These
expansions are discussed in Appendix A (some expansion of holding capacity in the system, as well as a larger transport vehicle, and one part-time employee). These improvements to the business will occur as sales increase (and will have to occur if increased sales are to be maintained). At the same time, the present sales volume can be handled with the existing infrastructure, due to the single large wholesale account. No immediate infrastructure improvements are needed.

The present operating budget estimate (2001) is accurate
insofar as previous expenses are known fixed costs (e.g. rent,
electric, water, operating costs of the system), and the wholesale account covers most of the operating costs. Although additional higher end markets will improve the budget picture, the budget can be run at a wholesale level for quite some time while additional accounts are being developed. i.e. the budget is not based on a speculative number of higher end markets which may or may not materialize, and the business is not dependent upon these markets for survival. The business does, however, have the option to explore these markets, and will do so. At the same time, the budget is adequate to conduct the marketing program for the coming six months. Operating costs for the next 4-6 months will actually be lower than previously, and will only increase based on increased sales volume. Additional income sources to offset salaries are also under development (income not directly from sales), and are not included in this budget forecast.

Projected budget, January-December , 2001
(derived from 1998/2000 initial development forecast).

Monthly
Yearly Total
Operating Expenses

Utilities
4800
Advertising
3600
Water/Sewer
4800
Truck mileage
6000
Insurance
2150
Repairs
1800
Feed
1440
Trash removal
804
Travel
1800
Supplies and Misc.
1200
Consult/Dev.Asst.
3000
Sundry labor
4800

Total
41964

Salary/Wages * (depends on sales volume). Á
$40,000
Taxes/Insur/Fringe * (18.5%) Á
7,400
Total salaries/fringe
$47,400

Total operating costs:
$89,364

Income sources (yield after product cost)
*(Gross receipts©product cost= yield before operating costs).

Wholesale
($0.66/lb yield)
$43,560

Retail
($1.44/lb +)
$48,000

1731
$91,560

Product costs* target volume 100,000 lbs/yr @1.50 ($150,000).
Note however, that product costs are based on actual sales, since product is available on a consignment basis. There are no costs unless sales occur. The operating costs are fixed, however, and have been itemized above.

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