There are two phases in the production of most livestock including salmon. These are seed (smolt) production and growout. There is another arguable point that harvest, processing and marketing are further phases of the total process, but because these people kill the fish and marketers never get their hands dirty, they don’t count. Prejudice aside, the focus here is on the production of fish, the input costs and the net gains from deliverables: smolts and harvest fish.

In the freshwater phase of the salmon cycle, there are predictable inventory and fixed capital costs. It cost so much for water supply, feed, labour, transport, oxygen pumping et cetera. The variable costs are losses, medication and catastrophe. This is grossly simplified, but it illustrates the point: hatcheries are like a pipeline of production, input eggs, work your but off and produce smolts. The start of the process comes from how many smolts from FW need to be delivered to SW in a given time. That is, there is a transfer of assets from FW to SW. This may be modified to include excess or surplus smolt production for outside sales, however the principle of cost management and profit comes from orders for product and producing the product efficiently.

Likewise in SW production, it’s smolts in, kilos out. On the farms, the major inventory costs are fish and feed. These figures are made profitable (or not) by growth and mortality. Capital costs are usually amortized (spread out) over a number of years, so big things like jennies, pens, float houses and the like usually have a high sticker shock, but are paid out as the product is harvested over the life of the capital item. Variable costs like disasters, predation, weather, and disease all affect bottom line, but have been remarkably reduced by experience and tech development. It’s probably safe to assume that the biggest impact to profit lines is fish health and human error. The uncertainty and variable here are things like ISA, IHN, IPN, and kudoa. Of course, storing a new generator in the basement of a fish farm is not a good thing, but insurance is there for a reason, right?

So, what are the similarities in these production phases? What are the differences? Bean counters (God bless them) have done a pretty good job of describing the production process as a linear model by which materials in plus development costs through the phase produce a product with a value that is greater than the sum of the costs. Now, SW people have a good idea of the cost of a smolt. So do the hatchery people. But there is a false economy here; there is no cost for original materials, namely the egg. Further, there is no budget line on the production of those eggs in SW. The first law of thermodynamics is "There is no such thing as a free lunch". OK it’s really "Matter can not be created or destroyed (energy is conserved)", but the point is apparent: eggs and broodstock are not free.

What existing cost center should absorb the cost of producing broodstock? The cost has to be absorbed somewhere in the production cycle, but as yet, few producers recognize that there is a cost per unit production associated with both broodfish and the eggs, not to mention milt production. Should the SW phase absorb the cost of raising brood based on a per kilo produced or smolt put in cages? How are assets transferred back to FW? Should hatcheries cover the costs of the brood and place a value on the eggs that is carried over to the smolt?

The first step in the recognition of broodstock as a cost center comes by attributing accumulated inventory costs and amortization of capital costs throughout the cycle. For arguments sake, consider the current cost of a delivered smolt as the starting price. From there, the price for the brood is equivalent to a production fish for the first 15 or so months to when cohorts go to harvest. After this time, losses of biomass due to culling, selection, grilsing or other mishaps get attributed at market value per kilo. This is where an imagination comes in handy and trading values becomes extrasensory.

Brood are raised at lower densities and fed a better feed. However, their feed conversions rise as the fish get older and economic efficiencies take a beating due to gamete production not related to growth of flesh let alone that fewer of them survive to produce eggs or milt. The older the brood, the more valuable it becomes. For instance, bonking a hen that turns out to be a partial spawner (one with incomplete ovulation) or getting a huge male that delivers a thimbleful of milt is akin to having a box of fillets returned from the retailer. This is the most expensive time to loose a fish. So, hidden in between the time cohorts go to market and the time the brood are spawned are a variety of risks and costs that are very difficult to quantify.

Every notice how the most difficult things are said in three words? Move the fish, harvest the fish, vaccinate the fish, grade the fish, spawn the fish. Here’s three more: Not been budgeted. Why hasn’t the critical equipment been budgeted? Not because the cost of the item or service hasn’t been anticipated, but because no value has been put on the final product or cost attributed to the production of the product. If there was a value put on how much it cost to produce an egg it may open some eyes.

There are economies of scale in brood production. Cattle, swine and poultry are not vertically integrated. That is, few grow their own seed and few growout their own stock. Even fewer grow their own brood, except in breeding programmes. Before anyone harvests all the broodstock, be aware that salmon is the pompom on the toque of animal protein. Face it, we are small and we have much growing to do. A few companies have seen this writing on the wall, some for years, and there are efficient, cost effective sources of seed that bear regarding. However, this is only if you know the cost of raising brood in-house.