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Economic Feasibility of Aquaculture of the Giant Barnacle Austromegabalanuspsittacus in Southern ChileAuthor(s): Paula C. Bedecarratz, Daniel A. López, Boris A. López and Oscar A. MoraSource: Journal of Shellfish Research, 30(1):147-157. 2011.Published By: National Shellfisheries AssociationDOI: 10.2983/035.030.0122URL: http://www.bioone.org/doi/full/10.2983/035.030.0122

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ECONOMIC FEASIBILITY OF AQUACULTURE OF THE GIANT BARNACLE

AUSTROMEGABALANUS PSITTACUS IN SOUTHERN CHILE

PAULA C. BEDECARRATZ,1DANIEL A. LOPEZ,

2* BORIS A. LOPEZ

2AND

OSCAR A. MORA2

1Department of Economic & Administrative Sciences, Universidad de Los Lagos, Avenida Fuchslocher1305, Osorno, Chile; 2Department of Aquaculture & Aquatic Resources, Universidad de Los Lagos,Avenida Fuchslocher 1305, Osorno, Chile

ABSTRACT The economic feasibility of culture of the giant barnacle Austromegabalanus psittacus (Molina, 1782) in southern

Chile is analyzed. This species is traditionally exploited on a small scale by local fishermen, with average landings of 200 t/y.

Cultures on a semi-industrial scale have been undertaken, from settlement of competent larvae present in the water column,

through grow-out. Growth sustained by seston filtration produces specimens of a commercially viable size in a maximum of 24

mo. To determine the economic feasibility of cultures of these species, the investments required, production costs, yields, and the

potential market prices of two products were evaluated: canned products and frozen meat, with the latter including opercular

plates. To this effect, cultures were undertaken in suspended systems in Metri Bay (41�36' S; 72�43' W), and the following

parameters were evaluated: average spat density in the artificial collector; mortality; gross annual production per longline; average

gross weight per specimen, including shell; period from spat collection to harvest; operational costs; and labor requirements. Loss

through processing and packaging, in addition to product yield and costs, were evaluated for both products in an industrial

processing plant. To carry out market studies, a visit was undertaken to the Aomori Prefecture in Japan, where a similar species,

Balanus rostratus or ‘‘mine fujit subo,’’ is commercialized. Prices of other species of crustaceans were also considered as

a reference. Based on technical and economic findings, cash flowswere budgeted and economic profitability indicators (net present

value (NPV), internal rate of return (IRR), discounted payback period (DPBP), and economic profitability index (EPI)), were

calculated. To incorporate risk and its effects on economic performance, a local sensitivity analysis was undertaken, considering

a range of possible values for six critical variables and their influence on NPV and IRR. Elasticity measures, which express the

percent change inNPV given a percent change in a variable, were estimated for each critical variable in both products. Furthermore,

business viability limits were calculated, determining critical values for each variable separately, all others being held constant.

Evidence and results indicate that culture of the giant barnacle is economically viable, with attractive economic indicators for both

processed products (NPV above US$490,000, IRR above 36%, DPBP from 3–5 y, and EPI above 1.7 times). Projected income,

profits, estimated cash flows, and economic indicators are higher in canned products, resulting fromdifferences in product yields and

market prices. For both products evaluated, the greatest capital investment corresponds to marine culture systems (longlines and

spat collectors), and the most significant operational cost is labor used during the culture process. Sensitivity analysis indicates that,

in general, this culture can withstand important changes in each critical variable, maintaining a positive NPV, especially in canned

products. Comparing elasticity values among products, frozenmeat presents a higher sensitivity level with greater elasticity for every

critical variable. In both products, the variable with lowest incidence onNPV is processing and packing costs, and the most relevant

variables are gross weight at harvest and sale price FOB. Results indicate that giant barnacle culture is technically and economically

feasible. Thus, interesting possibilities emerge for the diversification of Chilean aquaculture as well as for other barnacle cultures,

such as the ‘‘craca’’ of the Azores Islands, Portugal, and the ‘‘fujit subo’’ in Japan.

KEY WORDS: acorn barnacle, aquaculture, southern Chile, cash flow, economic indicators

INTRODUCTION

Currently, around a dozen barnacle species are considered to

be economically important, of which the most traditionalspecies are the ‘‘goose barnacles,’’ which are in high demandon the Iberian market (Molares & Freire 2003, Borja et al.2006a, Borja et al. 2006b). None of these species are cultured

(Golberg 1984). In addition, several species of ‘‘acorn barna-cles’’ constitute a significant resource on a local scale (Lopezet al. 2010). The ‘‘mine fujit subo,’’ Balanus rostratus, and the

giant barnacle or ‘‘picoroco’’ Austromegabalanus psittacus aretraditionally consumed in the local Japanese and Chileanmarkets, respectively (Lopez et al. 2005). Only A. psittacus

has been cultured on a semi-industrial scale in southern Chile(Lopez 2008, Lopez et al. 2010). Spat collection for the ‘‘craca’’

Megabalanus azoricus (Dionisio et al. 2007, Pham et al. 2008)has also been undertaken on a trial basis. Distribution of A.psittacus ranges from Peru to the Strait of Magellan, includingthe Juan Fernandez archipelago, and southern Argentina

(Young 2000, Pitombo & Ross 2002, Lopez et al. 2007b). InChile, it is traditionally exploited by local fishermen, withextraction volumes that have fluctuated between 200 t/y and

600 t/y during the past few years. Only 5–10 t are destined forexport. Various biological characteristics of this giant barnaclefavor aquaculture: spat can be obtained from the environment;

rapid growth; natural feeding; simple technology, both for spatcollection and for the growth phase; high resistance to manip-ulation and extreme physical conditions; gregarious behaviorduring growth, without density-dependent effects; functional

hermaphroditism; and early sexual maturity (Lopez et al. 2005,Lopez 2008, Lopez et al. 2010).

The industrial scale culture option for news species depends

on its technical and financial feasibility, including the assurance*Corresponding author. E-mail: dlopez@ulagos.cl

DOI: 10.2983/035.030.0122

Journal of Shellfish Research, Vol. 30, No. 1, 147–157, 2011.

147

that a market exists, as well as market prices and the profit-ability of culture-derived products (Jeffs & Hooker 2000,

Grabowski et al. 2007). Current levels of biological andtechnological knowledge of giant barnacle (Lopez et al. 2003,Lopez & Lopez 2005, Lopez et al. 2005, Lopez et al. 2007a,Lopez 2008, Lopez et al. 2008a, Lopez et al. 2010) suggest that

it is an interesting alternative for diversifying Chilean aquacul-ture (Lopez et al. 2008b). For the past 20 y, aquaculture in Chilehas experienced exponential development, mainly in the area of

salmonid production, as a result of the favorable environmentalconditions that exist in the south of the country (Morales et al.2008, Pomeroy et al. 2008). Nevertheless, serious problems,

associated principally with disease, have encouraged explora-tion of diversification options. Scallop culture has also de-creased as a result of the drop in prices on the internationalmarket. There are various species of commercially important

species in Chile, most of them indigenous, which could besuitable for culture (Lopez et al. 2008b).

The purpose of this study is to establish the economic

feasibility of a giant barnacle culture center, by carrying outan economic evaluation of 2 products aimed at the externalmarket, based on biological, culture technology, and financial

and market information.

MATERIALS AND METHODS

Aquaculture Production

The technological and production information used in thisstudy was taken from the semi-industrial culture of the giant

barnacle (Fig. 1) undertaken in Metri Bay, southern Chile(41�36' S, 72�43' W), between 2005 and 2008 (Table 1). Theproduction process includes spat collection from the environ-

ment using artificial tubular polyester collectors (approximatelength, 1 m; diameter, 30 cm) positioned vertically andsuspended from longlines in groups of 3 where competent

larvae settle. The fattening process, up to the harvest stage, isproduced in the same systems. Growth is sustained on the basisof natural feeding, specifically seston filtering.

An economic evaluation was undertaken for a hypothetical

culture system, with a maximum annual production capacity ofaround 420 gross t (including the shell), which represents anindustrial-scale culture aimed at the export market. This culture

scale requires an area of 10 ha for installation of 90 doublelonglines, with a length of 100 m each, which can accommodateapproximately 200 spat collection systems per longline. Accord-

ing to empirical experience, specimens with a fresh weight of 150 g,shell included, can be obtained over a 24-mo period (Lopez et al.2010). Given that the greatest biomass is reached during the

summer, harvesting must be undertaken during this season. Tothis effect, a 2-mo harvest period and the contractual servicesof seasonal personnel were considered. Similarly, contractualprocessing and packing services were contemplated to avoid

purchasing equipment that would remain idle for the remainderof the year.

Knowledge gathered from the industrial culture of the mussel

Mytilus chilensis (Hupe) ‘‘chorito’’ in Chile, where culture pro-duction has exceeded 150,000 t/year (Sernapesca 2008), was usedas a reference to determine construction procedures and costs

related to suspended systems and the harvesting process. Thequantity and costs of manual labor for giant barnacle culturewere estimated empirically, quantifying the labor requirementsfor the installation and maintenance of culture systems and for

the harvest period. These values were extrapolated to an industrial-scale picoroco production of 419 gross t/y. This volume of activityrequires 16 permanent workers and an additional 25 during the

harvest stage. To achieve continuous yearly production, a planwas designed that considers a staggered harvest schedule, with45 longlines harvested every year.

Financial Analysis

The economic feasibility of two alternative products, canned

and frozen meat including opercular plates (Costa Tenglo Ltda,Puerto Montt) (Fig. 2), was analyzed separately. In each case,culture production concentrated exclusively on one of the prod-

ucts. Capital budgeting techniques were used for both products,and economic profitability measures and sensitivity analysisindicators were estimated.

Project Cash Flows and Capital Budgeting

Capital budgeting is the process of determining the economicprofitability or worthiness of allocating capital among variousinvestments. Based on the technical and economic findings, cash

Figure 1. Giant barnacle growth systems used in cultures undertaken in

Metri Bay, southern Chile (41�36’ S, 73�43’ W). Carinorostral length is

approximately 3 cm 12 mo after larval settlement.

TABLE 1.

Baseline assumptions for giant barnacle Austromegabalanuspsittacus culture on the proposed production scale.

Average spat density in the collectors, n/cm2 0.06

Size of the spat collector (cm2) 6,600

No. of collectors/longline 190–200

No. of longlines harvested/y 45

Mortality to harvest (%) 20

Gross annual production: no. of specimens 2,794,176

Average gross weight per specimen, including shell (g) 150

No. of spat required for production of 1 gross t 8,336

Period from spat collection to harvest (mo) 24

Gross production volume/y (t) 419

Data are based on cultures carried out in Metri Bay, southern Chile.

BEDECARRATZ ET AL.148

flows were budgeted considering relevant cash inflows andoutflows, such as capital investment, salvage value (residualvalue), income, operating costs, management costs, and income

tax (Sapag & Sapag 2000), so net estimated cash flows werecalculated after company tax (Smith 2002). Precise details ofcash flows were included, in view of the importance of this

aspect in the evaluation of projects with an element of un-certainty (Chansangavej & Mountcampbell 1991).

To simplify analysis, all cash flows were developed on an

annual basis. The annual cash flow was estimated according thefollowing formula:

CFt ¼ NIt + D&At � CIt + RVt

whereCFt is cash flow in time t,NIt is net income in time t,D&At

is depreciation and amortization in time t, CIt is the capitalinvestment, andRVt is residual value (salvage value) considered

at the end of assets’ useful life. Depreciation (noncash expensethat reduces the value of a fixed asset over its useful life) andamortization (noncash expense that writes off an intangible

asset investment, like setup costs, over the projected life), areonly included in costs for calculating tax amount and net utility;subsequently, they must be added, given that they do not con-

stitute cash flow. In accordance with Chilean legislation, the

corporate tax rate used is 17% of earnings (although Chile willraise its corporate tax temporally from 17–20% in the year

2011, to fund the country’s postearthquake reconstructioneffort).

Considering that costs and investments are calculated inChilean pesos (CLP) and income in U.S. dollars (USD), all

the cash flows derived were expressed in USD, using an ex-change rate of CLP/USD 553.35 (exchange rate for January 9,2009, according to the Central Bank of Chile (www.bcentral.cl)).

When projecting cash flows, sale price and exchange ratewere taken to be constant throughout the analysis horizon,assuming no internal inflation or variation in the value of the

USD in CLP. Based on the Modigliani-Miller FinancialTheorem, cash flow projections considered that all financingwas derived from venture capital. This assumption providesconservative economic results, given that this project would be

even more economically attractive in a context that contem-plates corporate taxes and increasing debt (Weston &Copeland1992).

Financial information on capital investment, costs andincome, was projected over a 7-y planning horizon (includingyear 0 for initial investments), considering the service life of

production systems. Although the project could continueoperating beyond this period (with some reinvestment inlonglines, collectors, and equipment), for evaluation purposes,

the culture center is no longer considered productive after year7. This implies that postharvest costs and reinvestments are notrequired during years 6 and 7. Based on a conservative assump-tion, it is considered that culture systems, equipment, and

buildings have no salvage value at the end of their useful life.However, maritime concession and land are sold in year 7, atinitial acquisition value.

The technological and economic aspects related to theelaboration of both products were evaluated empirically ina processing plant during 2007, whereby procedures, ranging

from reception of rawmaterial to the packing and storage stage,were determined. Similarly, production costs were verified, bothtotal and by stages, as well as raw material yield (Table 2).

Capital investments are necessary during the first 2 y of the

project as a result of the time lapse considered between in-stallation of the first and second production systems, each with

TABLE 2.

Evaluation of cultured giant barnacle products in a processing

plant (canned and frozen meat with plates).

Reference Values

Type of Product

Canned Meat Frozen Meat

Processing loss (%) 10 10

Yield of processed product (%) 14 20

Specimen size

Gross weight (g) 150 150

Carinorostral length (cm) 3.35 3.35

Net weight/U processed

product (g)

200 (water) 360

186 (oil)

Annual production (net kg) 52,809.9 75,442.8

Sale price (USD/kg) 25 12

Projected annual income (USD) 1,320,248 905,313

Processing costs (USD/kg) 1.5 0.6

Figure 2. (A, B) Products derived from giant barnacle aquaculture in

southern Chile: frozen meat, including opercular plates (A), and canned

meat (B).

ECONOMIC FEASIBILITY OF GIANT BARNACLE CULTURE 149

45 longlines. Given that processing and packing services wouldbe subcontracted for both products evaluated (canned and

frozen meat), investment requirements are independent of thetype of final product elaborated.

Depreciation of fixed assets and amortization of culturesetup costs were calculated linearly, according to a 6-y service

life for production systems and a 7-y service life for other assets,with the exception of maritime and land concessions. Thesecalculations were carried out considering 0 residual value

(expected value of assets at the end of their useful life), whichis a conservative assumption. The standard formula for calcu-lating annual depreciation or amortization is

Depreciation or Amortization ¼ðCost � Residual ValueÞ=Useful Life ðyÞ

Both, depreciation and amortization are only considered forcalculating the amount of taxes to be paid, given that they do

not constitute cash flow.Based on average spat collection values, average weight per

harvested specimen, and mortality obtained in the Metri Bay

cultures (Table1), a production volume of 419.1 t/y can beachieved. According to empirically determined yields, 52.81 t/yof canned product or 75.44 net t/y of frozen meat would beobtained (Table 2).

Prices for both alternative products were determined on thebasis of expert assessments, a visit to Japanese markets, andprices published for similar products. The price of frozen meat

was based on an evaluation of this market, undertaken during abusiness trip to Japan in April 2008. During this trip, meetingswere held with companies from the Aomori Prefecture, which

currently commercially produce ‘‘mine fujit subo,’’ B. rostratus,a similar species to the giant barnacle (Lopez et al. 2010). The‘‘mine fujit subo’’ is marketed exclusively in the Japanese

domestic market. According to specialist evaluations, commer-cial projection of the giant barnacle in Japan is possible with aminimum price of around US$12/kg (FOB) for the frozen meatproduct. The findings of studies undertaken by the export agency

ProChile were also considered (ProChile 2006, ProChile 2007) todetermine the price of crustacean meat, such as crab and snowcrab, on the European market. To determine the potential FOB

price for the canned product, an average price based on crab andsnow crab values was estimated. After consulting specialists andexporters, and comparing the FOB price and sale price of

a sample of products on the European market (scallop, salmon,and berries), it is assumed that 70% of the sale price correspondsto export costs, transport, and commercializationmargins. Thus,the maximum sale price calculated for the canned giant barnacle

product would be US$25/kg FOB.

Economic Profitability

Economic profitability measures included in this analysis are

net present value (NPV), internal rate of return (IRR), dis-counted payback period (DPBP), and economic profitabilityindex (EPI). Detailed information on each can be found in Barry

et al. (1995) and the Asian Development Bank (2001, 2002).Estimation of NPV is an approach used in capital budgeting

in which the current value of investments (II) is subtracted from

the current value of cash flow, and accounts for the changingvalue of money over time. If the NPV of a prospective project ispositive, then it should be accepted; however, if it is negative,

then the project should be rejected, because it is not econom-ically profitable.

The formula used for calculating the NPV is

NPV ¼Xt¼7

t¼1

CFt

ð1+rÞt � II;

where CFt represents cash flow of year t, r is the discount rate,and II is the initial investment in year 0. Calculating the NPVimplies estimating a relevant discount rate (r; rate of return that

could be earned on an investment in the financial markets withsimilar risk). For evaluating this aquaculture project, an annualdiscount rate of 19.6% was used (after corporate taxes). Thisrate represents the annual nominal weighted average cost of

capital for the Chilean fishery and aquaculture sector (Zuniga &Soria 2009). When calculating NPV, this relevant discount rateis assumed to be constant throughout the project horizon.

The IRR is defined as a discount rate that results from anNPV of 0. It is usually interpreted as the expected return to begenerated by the new investment. In general, if the IRR is

greater than the project discount rate, the project should beaccepted, because it will add economic worth to the business;otherwise, it should be rejected. The formula used for calculat-ing IRR is

0 ¼Xt¼7

t¼1

CFt

ð1 + IRRÞt � II:

The DPBP determines the length of time required to recoverthe initial cash outflow from the discounted future cash inflows.

This is the approach in which the current values of cash inflowsare cumulated, until they equal initial investment. The DPBPrepresents the period (in this case, the year) when the cumulative

discounted cash flow position starts to be positive. Thus,positive discounted cash flows are equal to or greater thaninitial investments. In general, the lower the DPBP, the more

attractive the project.

Xt¼DPBP

t¼1

CFt

ð1 + rÞt � II ¼ 0

Discounted payback analysis provides a useful preliminaryassessment of a project’s attractiveness, but ignores cash flowthat occurs after the initial investment has been recouped, and

does not show costs and savings past the point where the projecthas paid for itself.

The EPI is an index that attempts to identify the relationship

between the costs and benefits of a new investment. The EPI iscalculated as current value of cash inflows divided by thecurrent value of the initial investment (II).

EPI ¼Pt¼7

t¼1

CFt

ð1 + rÞt

II

This index is primarily used as a means of ranking projects indescending order of attractiveness. In a single project case, any

value lower than 1.0 would indicate that the current value of theexpected cash flows is lower than the initial investment value, so

BEDECARRATZ ET AL.150

it should be rejected; however, if the index is greater than 1, theproject should be accepted.

Sensitivity Analysis

Risk refers to future conditions or circumstances that existoutside the control of a project or business management, and

could have various impacts on project performance. Given thatculture and commercialization of both giant barnacle productsare exposed to various risks, risk parameters or variables were

analyzed for their relevance to economic performance. Thepurpose of sensitivity analysis is to show how sensitive predictedeconomic performance is to changes in assumptions on criticalvariables. Partial sensitivity analysis determines how economic

performance (NPV, IRR) changes as 1 critical variable changes(holding other assumptions constant), and should be used forthe most important or uncertain assumptions.

To undertake local sensitivity analysis and assess the effectsof varying certain relevant assumptions, 6 critical variables thataffect production volumes, costs, incomes, and economic

profitability were defined. Cash flows were indexed to those 6parameters, and the NPV and the IRR for a range of assumedvalues were calculated for each variable.

With respect to production volume, variables considered in

the sensitivity cash flow analysis were spat density per artificialcollector (SD); growth, as individual gross weight at harvest(GW); and mortality rate (MR), from spat collection to harvest.

These values could vary interannually or between culture sites.Nevertheless, in the current analysis, they have been modifieduniformly throughout the entire project horizon, considering a

possible range of values. To sensitize cash flows to productioncosts, possible variations were assumed in the processing andpacking costs (PPC), given that (because it is externalized) control

of this variable is limited. With regard to income, in addition tocritical variables that affect production volume, FOB sale price(P) was also considered, given that, currently, there is noestablished international market for the giant barnacle. Values

used are based on price information about similar products in theJapanese and European markets. Last, the effects of potentialchanges in the CLP/USD exchange rate (ER) were evaluated.

Cash flows indexed to the 6 critical variables, were con-structed, using Excel spreadsheets:

CFt ¼ f tðSDt; Gt; MRt; PPCt; Pt; ERtÞ:

Interannual variations in critical variables were not consid-

ered, so

CF ¼ f ðSD; G; MR; PPC; P; ERÞ:

NPV and IRR, which depend on cash flows, were thenindirectly indexed to the critical variables.

NPV ¼ gtðSD;G;MR; PPC; P; ERÞ

IRR ¼ htðSD;G;MR; PPC; P; ERÞ

Considering historical volatility and expected values, a rangeof possible values for each critical variable was estimated. Thisrange includes optimist values (higher spat density, higher gross

weight at harvest, lower mortality, lower processing and packingcosts, higher sale price, and higher exchange rate), which increase

the project’s income or reduce its cost; pessimist values, whichreduce the project’s performance; and normal values, the mostprobable scenario, given production and market precedents.

This way, each variable was separately evaluated through its

effect on NPV and IRR. Those two economic indicators wereestimated for every possible value defined for critical variables,ceteris paribus (assuming all else is held constant). For example,

analyzing SD, when a pessimist value is evaluated (SDpessimist),it is assumed that SD takes a low value all through the projecthorizon (7 y), whereas every other critical variable stays at its

normal value (N).

NPVSD pessimist ¼ gtðSDpessimist; GN;MRN; PPCN; PN; ERNÞ

IRRSD pessimist ¼ htðSDpessimist; GN;MRN; PPCN; PN; ERNÞ

It is important to note that the sensitivity analysis un-

dertaken is of the ‘‘1 factor at a time’’ type and is subject tothe limitations that this implies (Saltelli 1999).

Considering that cash flows are indexed to critical variables,it is possible to determine, for every independent variable

separately, the critical value that makes discounted inflowsequal to discounted outflows. Thus, critical value for everyanalyzed variable represents the value that makes the NPV

equal to 0 (ceteris paribus):

NPVN ¼ gtðSDN;GN;MRN; PPCN; PN; ERNÞ;

where estimating an SD critical value (SD*) is given as follows:

0 ¼ gtðSD*;GN;MRN; PPCN; PN; ERNÞ:

Critical values were determined for each variable separatelyusing the Solver optimization tool, thus establishing viability

limits for the business (Fylstra et al. 1998). To compare NPVsensitivity of both products to the different critical variables,elasticity (E) was estimated for each critical variable (Borgonovo& Peccati 2004). Elasticity is a measure of the percentage change

in a dependent variable divided by the percentage change in anindependent variable. In this analysis, the relevant dependentvariable is NPV and independent variables are the 6 critical

variables, defined as SD,G,MR, PPC, P, and ER. The elasticitymeasure, E, expresses the percent change inNPVgiven a percent

TABLE 3.

Capital investments in U.S. dollars.

Year

0 1

Maritime concession (10 ha) 36,000

Land (5 ha) 9,000

Building (house and warehouse) 33,000

Longlines and collectors 309,000 309,000

Light truck 24,000

Equipment 29,000

Other supplies 4,000

Setup costs 18,000

ECONOMIC FEASIBILITY OF GIANT BARNACLE CULTURE 151

change in a critical variable, thus obtaining a comparablesensitivity coefficient among variables and products (Pannell

1997). This analysis was carried out for both normal (N) andoptimist (O) situations, estimating the E coefficient for eachcritical variable based on its normal and optimist valuespreviously defined, and the resulting NPV in both situations.

The formula for elasticity is

ENPV ;CV ¼ D% NPV=D% CV ;

where NPV is the project’s net present value (considering years0–7) and CV is the critical variable.

Considering the normal and optimist situations,

ENPV ;CV ¼ ð½NPVO�NPVN��3CVNÞ=ðNPVN 3 ½CVO�CVN �Þ;where O is the optimist situation (optimist value) and N is thenormal situation (normal value).

RESULTS

Budget cash flows for culture production and subsequentcommercialization of the giant barnacle include initial capital

investments, projected costs, and income derived from the saleof the 2 products evaluated: canned meat and frozen meat,including opercular plates. In this study, capital investmentsinclude maritime concessions, land purchase, buildings, marine

culture systems, general equipment, and other supplies, and areindependent of the product evaluated. The greatest cash outlaycorresponds to the production technology and includesmaterial

and labor costs associated with the construction and installa-tion of longlines and spat collectors (Table 3). According to theproduction plan adopted for this study, initial capital invest-

ment occurs over two successive y (considering 1 culture systemof 45 longlines each year). Both culture systems should have a

6-y economic life, after which production concludes with nosalvage value on the primary capital assets.

Projected income is clearly different for the 2 productsevaluated as a result of differences in product yield and estimated

sale price. This income would be perceived from the second year(initial harvest of the first 45 longline system) and would remainconstant at US$1,320,000 for canned product (US$25/kg) and

US$905,000 for the frozen meat product (US$12/kg). After theculture facility is fully operational, no variations are projectedfor production volume or sale price over the planning horizon.

With regard to giant barnacle culture costs, these comprise,basically, labor, maintenance of production systems, and otheroperational costs. Feeding costs are not applicable, given thatbarnacles feed directly in the natural environment by filter feeding.

Harvest cost is defined as labor costs associated with part-timepersonnel contracted in the summer. Processing and packing costcorresponds to subcontracted services for both products.

The most significant operational cost for the 2 productsevaluated is labor used in the aquaculture operation. Post-harvest cost represents repairs required for reusing longlines

and collectors. These repairs are not necessary in years 6 and 7,considering that culture systems will not be used again. Acomparison of the 2 products reveals that the cost of processing

and packing is 1.5 times greater for the canned product(US$1,500/t) than for the frozen meat with plates (US$600/t),given that the processing procedures are more complex andexpensive. Considering a 17% corporate tax rate, a positive net

utility (US$665 for cannedmeat andUS$349 for frozen meat) isreached from years 2–7.

TABLE 4.

Estimated cash flow in U.S. dollars for a hypothetical giant barnacle farm (harvest, 419 gross t/y)

producing canned ‘‘picoroco’’ product.

Year

0 1 2 3 4 5 6 7

Capital investment 463,000 309,000

Annual export sales 1,320,000 1,320,000 1,320,000 1,320,000 1,320,000 1,320,000

Operating costs

Labor 128,000 128,000 128,000 128,000 128,000 128,000 128,000

Maintenance productive systems 16,000 33,000 33,000 33,000 33,000 33,000 16,000

Harvest (part-time labor) 20,000 20,000 20,000 20,000 20,000 20,000

Postharvest (production systems) 56,000 56,000 56,000 56,000

Transport 4,000 4,000 4,000 4,000 4,000 4,000

Other operational costs 24,000 24,000 24,000 24,000 24,000 24,000 24,000

Processing and packing 79,000 79,000 79,000 79,000 79,000 79,000

Management/administration costs

Administrative personnel 46,000 46,000 46,000 46,000 46,000 46,000 46,000

Administration and sale costs 11,000 11,000 11,000 11,000 11,000 11,000 11,000

Depreciation and amortization 67,000 119,000 119,000 119,000 119,000 119,000 67,000

Earnings before taxes –291,000 802,000 802,000 802,000 802,000 858,000 926,000

Corporate tax (17%) –50,000 136,000 136,000 136,000 136,000 146,000 157,000

Net income –242,000 665,000 665,000 665,000 665,000 712,000 768,000

Residual value 45,000

Annual cash flow –463,000 –484,000 784,000 784,000 784,000 784,000 830,000 880,000

Cumulative cash flow –463,000 –947,000 –163,000 621,000 1,405,000 2,189,000 3,020,000 3,900,000

Discounted annual cash flow (19.6%) –463,000 –405,000 548,000 458,000 383,000 320,000 284,000 252,000

Cumulative discounted cash flow –463,000 –867,000 –319,000 139,000 522,000 843,000 1,126,000 1,378,000

BEDECARRATZ ET AL.152

Net utility, depreciation, amortization, capital investments,and residual value are considered in cash flow determination.Both products generate negative cash flows in years 0 and 1 as a

result of capital investments and the lack of income. However,from year 2–year 5, positive cash flows (US$784,000 for cannedmeat and US$468,000 for frozen meat) are obtained. Increasesin cash flow over the last 2 production y are explained by the

absence of postharvest costs and the residual value obtainedwhen production in the culture operation ends (Tables 4 and 5).

Economic profitability measures were estimated separately

for canned and frozen products based on the aforementionedcash flows. Calculating NPV at a 19.6% discount rate, it can beconcluded that production and commercialization of the giant

barnacle is economically profitable, given that NPV is positivefor both products—in view of which, the project should beaccepted (Table 6). Furthermore, canned products generatemore economic value than frozen products, with anNPV that is

1.81 times greater. An analysis of the IRR indicates an expectedreturn of 61% for canned meat and 36% for frozen meat. Thus,both products show interesting expected returns, although the

canned product is economically superior, despite having higherprocessing and packing costs and lower NPV. This difference isattributable to a higher expected sale price andwill depend on the

commercialization and market positioning of both products.To determine when initial investment is recovered, theDPBP

was estimated for both products. An analysis of cumulative

discounted cash flow (Tables 4 and 5) indicates that DPBP forthe canned products is achieved in 3 y and 5 y for frozen meat.Thus, the time taken to recover initial costs in this project, after

accounting for time value of money, is considerably less for thecanned product.

Last, the estimated EPI is greater than 1.0 for both products,reaffirming that this aquaculture activity is economically at-

tractive, given that the current value of expected cash inflows(at 19.6% discount rate) exceeds initial investments.

With respect to the sensitivity analysis for canned and frozen

products undertaken, the results for the 6 variables analyzed arepresented in Tables 7 and 8. The range of values considered foreach critical variable was determined based on productive and

market information to evaluate the impact of different andpossible scenarios on economic results (NPVand IRR).Variations

TABLE 5.

Estimated cash flow in U.S. dollars for a hypothetical giant barnacle farm (harvest, 419 gross t/y)producing frozen ‘‘picoroco’’ meat.

Year

0 1 2 3 4 5 6 7

Capital investment 463,000 309,000

Annual export sales 905,000 905,000 905,000 905,000 905,000 905,000

Operating costs

Labor 128,000 128,000 128,000 128,000 128,000 128,000 128,000

Maintenance productive

systems

16,000 33,000 33,000 33,000 33,000 33,000 16,000

Harvest (part-time labor) 20,000 20,000 20,000 20,000 20,000 20,000

Postharvest (production

systems)

56,000 56,000 56,000 56,000

Transport 4,000 4,000 4,000 4,000 4,000 4,000

Other operational costs 24,000 24,000 24,000 24,000 24,000 24,000 24,000

Processing and packing 45,000 45,000 45,000 45,000 45,000 45,000

Management/administration

costs

Administrative personnel 46,000 46,000 46,000 46,000 46,000 46,000 46,000

Administration and sale costs 11,000 11,000 11,000 11,000 11,000 11,000 11,000

Depreciation and amortization 67,000 119,000 119,000 119,000 119,000 119,000 67,000

Earnings before taxes –291,000 421,000 421,000 421,000 421,000 477,000 545,000

Corporate tax (17%) –50,000 72,000 72,000 72,000 72,000 81,000 93,000

Net income –242,000 349,000 349,000 349,000 349,000 396,000 452,000

Residual value 45,000

Annual cash flow –463,000 –484,000 468,000 468,000 468,000 468,000 514,000 564,000

Cumulative cash flow –463,000 –947,000 –479,000 –11,000 457,000 925,000 1,439,000 2,003,000

Discounted annual cash flow

(19.6%)

–463,000 –405,000 327,000 273,000 229,000 191,000 176,000 161,000

Cumulative discounted

cash flow

–463,000 –867,000 –540,000 –267,000 –38,000 153,000 329,000 490,000

TABLE 6.

Economic indicators per product.

Economic Indicators Canned Product Frozen Product

NPV (U.S. dollars at 19.6%) 1,378,000 490,000

IRR (% annual) 61 36

DPBP (y) 3 5

EPI 2.9 1.7

ECONOMIC FEASIBILITY OF GIANT BARNACLE CULTURE 153

in the economic indicators, as a result of changes in criticalvariables, are generally limited; thus, positive NPV and IRRvalues more than 15% were obtained. For the canned product,

NPV could vary from US$2,855,000 to –US$99,000 and IRRcould range from 93% to 16%. The frozen product presentslower values, with an NPV ranging from US$1,193,000 to

–US$214,000 and IRR could range from 56% to 11%. Theseresults indicate that, in different situations (optimist, normal,and pessimist scenarios), economic indicators are superior for

canned products than for frozen meat.Analyzing viability limits for this culture and commerciali-

zation of both products of the giant barnacle, critical values

(value that makes NPV equal to 0) were estimated for everycritical variable separately, assuming normal values for all theother variables (Table 9). In general, this culture process canwithstand important changes in each critical variable, main-

taining a positive NPV. For example, for the canned product,spat density could decrease 48% for the entire project horizon

and current value of cash inflows would be equal to initialinvestment. Similarly, spat density could decrease by a percent-age of 24% for the frozen product. In the case of sale price, the

effect is similar, given that the canned product could beeconomically viable, despite a 45% reduction in FOB price.In contrast, the frozen product could only withstand a 23%

reduction before generating a negative NPV. With regard toprocessing and packing costs, both products can experienceimportant increases and still present a 0 NPV and an IRR of

19.6% (746% for canned product and 464% for frozenproduct). In conclusion, the variation in the range of criticalvariables for maintaining a positive NPV is wider in the canned

product than in the frozen product.Last, to compare the sensitivity level of canned and frozen

products to every critical variable, elasticity was estimated toestablish relative change in NPV in relation to relative change in

any of the 6 critical variables (ENPV/CV; Table 10). Comparingelasticity values among products, frozen meat exhibits a higher

TABLE 7.

Partial sensitivity analysis results (NPV and IRR) for a hypothetical giant barnacle farm (harvest, 419 gross t/y)producing canned ‘‘picoroco’’ product.

Spat Density

(no./cm2)

Gross Weight/

Picoroco

(g)

Mortality to

Harvest

Processing and

Packing

Costs (USD/t)

FOB Sale

Price

(USD/1,000)

Exchange

Rate

(CLP/USD)

SD

IRR

(%) NPV GW

IRR

(%) NPV

MR

(%)

IRR

(%) NPV PPC

IRR

(%) NPV P

IRR

(%) NPV ER

IRR

(%) NPV

Optimist 0.08 83 2,342 190 80 2,199 0 78 2,101 700 63 1,476 37 93 2,855 673.4 65 1,533

0.075 78 2,101 180 75 1,993 5 74 1,920 900 62 1,452 34 86 2,486 643.4 64 1,500

0.07 72 1,860 170 70 1,788 10 69 1,739 1,100 62 1,427 31 78 2,116 613.4 63 1,463

0.065 67 1,619 160 66 1,583 15 65 1,559 1,300 61 1,402 28 70 1,747 583.4 62 1,423

Normal 0.06 61 1,378 150 61 1,378 20 61 1,378 1,500 61 1,378 25 61 1,378 553.4 61 1,378

0.055 55 1,137 140 55 1,173 25 56 1,197 1,700 60 1,353 22 51 1,009 523.4 59 1,328

0.05 48 896 130 50 968 30 51 1,016 1,900 59 1,329 19 41 639 493.4 57 1,272

0.045 41 655 120 44 762 35 46 835 2,100 59 1,304 16 29 270 463.4 56 1,209

Pessimist 0.04 34 414 110 38 557 40 41 655 2,300 58 1,279 13 16 –99 433.4 53 1,137

TABLE 8.

Partial sensitivity analysis results (NPV and IRR) for a hypothetical giant barnacle farm (harvest, 419 gross t/y)

producing frozen ‘‘picoroco’’ meat.

Spat Density

(no./cm2)

Gross Weight/

Picoroco

(g)

Mortality to

Harvest

Processing and

Packing

Costs (USD/t)

FOB Sale

Price

(USD/1,000)

Exchange

Rate

(CLP/USD)

SD

IRR

(%) NPV GW

IRR

(%) NPV

MR

(%)

IRR

(%) NPV PPC

IRR

(%) NPV P

IRR

(%) NPV ER

IRR

(%) NPV

Optimist 0.08 55 1,158 190 52 1,053 0 51 991 200 38 560 16 56 1,193 673.4 41 634

0.075 51 991 180 48 912 5 47 866 300 38 543 15 51 1,017 643.4 40 603

0.07 46 824 170 45 771 10 44 740 400 37 525 14 47 842 613.4 39 569

0.065 41 657 160 40 630 15 40 615 500 37 507 13 42 666 583.4 38 531

Normal 0.06 36 490 150 36 490 20 36 490 600 36 490 12 36 490 553.4 36 490

0.055 31 323 140 32 349 25 32 365 700 36 472 11 31 314 523.4 35 444

0.05 25 156 130 27 208 30 28 239 800 35 455 10 25 138 493.4 33 392

0.045 19 –11 120 22 68 35 24 114 900 35 437 9 18 –38 463.4 31 333

Pessimist 0.04 13 –178 110 17 –73 40 19 –11 1,000 34 419 8 11 –214 433.4 29 266

BEDECARRATZ ET AL.154

sensitivity level with greater elasticity for every critical variable.In both products, the variable with lowest impact on NPV isprocessing and packing costs, with an elasticity of –0.1 for the

canned product and –0.2 for frozen meat. On the other hand,the most relevant variables, or those producing the greatestelasticity for both products, are gross weight at harvest and sale

price FOB, both generating an elasticity of 2.2 for canned and4.3 for frozen. Similarly, changes in spat density generate anelasticity measure of 2.1 for the canned product and 4.1 for

frozen meat.

DISCUSSION

The results of this analysis suggest that giant barnacle cultureis technically and economically feasible. Production technologies

for spat collection from the environment and growthup tomarketsize are simple and efficient (Lopez et al. 2005).

The giant barnacle has many culture advantages over other

crustaceans, such as lobster, snow crab, or prawn, which arecarnivorous, mobile, and require exogenous food in cultures(Epelbaum&Kovatcheva 2005Kogane et al. 2007, Schmalenbach

et al. 2009). The giant barnacle, on the other hand, is a sessile,omnivorous filterer in its adult phase, experiencing rapid growth(Lopez et al. 2010). Nevertheless, spat supplies from theenvironment can be subject to high temporal and spatial variabil-

ity, given that competent larvae quantities in barnacles depend onmetapopulation processes, which are influenced by oceanographicfactors on a meso- andmicroscale (Bertness &Wahle 1996, Lagos

et al. 2005).Spat production in hatcheries ensures reliable supplies, but

clearly increases costs. Yield during growth in suspended

systems depends on management, principally maintainingsystems free of competitors or predators. This influences pro-duction costs, given that it relies on the scale and skill of the

workforce used. However, availability of manual labor withaquaculture experience has increased in southern Chile asa consequence of reduced demand for workers in the salmonidproduction sector, which has been negatively affected by the

presence of viral disease (Mardones et al. 2009, Vike et al. 2009).The decline of salmonid culture in southern Chile has stimu-lated the interest of the business community in the diversifica-

tion of aquaculture, in terms of considering new species. Thereis a need to increase the use of maritime concessions, processingplants, transport systems, and other facilities that have experi-

enced decreased levels of activity.

Variables included in the sensitivity analysis used to evaluatethe economic viability of production and commercialization ofthe 2 products include spat densities obtained, specimen weight

reached during the grow-out process, mortality up to harvest,processing and packing costs, sale price FOB, and CLP/USDexchange rate. The first 2 variables are determined by environ-

mental factors and, as such, are difficult to control. Spatquantity can exhibit high spatial–temporal variations, as shownin the larval settlement and recruitment evaluations carried out

on barnacles (Hawkins & Hartnoll 1982, Caffey 1985, Pineda2000, Jenkins et al. 2000, Munroe & Noda 2009).

Individual weight during harvest depends on the availability

of naturally occurring food in the water. With respect tobarnacles, this can vary not only according to seston availability,but also as a result of the influence of environmental variables(Wethey 1983, Silina & Ovsyannikova 2000, Lopez & Gonzalez

2003, Geraci et al. 2008, Lopez et al. 2008a, Suarez & Arrontes2008). Mortality up to the harvest stage depends mainly on theimplementation of effective management that can reduce the

effects of competitors and predators (Lopez et al. 2010).The highest production costs correspond to operational

labor, representing between 10% of sale income in the case of

canned meat and 14% in frozen meat with plates. These costsare not easily reduced, given that estimations were based on theculture technology used in research trials carried out previouslyin Metri Bay. A similar situation exists with respect to other

operational costs, confirming that the possibility for increasingeconomic value by reducing costs is small. In the case ofprocessing and packing calculations, the costs include subcon-

tracting services. Thus, if availability of these services increases,reducing costs, it would be technically feasible to increase theproject economic performance. Internalizing these processes is

more difficult, given that equipment and installations are only

TABLE 9.

Normal and critical values for canned and frozen products.

Critical Variable

Canned Product Frozen Product

Normal Value Critical Value % Change Normal Value Critical Value % Change

Spat density (no./cm2) 0.06 0.031 –48 0.06 0.045 –24

Gross weight/picoroco (g) 150 82.8 –45 150 115.2 –23

Mortality to harvest (%) 20 58 191 20% 40 98

Processing and packaging

costs (USD/t)

1,500 12,693 746 600 3,385 464

FOB sale price (USD/1,000) 25 13.8 –45 12 9.2 –23

Exchange rate (CLP/USD) 553.35 214.2 –61 553.35 344.3 –38

TABLE 10.

Elasticity values (ENPV/CV) per product.

Canned Product Frozen Product

ENPV/SD 2.1 4.1

ENPV/GW 2.2 4.3

ENPV/MR –0.5 –1.0

ENPV/PPC –0.1 –0.2

ENPV/P 2.2 4.3

ENPV/ER 0.5 1.4

ECONOMIC FEASIBILITY OF GIANT BARNACLE CULTURE 155

used during the harvest period and thus would not justify thecorresponding investment required.

Giant barnacle culture and commercialization implies a for-eign exchange rate exposure generated by incomes denominatedin USD and costs denominated in CLP. For conversion of costsfrom Chilean currency to USD, an exchange rate of CLP/USD

553.35 was used. Nevertheless, this value depends on globalmacroeconomic and financial conditions that cannot be con-trolled by culture managers, adding uncertainty and unwanted

risk to cash flow projections. The use of hedging strategies,mainly in the short term, can be one alternative for controllingthis risk (Alarcon et al. 2004). For this purpose, many financial

instruments can be used: insurance policies, forward contracts,financial options, and so forth. Generally, Chilean exporters useforward contracts to sell USD at a fixed rate and to ensureincome denominated in local currency.

In addition to being dependent on production and exchangerate, barnacle culture income is also sensitive to the sale pricereached in theavailableexportmarkets.Although there isno formal

international market for the giant barnacle, empirical evaluationsundertaken on the Aomori market (G. Otobe, pers comm.) andmarket studies carried out by ProChile in Europe (ProChile 2006,

ProChile 2007), identify demand and potential prices of betweenUS$12/kg andUS$25/kg, dependingon the product.Anadditionaldemand may also exist for giant barnacles in other product forms,

such as live specimens (G. Otobe, pers. comm.).Partial sensitivity analysis and estimated elasticity values

show that, in both products, the variables that most affect theNPV are gross weight at harvest and sale price FOB. This

indicates that the following considerations are essential toensure project viability: (1) proper selection of culture centerlocation, according to food availability, as well as environmen-

tal and climatic conditions; (2) effective culture managementthroughout the 2-y fattening process; and (3) corresponding

efforts made to achieve premium product positioning on themarket to ensure that price range obtained is within the

projected values. In view of these considerations, developmentof an adequate commercial marketing strategy could reduceuncertainty related to the real demand and price within thetargeted export markets (Choi et al. 1990).

It is important to note that only ‘‘1 factor at a time’’ wasallowed to change in the sensitivity analysis (i.e., only 1 criticalvariable was modified each time, with all others held constant)

when evaluating the effects on NPV. However, simultaneouschanges in various variables are more probable. Furthermore,consideration of other key variables could produce different

effects and provide further insight into the economic feasi-bility and risk associated with giant barnacle culture (Saltelli1999).

These results enable the potential investor to determinemore

accurately whether giant barnacle culture is an attractive in-vestment. The findings from this study suggest that giant barnacleculture is economically feasible and constitutes an interesting

alternative for the diversification of Chilean aquaculture. Possi-bilities also emerge for the culture of similar species such as the‘‘craca’’ in the Azores Islands, Portugal, and the ‘‘fujit subo’’ in

Japan.

ACKNOWLEDGMENTS

The contribution of Fondef Projects D03I1116 andD07I1042is gratefully acknowledged. Similarly, the collaboration of JoseAntonio Lopez, Mauricio Pineda, Sergio Arriagada, Alexis

Santibanez, Francisco Vargas, and G. Otobe during variousstages of the research work, as well as that of Susan Angus inthe translation of the manuscript is greatly appreciated. The

comments and suggestions of an anonymous referee are alsomuch appreciated.

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